Penny stocks could come into vogue next year. The reduction of the risk-free rate and the predicted rise by many analysts of the broader indices like the S&P 500 and the Nasdaq may provide fertile conditions for these investments to thrive. One can open positions in these companies as short-term momentum plays or as a long-term hold with an immediate backdrop that favors growth.
I’ve compiled three names for this article I believe can surge higher. These companies were selected due to their listing on major U.S. exchanges and have all reported growth in their underlying business fundamentals.
So, if you have an appetite for risk heading into next year, here are three penny stocks with huge potential.
Information Services Group (III)
Information Services Group (NASDAQ:III) is a technology advisory and research company that has attracted many investors. The company has several operating segments, which include digital transformation services, strategy and operations design and network carrier services.
The main reason I’m bullish on III stock is it recently reported quarterly revenues of $72 million and a net income of $3.2 million. That was the company’s best-ever third-quarter result, and its recurring revenue component also surged higher. Its guidance for next quarter fell in the range of $9.0 million and $10.5 million adjusted EBITDA, also showing a positive trend.
In terms of valuation, III stock is a strong player. For instance, it trades at a significant discount on a forward P/E basis, at 11.38 times earnings. Meanwhile, its trailing P/E is 17.96 times earnings, implying that Wall Street is forecasting a move higher.
Furthermore, analysts rate the stock a Buy, with an implied upside of 23.71% over the next 12 months. That makes III stock one of those penny stocks to consider.
Ring Energy (REI)
Ring Energy (NYSE:REI) is an independent oil and natural gas exploration and production company. It operates in Texas and New Mexico.
Like with III stock, REI also had a great third quarter, and I think there’s strong potential for the brand to continue to outperform moving forward. The company achieved a record Adjusted EBITDA of $58.6 million, a 10% increase from Q2. The company’s sales volumes also grew to 17,509 Boe/d.
What also stands out to me about the company is its cheap price-to-sales basis. It trades at just 0.82 times sales; on a forward basis, this is even lower at just 0.73 times sales. On accounting profits, it is also similarly undervalued.
Also, unlike other penny stocks, REI is cash flow positive, having generated 57.50 million of it so far in 2023.
Iteris (ITI)
Iteris (NASDAQ:ITI) is a technology solutions company. Its primary line of business is creating sensors and intelligent transportation systems. These products have valuable uses in the industrial sector, but their use is also expanded in everyday products and appliances such as smart homes.
There is also an advisory component of the business, considered very high-margin. For instance, it was hired by the Southern California Association of Governments to survey trucking companies for Interstate 710 usage and by the Virginia Department of Transportation to improve the state’s 5-1-1 system.
Wall Street is considerably bullish on ITI stock. Notably, it carries a Strong Buy consensus rating with an implied upside of 17% for its share price over the next 12 months.
It also has positive free cash flow over the last 12 months and is considered undervalued when comparing its trailing to forward P/E ratios. That makes it one of those penny stocks investors should consider adding to their portfolios.
On the date of publication, Matthew Farley did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
