In this article, we will take a look at the 10 oversold penny stocks to buy. To see more such companies, go directly to 5 Oversold Penny Stocks To Buy.
As markets rebound on the back of declining inflation and hopes that the Federal Reserve might be close to winning its battle against inflation, investors are eagerly looking for investing opportunities. The risk appetite of the market that remained suppressed throughout 2022 and early 2023 is coming back, and many analysts and stock research firms are pointing to new opportunities in the US as well as in the emerging markets. Citi in its mid-year 2023 report said that it’s recommending investors to stay invested as it sees new opportunities unfolding. The report said that over the past decade US dollar assets saw a huge boost as investors fled to safety. However, the report pointed to the concentration of value problem where a handful of companies were responsible for most of the gains in the stock market. To be specific, Citi said that since the start of 2023, about 90% of US stock market gains could be attributed to just five companies.
Taking a look outside of the United States, Citi said that small-cap and mid-cap equities in international and emerging markets are currently looking unusually cheap, which is a great buying opportunity for investors. The report said that non-US companies have strong growth prospects. Citi said that it has already increased its weighting to Asian, Latin American and European equities and has reduced some of its defensive equity exposures that outperformed during 2022, including large-cap pharmaceutical companies.
Citi said in its report that in the backdrop of global economic recovery, it will look to expand its exposure to companies that have the potential to boost their earnings and revenues.
How to Play the Current Market Rebound?
Coming back to the concentration of value problem, given the fact that just a few companies have been accounting for most of the gains in the US stock market, should a beginner investor imitate the herd and put all their money into these big, already-near-their-peak companies? The answer according to market experts is a resounding no. Many market gurus are already seeing peak of STEM stocks and calling AI-led stock jumps a bubble about to pop. That’s why Citi in its report highlighted that a great buying opportunity for investors during the current rebound could be SMID (small- and mid-cap stocks). Citi believes SMID stocks are trading at a valuation which shows at least 30% discount to large-cap US stocks. Importantly, the report said that SMID stocks usually perform well during the first year of market rebounds. That’s why time is of great essence for investors who don’t want to miss out on the broader market recovery that would hopefully even out the stock market gains which have hitherto been accounted for by just five or six companies.
Citi believes the Fed’s next battle would be against unemployment, which is expected to soar as the result of the consistent rate hikes of 2022 and 2023. However, Citi points out an opportunity for investors here as well. It says that when the Federal Reserve begins to cut rates to fight unemployment, investors should focus on small- and mid-cap stocks. These small companies and growth plays usually tend to perform well during a declining interest rate environment.
Citi also said that while it will continue to increase exposure to major IT companies that are expected to gain on the back of the AI boom, the real opportunities lie in small tech companies that will play a key role in the AI revolution and whose valuations currently do not reflect their true potential.
For this article we used the Finviz stock screener to identify penny stocks that meet all of the following checks:
-- Have Relative Strength Index (RSI) value of less than 30 (showing oversold territory)
-- Have analyst ratings of Buy or better
-- Have average analyst price estimate 10% higher than their current price
After applying the above conditions we got a long list of stocks. We further filtered the dataset by selecting only the stocks with the highest number of hedge fund investors. This way, we were able to narrow down to penny stocks that are truly favored by analysts and hedge funds and yet are trading in oversold category. The list is ranked in ascending order of the number of hedge fund investors.
California-based ecommerce platform company Nogin, Inc. (NASDAQ:NOGN) ranks 10th in our list of the oversold penny stocks to buy. Insider Monkey’s database of 943 hedge funds shows that 13 hedge funds out of the 943 funds reported owning stakes in Nogin, Inc. (NASDAQ:NOGN).
In June, Nogin, Inc. (NASDAQ:NOGN) said that it will make a vertical marketplace for Janitorial Sanitation (JanSan), Safety, and Industrial Products industries.
Marketing platform company System1, Inc. (NYSE:SST) ranks 9th in our list of the top penny stocks that are currently in the oversold category.
In December 2022, System1, Inc. (NYSE:SST) shared some insights on the challenges to its ads business during an earnings call:
“We are very disappointed in the underperformance of our advertising business in the back half of this year. We recognize that the macro environment remains choppy and we are very focused on our cost structure and operating efficiencies. We expect minimal OpEx increases in 2023 and growth is going to come from realizing our investments in our technology, expanding our current advertising markets, continuing to push our international expansion and scaling our subscription products. We know our recent performance has not met the expectations of our new public shareholders. Management shares your pain as we own over 50% of System1 and much of our net worth is in System1 stock. We remain highly aligned with our public shareholders.
Biopharmaceutical company DURECT Corporation (NASDAQ:DRRX) ranks 8th in our list of the oversold penny stocks to buy now. In July DURECT Corporation (NASDAQ:DRRX) fell heavily after the company entered into definitive agreements for the purchase and sale of an aggregate of 2.99 million shares of common stock and warrants to purchase up to 2.99 million shares of common stock in a registered direct offering priced ATM under Nasdaq rules.
As of the end of the first quarter of 2023, 14 hedge funds out of the 943 funds reported owning stakes in DURECT Corporation (NASDAQ:DRRX). The biggest stakeholder of DURECT Corporation (NASDAQ:DRRX) was Didric Cederholm’s Lion Point which owns a $6.5 million stake in the company.
Canadian-based Fusion Pharmaceuticals Inc. (NASDAQ:FUSN), whose shares have gained about 37% over the past year, is in the oversold territory due to its low RSI value. However, Insider Monkey’s database of 943 hedge funds shows that 14 hedge funds had stakes in Fusion Pharmaceuticals Inc. (NASDAQ:FUSN) as of the end of the first quarter of 2023. The most significant shareholder of Fusion Pharmaceuticals Inc. (NASDAQ:FUSN) during this period was David Witzke and Michael Gregory’s Avidity Partners Management which owns a $21.5 million stake in the company.
In June, Raymond Jams started covering Fusion Pharmaceuticals Inc. (NASDAQ:FUSN) shares with an Outperform rating and a $13 price target. Raymond James’ analyst Michael Freeman said that “radiotherapeutics are on the verge of an inflection in the broader oncology landscape and realistically have the potential to become a crucial new pillar of cancer treatment.”
Vincerx Pharma, Inc. (NASDAQ:VINC) ranks 6th in our list of the oversold penny stocks to buy now. Earlier this month Vincerx Pharma, Inc. (NASDAQ:VINC) posted Q2 results. GAAP EPS in the period came in at -$0.52. Vincerx Pharma, Inc. (NASDAQ:VINC) had about $27.4 million in cash, cash equivalents and marketable securities as of June 30, 2023, as compared to approximately $52.5 million as of December 31, 2022.
As of the end of the first quarter of 2023, 15 hedge funds in the database of Insider Monkey reported owning stakes in Vincerx Pharma, Inc. (NASDAQ:VINC).
Recently, it was reported that amid low cash, Vincerx Pharma, Inc. (NASDAQ:VINC) is refocusing its efforts on a couple of drugs and “rethinking” its R&D priorities.
