In this article, we will take a look at the 10 best Canadian penny stocks to buy now. To see more such companies, go directly to 5 Best Canadian Penny Stocks to Buy Now.
The Canadian economy has surprised many over the past few months. In the midst of the global inflation crisis that has affected almost every major economy, Canada’s economy has fared relatively well when compared to other countries. According to a Bloomberg report, 9 out of 10 economists believe Canada will be the best performing country among the Group of Seven developed countries by 2025. The Canadian government’s policy of increasing immigration pools and welcoming more permanent residents each year is giving a boost to the economy. Unemployment rate is also declining, while population growth is touching healthy levels. Canada’s population growth in 2022 was the highest in advanced economies and was at par with several African nations. Several Canadian companies have performed remarkably well and overall, the Canadian stock market has proved to be more resilient that the US stock market despite relentless rate increases from the central banks. Canada’s economic growth is set to easily surpass that of other G7 members. In the first quarter of 2023, Canadian’s economy grew by 3.1% on an annualized basis, beating estimates. Employers added 344,000 jobs in six months.
The Secret Behind Canadian Economy's Resilience
Data also shows that the rising interest rates didn’t affect the Canadian economy as much as expected. In a Bloomberg survey, 13 out of 17 economists said that the Canadian economy proved to be less sensitive to rates than expected. Half of the surveyed economists, as a result, believe Bank of Canada will keep raising interest rates until September. Previously, economists were expecting Canadians to quickly cut down on spending amid rising interest rates. This is because Canadian households are deeply indebted especially when it comes to housing when compared to other countries. But rising interest rates are surprisingly having little effect on the spending patterns of Canadians and overall economic dynamics.
In this backdrop we decided to take a look at some of the best Canadian stocks trading under $5 as of the end of July.
Since a lot of companies in our article are from the gold and silver mining industry, it makes sense to analyze the benefits (or lack thereof) of investing in gold and gold mining stocks. Canada is home to some of the largest and most important gold mining companies. That’s why our article also lists several gold and silver mining penny stocks since hedge funds are fans of these companies.
Should You Invest in Gold Companies in Canada?
A report from State Street Global Advisors says that over the past few years gold has proven itself as a “robust risk-management tool” and provided a “durable mechanism to preserve wealth.” The report also said that gold provides diversification and safety for investment portfolios. To back these claims the report provides some data points which show the importance and benefits of investing in gold. For example, the report said that holding between 2% and 10% of SPDR® Gold Shares (GLD®) between January 1, 20051 and June 30, 2023 improved each hypothetical portfolio’s cumulative return and Sharpe ratio and lowered its “maximum drawdowns, as compared to a portfolio without any gold-backed investments.” The report also said that gold sees demand from both cyclical and non-cyclical industries and it has low correlation to other asset classes.
The report also compares gold’s correlation to other asset classes when compared to global equities and fixed income assets. It says that the correlation of gold to major equity markets ranges from zero to negative. The report thus concludes that this low correlation allows gold to improve risk-adjusted portfolio performance.
The report also touches an area that has gained a lot of importance over the past few months: volatility. As inflation, rising interest rates and global geopolitical headwinds started to hammer the financial markets, investors’ appetite for non-volatile and stable asset classes increased. The report from State Street says gold offers low volatility and protection against portfolio drawdowns.
“When evaluating major drawdowns in US equity markets, gold has not only outperformed relative to US equities on a relative basis, but also on an absolute basis in the majority of cases. […] During peak-to-trough drawdowns greater than 15% on the S&P 500® Index, gold averaged 5.83%, compared to -24.19% total return on the S&P 500. Furthermore, during these 13 drawdown events, gold experienced positive returns during nine of them. During the three periods when gold’s return was negative, it still reduced portfolio drawdowns and volatility when compared to a portfolio with no allocation to gold. Furthermore, gold tends to maintain gains over time even as markets recover.”
A report by World Gold Council explains some reasons why gold has always shown low volatility when compared to other metals or asset classes.
“There are good reasons why gold is less volatile than other commodities. First, the gold market is deep and liquid, and is supported by the availability of large above-ground stocks. Because gold is virtually indestructible, nearly all of the gold that has ever been mined still exists and, unlike base metals or even other precious metals such as silver, much of it is in near-market form. As a result, in the event of a sudden supply-side shock or rapid increase in demand, recycled gold can, and frequently does, come back on to the market, thereby dampening any brewing price spike.”
Best Canadian Penny Stocks to Buy Now
Photo by AlphaTradeZone
Our Methodology
For this article we first used a stock screener to list down all Canadian stocks trading under $5 as of July 30. We then picked 10 of these stocks with the highest number of hedge fund investors. To gauge hedge fund sentiment we used Insider Monkey’s database of 943 hedge funds. This way, the penny stocks mentioned in this article are the best penny stocks to buy according to elite hedge funds.
Canadian gold mining company NovaGold Resources Inc. (NYSE:NG) ranks 10th in our list of the best Canadian penny stocks to buy according to hedge funds. The company is pursuing the development of a gold mine in Alaska.
In June, NovaGold Resources Inc. (NYSE:NG) fell to new lows after the company posted Q2 loss that was larger than expected. However, NovaGold Resources Inc. (NYSE:NG) said that it has $109 million in cash and term deposits as of May 31, 2023, and another $25 million due in July 2023 from Newmont. NovaGold Resources Inc. (NYSE:NG) said that it has “sufficient resources to cover anticipated costs to fund our share of the Donlin Gold project through an updated feasibility study.”
A total of 13 hedge funds in Insider Monkey’s database of 943 funds reported owning stakes in NovaGold Resources Inc. (NYSE:NG) as of the end of the first quarter. The most notable hedge fund stakeholder of NovaGold Resources Inc. (NYSE:NG) during this period was John Paulson’s Paulson & Co with a $138 million stake in the company.
Old West Management made the following comment about NovaGold Resources Inc. (NYSE:NG) in its Q4 2022 investor letter:
“The previous two mining companies are industry leaders with solid production. The next two companies have no production or revenue but are sitting on huge deposits. We were initially attracted to NovaGold Resources Inc. (NYSE:NG) because of the track record of success of company chairman and largest shareholder Thomas Kaplan. Kaplan has become a billionaire investing in silver and platinum mines in Bolivia and South Africa. Besides his investing in mining, he owns the world’s largest collection of Rembrandt’s works.
Cannabis company Tilray, Inc. (NASDAQ:TLRY) shares have gained about 45% over the past 30 days as of July 30. Tilray, Inc. (NASDAQ:TLRY) recently posted fiscal Q4 results. Adjusted EPS in the quarter came in at $0, beating estimates by $0.04. Revenue in the quarter jumped 20.1% year over year to $184.19 million, beating estimates by $30.23 million.
A total of 14 hedge funds tracked by Insider Monkey had stakes in Tilray, Inc. (NASDAQ:TLRY). The biggest hedge fund stakeholder of Tilray, Inc. (NASDAQ:TLRY) during this period was Alyeska Investment Group of Anand Parekh which had a $2.9 million stake in the company.
IIAMGOLD Corporation (NYSE:IAG) is a Canadian gold mining that operates gold mines in Burkina Faso, Suriname and Canada. IAMGOLD Corporation (NYSE:IAG) is up 56% over the past one year.
Out of the 943 hedge funds tracked by Insider Monkey, 14 hedge funds had stakes in IAMGOLD Corporation (NYSE:IAG). The biggest stakeholder of IAMGOLD Corporation (NYSE:IAG) was David Iben’s Kopernik Global Investors with a stake worth about $50 million.
Yet another mining company in our list, New Gold Inc. (NYSE:NGD) operates the New Afton gold-silver-copper mine in British Columbia and the Rainy River gold-silver mine in Ontario, Canada. In July New Gold Inc. (NYSE:NGD) posted Q2 results. Adjusted EPS in the period came in at $0.02. Revenue in the quarter jumped about 59.4% year over year to $184.4 million. New Gold Inc. (NYSE:NGD) said revenue increased thanks to higher gold prices and sales volumes.
A total of 15 hedge funds in Insider Monkey’s database of 943 hedge funds had stakes in New Gold Inc. (NYSE:NGD). The biggest stakeholder of New Gold Inc. (NYSE:NGD) was Eric Sprott’s Sprott Asset Management with a $15 million stake in the company.
BlackBerry Limited (NYSE:BB) shares have gained about 44% in 2023 through July 30. In late June BlackBerry Limited (NYSE:BB) posted remarkable Q1 results according to which its revenue jumped to $373 million, surpassing estimates by $213.71 million. Adjusted EPS in the period came in at $0.06, beating estimates by $0.11.
Insider Monkey’s database of 943 hedge funds shows that 15 funds had stakes in BlackBerry Limited (NYSE:BB) as of the end of the first quarter. The biggest stakeholder of BlackBerry Limited (NYSE:BB) during this period was Prem Watsa’s Fairfax Financial Holdings with a $213 million stake in the company.
