According to Fidelity the global business cycle during the fourth quarter can be characterized as an uneven global expansion. That unevenness makes it somewhat difficult to predict where the economy is headed but in general cyclical stocks make sense.
Certain sectors including IT, finance, consumer discretionary, materials, and more tend to be more cyclical. That means they have the potential to provide strong returns in a short period of time.
In this article we’ll discuss cyclical penny stocks which themselves have additional elements of upside potential. These stocks are for those who tend to be more risk seeking. If you are such an investor, consider these stocks which do have significant upside potential in 2024.
FAT Brands (FAT)
FAT Brands (NASDAQ:FAT) Is a restaurant company that operates Brands including Fatburger and Johnny Rockets, among many others. At last count, the company owned well over a dozen restaurant brands. FAT Brands is a consumer discretionary stock, a sector that exhibits high cyclicality. The company acquired the Smokey Bones restaurant chain in the 4th quarter, bringing its restaurant total to 18.
Investing in FAT Brands is interesting based on the spread between its current price and its target price. Shares currently trade for $6.35 but the average target price by the two analysts with coverage sits at $20.
From a fundamental perspective, there are some things to like. The company’s revenues increased by 6% during the third quarter. Meanwhile, net losses increased by more than 5%. One of the clearest suggestions of the stock’s rebound potential lies in the fact that it traded above $10 per share prior to the beginning of rate hikes. Now that we are headed toward rate cuts it’s easy to see why share prices can rise again to their prior levels.
Grom Social Enterprises (GROM)
Grom Social Enterprises (NASDAQ:GROM) is part of the communications services sector stock which is highly cyclical. The company primarily delivers content through social media networks targeting children under the age of 13.
Generally speaking, cyclical stocks exhibit High volatility which is measured by beta. A beta above one signifies greater cyclicality and volatility overall. Grom Social Enterprises actually has a beta which sits slightly below one, at 0.97. Yet, make no mistake about it, the shares have potential for rapid returns. Shares trade for approximately $1.15 and the single analyst rating gives its shares a target price of $12.
The company is working through a period of top line contraction but also managing to narrow its net losses at the same time. To be clear here, the assets it owns are not well known by me– although they may be to you. Investing in Grom Social Enterprises is very much a gamble, but one that clearly has potential to provide strong returns.
Inspirato Incorporated (ISPO)
Inspirato Incorporated (NASDAQ:ISPO) Is another consumer discretionary stock and a company whose primary business is luxury travel. The company operates a travel subscription company and its shares trade for a little less than $4 currently.
The company provides subscription-based access to a portfolio of vacation options targeted toward affluent consumers. Every trip includes pre-trip planning, an on-site concierge, and daily housekeeping.
From a fundamental perspective, there isn’t a lot of information by which to conclusively suggest ISPO as a slam dunk investment. However, there are some things to like. For example, the company received a $25 million investment from Capital One Ventures during the third quarter. Further, the company does produce substantial revenues, $83 million in the third quarter.
Yet demand is clearly lagging at the moment. Those $83 million of third quarter revenue represented an 11% decline on a year-over-year basis. Luxury travel is expected to grow in 2024 which is arguably the primary reason to invest in Inspirato.
OMNIQ Corp. (OMQS)
OMNIQ Corp. (NASDAQ:OMQS) is a small tech firm with a heavy connection to artificial intelligence with a stock that trades for 65 cents. The tech sector is one of the more volatile, cyclical sectors so when you consider that OMNIQ shares have a target price of $12, it’s easy to see why there is inherent interest.
The company operates in multiple business segments. Its businesses include supply chain hardware, cloud-based parking systems, smart security systems for community residential applications, and retail solutions all of which leverage AI.
The company’s AI based machine vision systems were recently ordered by NY City area airports including JFK, LaGuardia, New York Stewart, and Newark. The company is addressing latent demand in sectors and safe cities, smart parking, and fast casual dining.
Prior to that, the company was awarded a multi-year contract with an Israeli-based logistics firm to serve the company’s 700 + warehouses with IoT products and services.
5E Advanced Materials (FEAM)
As I write this article 5E Advanced Materials (NASDAQ:FEAM) stock has increased in price by more than 5% over the previous day. As you may have guessed by the name, the company operates in the materials sector which is highly cyclical. The company also boasts a beta of 1.98 which further suggests high volatility. The increase in value of 5% over the last day suggests that momentum is currently in favor of FEAM shares.
Shares are currently trading for $1.40 with substantial upside based on a target price that implies the potential for 260% returns.
The company provides BORON+ products which are used in the clean energy, electric transportation, and food and domestic security sectors. BORON+ Is an advanced material with applications in decarbonization. The company owns the rights to a low-cost, light environmental touch deposit of boron in southern California. That deposit has been designated as critical infrastructure by the U.S. government. It is also the largest known deposit of new conventional boron globally.
Loop Industries (LOOP)
Loop Industries (NASDAQ:LOOP) is another materials firm with an environmentally friendly purpose. The company is one of many in the so-called circular plastics economy. That’s a broad term encompassing firms that seek to reduce plastic waste and increase re-usage overall. The stock trades for $3.75 and like 5E Advanced Materials immediately above, is increasing in price at the moment.
Loop Industries technology uses high purity plastic waste as feedstock breaking it down into base monomers. Those base monomers are then recombined to create virgin-quality PET resin which can be used for multiple applications. In December, the company announced that its PET resins are compliant for Pharmaceutical Industrial Packaging applications in the United States and Europe.
Company-wide revenues are still relatively insubstantial but the positive news is that the company has managed to reduce its net losses by more than half during the most recent earnings period. Demand for more environmentally responsible packaging is very high in which should grant LOOP multiple opportunities especially in light of recent compliance wins.
FreightCar America (RAIL)
FreightCar America (NASDAQ:RAIL) manufactures railcars that are used to transport bulk goods from A to B. The stock is expected to rise $4 and currently trades for approximately $2.40.
From a fundamental perspective, there are some concerns around the stock. For example, revenues declined by more than 27% during the last earnings period, falling to $61.9 million. The company delivered 503 railcars which was a significant decline from the 783 deliveries a year prior.
As bad as that might sound, there is reason for optimism. The company continued to produce income during the quarter at $3.2 million. It is expected that the freight industry will remain soft throughout the rest of the winter. However, railway freight is expected to be the optimal shipping option in 2024 which has the potential to spike demand at FreightCar America.
FreightCar America shares could easily rise to $4 if factors conspire favorably in the railway freight sector as expected.
On the date of publication, Alex Sirois did not have (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.
