2024 could be the year of small-cap stocks. After a monster year for tech stocks, especially mega caps, an improving macroeconomic environment is likely to facilitate a rotation from the 2023 winners to stocks that are performing better in the environment of lower rates. Along these lines, many top-rated penny stocks could stage monster rallies in 2024.
Why did they struggle in 2023? Quantitative tightening has not only constrained small companies’ access to capital but has also raised its cost. Many of these small companies rely on regional banks with stricter lending guidelines, leading to higher rates for perceived riskier borrowers.
Moreover, small companies bear a higher share of variable-rate debt compared to large companies. This debt, with shorter maturities, can strain balance sheets during rising rates, impacting cash flow, net profit margins, and growth prospects. However, the sector’s strong performance in December suggests potential momentum in the new year. As the Federal Reserve hints at potential rate cuts in 2024, smaller companies are catching up.
Along these lines, we present several analyst-approved penny stocks for you to consider.
Canoo (GOEV)
Canoo (NASDAQ:GOEV) is a company that designs and produces electric cars, trucks, and other vehicles for various purposes, such as crew transportation, cargo, and business. Canoo’s products include the LDV 190, the LDV 130, the LV, and the MPDV.
Recently, prominent tech analyst, Wedbush’s Daniel Ives, identified a compelling opportunity in the electric vehicle (EV) sector, initiating coverage on Canoo with an Outperform rating and an ambitious $4 per share price target.
This target implies an 1800% upside potential, reflecting Ives’ confidence in Canoo’s unique position in the Class 1 vehicle market, marked by strategic partnerships and significant orders.
Emphasizing the company’s focus on the lifestyle delivery vehicle (LDV), particularly in last-mile delivery, Ives perceives a “golden” market opportunity. Despite acknowledging the risk of low cash, Ives outlined a clear plan for cash flow improvement through funding in the current quarter.
“With the last-mile delivery transportation market estimated to reach ~$425 billion by 2030 in just the USA, the market is expected to grow at a 35% CAGR through 2040 as demand for electric vehicles increases,” Ives said.
With the EV market poised for significant growth, Canoo’s strategic positioning aligns with the evolving auto industry, fostering optimism about its future prospects in a $5 trillion EV market over the next decade.
SoundHound AI (SOUN)
SoundHound AI (NASDAQ:SOUN), is a major player in the voice artificial intelligence sector. The company’s recent quarter result showed impressive year-over-year improvements, reflecting SoundHound AI’s positive trajectory.
More precisely, SOUN reported revenue for the quarter reached $13.3 million, indicating a substantial 52% sequential increase and a noteworthy 19% year-over-year growth. With gross margins of 73%, the company is among the top-rated penny stocks to consider buying. Operating loss experienced a significant 46% improvement compared to the previous year, demonstrating the company’s commitment to enhancing its financial performance.
DA Davidson analysts initiated coverage on SoundHound AI stock recently with an optimistic outlook. Despite the recent skepticism around SPACs, analysts believe that SoundHound’s voice AI platform positions it well for significant growth in the Voice AI market. The Buy rating comes with a price target of $5, well above the current closing price of the recent price of $1.85.
Analyst Gil Luria emphasized SoundHound’s innovation, predicting it to set new standards in Voice AI. With an improving financial model and a growing sales team, SoundHound is seen as having substantial market share potential and long-term growth prospects. Luria argued that the company is undervalued as a SPAC, deserving a premium valuation based on its superior growth opportunities compared to peers.
Payoneer Global (PAYO)
One of the three top-rated penny stocks, Payoneer Global (NASDAQ:PAYO), is a global payment service that provides businesses with a local receiving account. This account allows businesses to receive payments in more currencies and markets, as if they had bank details in the currencies that clients and marketplaces want to pay in
Reporting on its quarterly performance for the third quarter, Payoneer posted a Q3 EPS of $0.03, meeting analyst expectations. However, revenue for the quarter was $158.9 million, falling short of the consensus estimate of $208.52 million. The company anticipates FY2023 revenue to be in the range of $820-830 million, slightly below the consensus estimate of $829.4 million.
This didn’t stop analysts from continuing to see Payoneer as well-positioned to benefit from the improving macro sentiment. For instance, Berenberg analyst Mark Palmer started coverage on Payoneer with a Buy rating and a price target of $7.00.
Palmer emphasized the company’s strategic plan, expecting enhanced revenue growth and profitability through improved focus and efficiency. Despite initial challenges post-SPAC merger, Palmer notes Payoneer’s shift under CEO John Caplan to efficiently serve cross-border payment needs for small- and medium-sized businesses in emerging markets.
The targeted approach, focusing on businesses generating over $500 in monthly payment volume, is seen as a key factor for sustained and profitable growth, dispelling misconceptions about Payoneer being a slow-growth e-commerce play with a China-centric concentration.
On the date of publication, Shane Neagle 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.