When it comes to very undervalued penny stocks to buy in May, investors have many choices. Run a stock screener, and you’ll find hundreds of stocks, whether on major U.S. exchanges, or in the over-the-counter (OTC) market, that trade at either a low earnings multiple, or a discount to tangible book value. However, there are a few that stand out as strong buys. With some of the stocks in this category, this is due to them having company-specific catalysts in play that could help bridge the gap between trading price and underlying value within a reasonable time frame.
In other situations, there may not be a strong company-specific catalyst per se, but their valuations, coupled with other strengths such as earnings consistency, give them the potential to appreciate in price, as the overall market becomes more aware of them. So, what are some of the very undervalued penny stocks to buy in May? These seven fit the bill. Each one trades at low earnings multiple and/or at a meaningful discount to tangible book value.
|Western Forest Products
Butler National (BUKS)
Butler National (OTCMKTS:BUKS) is one of the best undervalued penny stock opportunities in May. Yes, it has been quite some time since shares in this aerospace and casino gaming firm experienced a big jump in price.
As I have discussed previously, BUKS stock has soared since the late 2010s, but over the past year has delivered middling returns. However, with shares trading for less than 8 times earnings, a big discount to peers in both aerospace and gaming, it is clear there is plenty of value that could be unlocked.
Admittedly, based on commentary from CEO Clark Stewart on a July 2022 earnings conference call, Butler doesn’t appear ready to spin off/sell one of its divisions. Still, while management’s 25.1% ownership of the company may limit shareholder activism, one or several of Butler’s outside investors could ultimately push the C-suite to seriously pursue strategic alternatives.
Trading for just 4.9 times earnings, it’s easy to see why I consider Comstock (NASDAQ:CHCI) one of the very undervalued penny stocks to buy in May. Very few stocks trade at such a low earnings multiple. Yet given this property management firm’s big exposure to commercial real estate, it also is easy to see why the market has yet to price shares at a higher multiple. However, while this factor may keep CHCI stock depressed in the near term, this may mean big upside potential over a longer time frame.
In the past year, the company has increased occupancy at its existing managed properties and has continued to expand its property management portfolio. This could pave the way for further earnings growth. Coupled with a rebound in sentiment for real estate stocks, this may produce a big move higher for CHCI shares down the road.
Harbor Diversified (HRBR)
Despite the name, Harbor Diversified (OTCMKTS:HRBR) owns just one business: regional airline Air Wisconsin. At this stage of the economic cycle, you may think now is not the right time to buy shares in such a business.
But while HRBR stock has all the risks inherent with airline stocks, there is something that more than makes up for it. That would be HRBR’s very large discount compared to its underlying value. As a Seeking Alpha commentator argued last month, Harbor Diversified has a book value of $3.75 per share. Shares today change hands for $2.25 per share.
The stock also trades at a single-digit P/E ratio. More importantly, as the commentator argued, there is big potential earnings upside with Air Wisconsin’s new contract to operate regional routes for American Airlines (NASDAQ:AAL). A potential windfall from a lawsuit against its former airline partner is another catalyst.
In December, I recommended Jerash (NASDAQ:JRSH) as one of the best penny stocks to buy for 2023. While up by around 12.5% year-to-date, I’ll admit that shares in the apparel maker have yet to have a true liftoff moment. However, that doesn’t mean such an event will not play out in the coming year.
The economic slowdown has had a big impact on Jerash’s profitability since the end of the fiscal year ending March 31, 2022. During this time, earnings per share (or EPS) have dropped by nearly 50%, from 67 cents to 34 cents. Still, as I argued back in Dec., an earnings comeback could arrive pretty soon. Although revising them lower in recent months, sell-side earnings forecasts continue to call for a big jump in EPS during this fiscal year and the next. This could in turn spur a move back to multi-year highs for JRSH stock.
Pitney Bowes (PBI)
Last fall, shareholder activism became a potential catalyst for Pitney Bowes (NYSE:PBI). This initially sparked a big rally for shares in the business products company. PBI zoomed from around $2.40 per share in early October, to prices nearing $5 per share in January.
Unfortunately, investors who bought PBI stock when excitement about Hestia Capital Management’s launch of a proxy fight peaked last winter are now deep underwater on their positions in this deep-value stock, as it changes hands for around $3 per share. Even as the hedge fund has prevailed, winning four out of nine board seats, shares have continued to slide lower. Yet whether you bought ahead of Hestia’s victory, or after it, a position in PBI could prove very profitable. Hestia believes that its multi-step transformation plan for Pitney Bowes could unlock $11.34 to $16.33 per share in value out of the company.
Sachem Capital (SACH)
Sachem Capital (NYSEAMERICAN:SACH) appears to be anything but one of the undervalued penny stock winners in May. Shares in this mortgage real estate investment trust have performed poorly as of late.
It’s no shock that SACH stock is struggling right now. Interest rates keep rising, real estate still appears vulnerable, and Sachem on the surface appears riskier than other mortgage REITs, due to its focus on short-term “hard money” real estate loans. Yet keep in mind SACH’s single-digit P/E ratio, its 37% discount to book value, and its 15.6% forward dividend yield.
Hard times have arguably more than accounted for in the valuation of this hard money lender. If/when interest rates begin to come lower, or when sector sentiment for real estate improves, SACH could bounce back in a big way. This makes it one of the best undervalued penny stocks to buy in May.
Western Forest Products (WFSTF)
As you may be able to infer from its corporate name, Western Forest Products (OTCMKTS:WFSTF) is in the timber business. This Canada-based company turns the wood from its timberlands in British Columbia into wood products for construction and industrial end-use.
With revenue and earnings dropping after post-pandemic boom times for the industry, WFSTF stock has in turn fallen back over the past year, to the tune of 46.2%. However, following this big drop in price since May 2022, it has become one of the best undervalued stock opportunities in May 2023.
Mostly, because the stock trades at a 45% discount to book value. There may be a way for Western Forest Products to get back to prices above its book value. As InvestorPlace’s Muslim Farooque argued last month, a rebound in construction, together with continued demand for housing, could spark a growth resurgence for WFSTF.
On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.
Read More: Penny Stocks — How to Profit Without Getting Scammed
On the date of publication, Thomas Niel held a long position in HRBR. He did not hold (either directly or indirectly) any positions in the other securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.