A slowdown in inflation and the Fed reducing the magnitude of its rate hike to 50 basis points this month have made investors more optimistic about a year-end rally. As we approach the year-end, there is a 77.9% chance of a ‘Santa Rally.’
However, the Fed has raised its benchmark interest rates to the highest level in 15 years and indicated to continue raising rates through next year, thereby fueling recession fears. Oppenheimer’s chief investment strategist John Stoltzfus, said, “We’re actually headed out of the woods, but we are not out of the woods yet.”
Penny stocks are highly volatile and can be portfolio game-changers. Given their low prices, investors tend to get more for their money compared to pricey options. On top of it, even minor share price appreciation yields massive percentage gains and, thus, major returns for investors.
Given this backdrop, fundamentally sound penny stocks Waterdrop Inc. (WDH), Overseas Shipholding Group, Inc. (OSG), and Good Times Restaurants Inc. (GTIM), which are trading under $4, could be solid additions to your portfolio.
Waterdrop Inc. (WDH)
Headquartered in Beijing, WDH provides online insurance brokerage services to link users with related insurance products underwritten by insurance companies in the People’s Republic of China. It also offers short-term and long-term health and life insurance products and services.
On November 4, the company launched insurance against breast cancer recurrence for people aged between 18 and 65. It features a low threshold, flexible, insured amount, wide coverage, and no deductible for Anti-Cancer Drugs. With an increasing recurrence rate, this insurance will serve as a firewall for the insured, relieving their financial pressure when the disease recurs.
On September 19, WDH introduced ‘Waterdrop Family Insurance Needs Diagnosis’ (WFind), a system designed to help brokers analyze customer insurance needs based on information about their family members, income & expenses, and insurance demands. This new technology should make the work easier and more efficient for brokers.
WDH’s operating profit came in at RMB132.56 million ($19 billion) compared to an operating loss of RMB 512.99 million ($73.54 billion) for the third quarter ended September 30, 2022. The company’s adjusted net profit amounted to RMB215.73 million ($30.93 billion) versus a net loss of RMB453.64 million ($65.03 billion). Also, its EPS came in at RMB0.04, representing an improvement of 133.3% year-over-year.
In terms of forward EV/Sales, WDH is currently trading at 0.89, 68.3% lower than the industry average of 2.80x. Its forward EV/EBITDA multiple of 5.03 is 57.6% lower than the industry average of 11.87x.
Analysts expect WDH’s EPS and revenue for the fourth quarter ending December 31, 2022, to increase 107.5% and 6.3% year-over-year to $0.03 and $100.70 million, respectively. Over the past nine months, the stock has gained 114.7% to close the last trading session at $2.19.
WDH’s strong fundamentals are reflected in its POWR Ratings. According to our proprietary rating system, it has an overall rating of A, translating to a Strong Buy. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Growth, Momentum, Sentiment, and Quality. It is ranked #3 out of 43 stocks in the China industry. Click here to see the additional ratings of WDH for Value and Stability.
Overseas Shipholding Group, Inc. (OSG)
OSG is the owner and operator of a fleet of oceangoing vessels engaged in transporting crude oil and petroleum products in the U.S. flag trade. The company serves independent oil traders, refinery operators, and government entities.
On December 8, OSG announced that it had exercised options to extend its six bareboat charter agreements with American Shipping Company ASA for an additional three-year term commencing in December 2023.
“We believe the market continues to support attractive commercial opportunities for these vessel leases to supplement the strong and stable cash flow generation from our niche businesses,” said Sam Norton, OSG’s President, and CEO.
OSG’s shipping revenues increased 30.9% year-over-year for the third quarter that ended September 30, 2022, to $123.06 million. Moreover, its net income came in at $13.25 million, compared to a net loss of $16.01 million in the year-ago period. Moreover, its EPS came in at $0.15, compared to a loss per share of $0.18 in the prior-year period.
In terms of trailing-12-month EV/Sales, OSG is currently trading at 1.61x, 13.7% lower than the industry average of 1.87x. Its trailing-12-month Price/Sales multiple of 0.57 is 55.6% lower than the industry average of 1.27. In addition, the stock’s trailing-12-month Price/Book ratio of 0.69x compares to the industry average of 1.79x.
The stock has gained 67.9 over the past year and 50% year-to-date to close the last trading session at $2.82.
OSG’s POWR Ratings reflect its promising outlook. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Momentum and Quality and a B for Growth, Value, and Sentiment. In the 46-stock A-rated Shipping industry, it is ranked first. Click here to see OSG’s rating for Stability.
Good Times Restaurants Inc. (GTIM)
GTIM owns, operates, and franchises Good Times Burgers & Frozen Custard restaurants and Bad Daddy’s Burger Bar restaurants in the United States.
For the fiscal fourth quarter ended September 27, 2022, GTIM’s total net revenues increased 5% year-over-year to $35.19 million. Its restaurant sales increased 5% year-over-year to $34.95 million. Also, its Bad Daddy’s Burger Bar restaurant sales increased 6.2% year-over-year to $25.97 million. The company’s adjusted EBITDA amounted to $870,000 for the same period.
In terms of trailing-12-month EV/Sales, GTIM is trading at 0.52x, which is 52.9% lower than the industry average of 1.09x. Its trailing-12-month Price/Sales multiple of 0.21 is 74.5% lower than the industry average of 0.83.
GTIM’s EPS is expected to increase by 30% per annum in the next five years. The stock has lost 8.3% over the past month to close the last trading session at $2.34.
GTIM’s POWR Ratings reflect solid prospects. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth, Momentum, Sentiment, and Quality. Out of 47 stocks in the A-rated Restaurants industry, it is ranked first. To see GTIM’s rating for Stability, click here.
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WDH shares fell $0.08 (-3.65%) in premarket trading Monday. Year-to-date, WDH has gained 52.90%, versus a -18.33% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions. More...
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