Most institutional and retail investors have avoided penny stocks since late 2021 to insulate their portfolios from the market selloffs that occurred in late 2021 and throughout 2022. The Covid-19 pandemic, inflation fears, interest rate hikes, geopolitical tensions, and regulatory uncertainties have also contributed to investors’ bearish sentiment.
As a result, many penny stocks have been sold off indiscriminately, regardless of their fundamentals or growth prospects. This has created an opportunity for savvy investors to scoop up some quality small-cap names at bargain prices.
Another reason why penny stocks are undervalued right now is because of the lack of attention from retail investors. With cryptocurrencies and meme stocks stealing the spotlight, many penny stocks have been overlooked or ignored by the masses. This has resulted in low trading volumes and liquidity for many companies that fall into penny stock territory.
However, this also means that these penny stocks have more room to run once they catch the attention of investors. A positive catalyst, such as a strong earnings report, a product launch, a partnership deal, or regulatory approval, could trigger a massive rally for these companies.
With that in mind, I believe investing in these three penny stocks could turn out to be a very profitable exercise.
| GHG | GreenTree Hospitality Group | $4.45 |
| ILPT | Industrial Logistics Properties Trust | $3.07 |
| CXBMF | Calibre Mining | $0.96 |
GreenTree Hospitality Group (GHG)
GreenTree Hospitality Group (NYSE:GHG) is a leading hotel operator and franchisor in China. The company has over 3,934 hotels across 300 cities, covering various market segments, from economy to mid-scale. GHG stock has been on a tear lately, surging more than 27% year-to-date, at the time of writing.
However, GHG stock has more room to run in 2023. China’s reopening is the most significant catalyst at play here, as GHG stock still trades at a ~70% discount compared to pre-pandemic levels. As Chinese tourism rebounds, I believe the stock won’t lose its momentum anytime soon.
According to a report by MarketWatch, domestic tourism revenue in China will reach $581 billion this year, up 95% on a year-over-year basis. GHG is well-positioned to benefit from this growth opportunity, as it has a strong presence in China’s lower-tier cities, where demand for travel and lodging is rising faster than in the top-tier cities. Notably, GreenTree also has a loyal customer base, with over 74 million members in its loyalty program.
Importantly, GHG stock is undervalued compared to its peers. The company currently trades at a trailing price-to-earnings ratio of 13.9-times, which is a bargain considering the company can substantially increase its earnings in the coming years.
GreenTree Hospitality also has a solid balance sheet, with $161.17 million in cash and equivalents, and little short-term debt as of Q3. This gives the company ample financial flexibility to invest in growth initiatives and weather any potential headwinds.
Therefore, if you are looking for a rebounding penny stock that can deliver high returns this year, consider buying GHG before it gets too expensive.
Industrial Logistics Properties Trust (ILPT)
Industrial Logistics Properties Trust (NASDAQ:ILPT) offers great value among high-risk, high-reward penny stocks. It sits nearly 90% below its high in 2021, but now seems to be bottoming out and making a turnaround.
The company consistently delivers high revenue growth. Its 3-year revenue growth rate is 19.1%, ranked better than 88.70% of its peers. Despite this, the stock’s valuation does not seem to adequately reflect its achievements. That’s because Industrial Logistics Properties Trust carries a high amount of debt (around $4 billion), which has been made worse by the Federal Reserve’s rate hikes, impacting its financial stability. Overall, this is an excellent company with solid fundamentals, but the timing of the recent rate hikes caught the company’s management team off guard.
Regardless, the company’s top-line growth demonstrates that its core business is robust. Indeed, ILPT stock would easily trade at $30 or more if it didn’t have to make massive interest payments. Of course, that’s not the case. But the company has solid assets which should allow IILPT to make it through this period of volatility. If interest rates decline, this is a company with some serious potential upside as a contrarian bet right now.
Calibre Mining (CXBMF)
Calibre Mining (OTCMKTS:CXBMF) is a gold producer with operations in Nicaragua. The company has stellar performance, both in terms of production and exploration. In February, Calibre delivered high-grade ore from the Pavon Central mine ahead of schedule to the Libertad mill, averaging 1,000 tonnes per day at 7.39 g/t gold. The company acquired the mine in 2019.
But Calibre is not just a mining company. It’s also a growth machine. The company has a robust pipeline of exploration projects, with over 1 million ounces of reserve gold in Nicaragua alone. Calibre is also cashing in on the favorable macro environment for gold, as the precious metal continues to soar amid rising inflation and a looser monetary policy due to the Federal Reserve’s bailouts. Gold prices have surged 18.6% in the past six months, reaching around 1968 per ounce.
These metrics are why I think Calibre Mining is a no-brainer investment opportunity for long-term investors who want to ride the gold wave. The stock is trading at a bargain valuation of 10.1 times earnings and has considerable upside potential. It is also relatively insulated from near-term headwinds as the company has $56.5 million in cash and meager debt as of December 31, 2022. It generated $403.1 million in revenue and $43.3 million in net income in 2022.
Interestingly, its forward P/E ratio stands at just below 5x, ranking better than 86.2% of its peers. Thus, I believe Calibre Mining is one of the best gold stocks to buy right now. I’m not alone in this view. Analysts have an average price target of $1.78 for the stock, implying a 35% upside from the current level of 96 cents a year from now.