As interest rates keep climbing and uncertainty looms over the economy, it may still seem as if dabbling in speculative plays — including the best penny stocks — isn’t the right move to make headed into 2023. Although the market could stay bumpy in the months ahead, a growing number of analysts and commentators are arguing that a rebound (albeit a muted one) may be in store during the latter half of next year.
Yet while this implies just a modest recovery for stocks overall, the rebound may be more substantial in the case of smaller stocks — especially undervalued picks in penny stock territory trading for under $5 per share. During the 2022 stock market downturn, as investors shunned riskier plays, many under-the-radar equities became oversold.
Still selling at extremely low valuations, a modest lift in investor sentiment may be all it takes to send them materially higher in twelve months’ time. Consider these seven low-priced, deep value names the best penny stocks out there in today’s market.
Best Penny Stocks: ARC Document Solutions (ARC)
Shares in specialty printing and document services company ARC Document Solutions (NYSE:ARC) surged and sank multiple times in 2022. The market absorbed the potential impact of an economic slowdown on the company’s business, which caters largely to the engineering and construction industry.
But while operating results could be temporarily affected by a recession, this has largely been factored into the valuation of ARC stock. Shares trade for a super-low 10.4 times trailing twelve month () earnings. Furthermore, ARC currently pays out a quarterly dividend of 5 cents per share, giving it a fairly high forward yield of 7.12%.
Offering steady gains for now via its dividend, the stock could experience an outsized move back to pre-downturn stock prices between $3.75 and $4 per share. Consider it a buy now, or on any additional weakness.
Butler National (BUKS)
Based in Olathe, Kansas, Butler National (OTCMKTS:BUKS), which trades in the over-the-counter ( ) market, is far from being a household name. However, this diversified company involved in aerospace products and casino gaming is one of the best penny stocks out there.
Why? For one, even after a massive run-up since the late 2010s, BUKS stock remains undervalued. Shares today trade for only 7 times earnings. Both the company’s operating segments stand to hold up in the quarters ahead. As stated in the company’s annual presentation, the aviation division’s backlog is strong through at least spring 2023.
Butler’s casino property located in Dodge City, Kansas should continue thriving as well, thanks to the recent legalization of sports betting in Kansas. All of this could enable this stock to re-hit its high-water mark around $1 per share.
Best Penny Stocks: Comstock (CHCI)
Years ago, Comstock (NASDAQ:CHCI) was a homebuilder. Today, the company is a commercial property asset manager. The company manages more than 4 million square feet of commercial real estate space in the Washington, D.C. metro area.
A steady, asset-light business, Comstock has become consistently profitable after making this business switch. Even better, these earnings are sheltered from taxation, thanks to the accumulated net operating losses from its homebuilding days. However, this has yet to be appreciated by the market, as seen from the low valuation of CHCI stock.
Shares have become heavily discounted, trading for 4.2 times earnings. According to a Seeking Alpha commentator, this may be due to the stock still being classified as a homebuilder. Over time, this misclassification could be remedied. In turn, this could result in CHCI moving towards a price more reflective of its current business.
CreditRiskMonitor (OTCMKTS:CRMZ) is another OTC-listed equity worthy of the “best penny stocks” designation. Similar to BUKS, this stock remains cheap despite a big run-up in price of 45.7% year-to-date. Shares in this credit analytics provider trade for just 8.7 times earnings.
This low valuation may imply a big earnings drop-off is in store, but considering the counter cyclical nature of its business, CRMZ’s operating results could hold steady, or even improve further, over the next few quarters. For example, new product offerings such as its latest SupplyChainMonitor.com service may result in additional revenue and earnings growth.
CRMZ also has a large cash position of $13.6 million against a $27.3 million market capitalization. This provides an additional margin of safety. Although thinly-traded, which may make entering or exiting a position more difficult than with other microcap stocks, this is a great deep value opportunity.
Best Penny Stocks: GEE Group (JOB)
Given that the Federal Reserve will likely continue raising interest rates until the labor market softens in order to bring down inflation, it may not sound like a great idea at first to buy shares in a staffing company like GEE Group (NYSEMKT:JOB).
Nevertheless, currently trading for only 2.6 times earnings, a likely 2023 labor market cooldown may already be priced into JOB stock. If a decline in earnings this year isn’t greater than current projections, which are calling for earnings per share to fall from 20 cents to 9 cents, the reporting of “less bad” results could end up providing shares with an additional boost.
In addition, there’s strong potential for GEE Group to level up on its turnaround, which in recent years has brought it back to consistent profitability. A large cash position gives it the ability to make bolt-on acquisitions, or to aggressively buy back shares.
Apparel maker Jerash (NASDAQ:JRSH) is a name I’ve talked a lot about recently when discussing the best penny stocks. This is another situation where the downturn is priced in. In turn, this gives investors the opportunity to buy low and potentially sell high when the economic climate improves.
Admittedly, pinpointing when this company’s earnings (which fell by 64.1% last quarter) begin to recover is easier said than done. That said, it is worth noting JRSH stock pays a 5 cent quarterly dividend, giving shares a 4.6% yield. This dividend has remained constant since 2018, and could continue to provide consistent returns during the current rough patch.
Not only that, even if JRSH’s earnings fall on the low-end of forecasts (50 cents per share) for the coming fiscal year ending March 2024, such results could be enough to send it substantially above current price levels.
Best Penny Stocks: Pitney Bowes (PBI)
Pitney Bowes (NYSE:PBI) has long had all the hallmarks of a “value trap” stock. Despite a low valuation, factors such as high leverage, poor operating results and, most importantly, a lack of a catalyst have resulted in disappointing returns for investors attempting to bottom-fish in the stock.
However, the days of PBI stock being a value trap could be behind it. Shares in the postage meter and mail pre-sorter company have been bouncing back lately, and for good reason. Activist investor Hestia Capital has emerged with plans to take control of its board and implement a turnaround plan.
Although far from a given that Hestia will win its forthcoming proxy fight, given PBI’s poor performance in recent years, shareholders may be willing to give this outsider a chance — especially given the success of Hestia’s last activist campaign with GameStop (NYSE:GME).
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.