15 Cash-Rich Penny Stocks Hedge Funds Are Buying

Fahad Saleem

Mon, Jan 29, 2024, 1:07 AM9 min read

In this article:

In this article, we will take a detailed look at the 15 Cash-Rich Penny Stocks Hedge Funds Are Buying. For a quick overview of such stocks, read our article 5 Cash-Rich Penny Stocks Hedge Funds Are Buying.

Risky asset classes got punished after the Federal Reserve started to raise interest rates to tackle inflation. But amid the talk of expected rate cuts in 2024, small companies that are deemed risky have already started negotiating decreases on their loans. A latest report from the Wall Street Journal cited data from PitchBook LCD which shows that companies with low credit ratings including SeaWorld Entertainment and Dave & Buster’s have asked investors to decrease interest rates on about $62 billion of sub-investment grade loans in January. The report said that these new repricings are fueled by the Fed's intention to decrease interest rates and companies trying to negotiate lower interest rates are starting to see success given the optimism in the broader markets. The report said that when the Federal Reserve started to raise interest rates, markets feared a flurry of loan defaults. But loan defaults as of the end of 2023 remain lower-than-expected as companies were able to extend their debt maturities by replacing older debt with new bonds or loans.

The WSJ report also cited Kevin Loome, a high-yield portfolio manager at T. Rowe Price, who said that the latest deals on borrowing conditions is "a sign of strength in the market that the issuers are able to do it."

Can Penny Stocks Jump in 2024?

Penny stocks get tarnished when investors are spooked as they exit risky companies in favor of cash or stable, recession-proof stocks. But penny stocks could rebound in 2024 amid the start of a new bull run and the inflow of huge cash investors amassed over the past several months when markets were low. A November 2023 report from the Wall Street Journal had cited data from the Investment Company Institute which said that investors had $5.7 trillion parked in cash-like money-market funds. Investors could open the floodgates of these cash piles in 2024 which would cause a massive jump in equities, including penny stocks. The November 2023 report from the WSJ report also quoted Ali Dibadj, chief executive of Janus Henderson Investors, who predicted that if the Fed begins to cut interest rates, cash piled up in money market funds would be funneled into the stock market.

“For the first time in a long time, cash is a competitor. But I think as soon as short-term rates start to tick down, you’re going to see large flows to other assets.”

Methodology

For this article we first used a stock screener to identify penny stocks (stocks trading under $5 as of Jan. 9) with price to free cash flow ratio of under 15, a low debt to equity ratio (under 0.1) and high cash per share. Cash per share is a metric that shows available cash to a business divided by the number of equity shares outstanding. After applying these filters we got a long list of stocks, out of which we selected 15 stocks with the highest cash per share and free cash flows.