Investing in penny stocks can be a great way to get multi-bagger returns on a small investment. But it can also be incredibly risky, especially in the current market environment, as penny stocks are notoriously volatile. 

It can be challenging to estimate the fair value of penny stocks’ underlying businesses. But just because something is difficult doesn’t mean you should avoid it. The key to successfully investing in penny stocks is to do your research, carefully analyzing the company you are investing in and attempting to purchase shares when they are trading at a trough. Doing so can result in outsized profits once the market regains its bullish momentum.

Therefore, the ideal time to dip your toes in some promising penny stocks is when the market is nearing a bottom. There are a number of signs that indicate we could be at or near one now. These include slowing inflation, a strong labor market, better-than-expected economic growth and easing supply chain issues.

While the risk-on trade appears to be coming back into vogue, a number of penny stocks are still trading at deep discounts. Here are the top three to buy right now.

Ring Energy (REI)

Ring Energy (NYSEMKT:REI) is an independent oil and gas exploration and production company based in Texas. The firm focuses on developing and acquiring mature oil and gas properties, primarily in the Permian Basin in West Texas and New Mexico.

Ring Energy has been steadily growing its production and reserves in recent years thanks to a combination of drilling success and strategic acquisitions. In the third quarter, the company reported record results, with revenue surging 91% year over year to $94.4 million and adjusted EBITDA increasing 18% to $56 million. 

Additionally, Ring Energy’s Q4 guidance shows the company expects to increase oil sales volumes by around 70%, natural gas by 17% and natural gas liquids by 13%.

Energy stocks were the best performers in 2022 thanks to skyrocketing oil and gas prices. While energy prices have come down from their highs, they remain elevated. Even with calls for energy prices to decline in the second half of the year, Ring Energy has a strong financial position. As long as this remains the case, I easily see REI stock among the top winners this year.

Shares, which are down 4% over the past year and sit 52% below their 52-week high, are trading at a bargain 1.1 times trailing earnings.

CarParts.com (PRTS)

As its name implies, CarParts.com (NASDAQ:PRTS) is an online retailer that supplies aftermarket auto parts and accessories. The stock is down 16% over the past year despite the fact that the company is the beneficiary of an aging U.S. vehicle fleet. However, investors may be starting to recognize the value in shares. PRTS is up nearly 13% so far this year and 80% since hitting a 52-week low on Nov. 9.

According to S&P Global Mobility, the average age of light vehicles in operation in the United States reached an all-time high of 12.2 years in 2022. An aging vehicle fleet naturally means more vehicle repairs, and thus, more demand for CarParts.com. 

S&P Global Mobility cited the global microchip shortage, supply chain snags and inventory issues as the driving forces behind the trend. However, as inflation continues to dent consumers’ wallets, they are reining in spending. For many in the U.S., a vehicle is essential, and used cars are often cheaper and cost less to insure. Therefore, CarParts.com is in a position to benefit from declining discretionary spending in an inflationary environment, enjoying inelastic and accelerating demand. That’s difficult to find in 2023.

The company is expected to report 2022 results in late February or early March. Analysts forecast revenue growth of 13% to $658.3 million. Meanwhile, they are calling for losses to narrow to just 2 cents per share from a loss of 20 cents per share in 2021. And CarParts.com is expected to turn a profit in the first quarter of 2023, which could prove to be a bullish catalyst for shares.

Tilray Brands (TLRY)

Tilray Brands (NASDAQ:TLRY) is a favorite among many of my InvestorPlace.com colleagues who advise investing in penny stocks. The reason is simple: Federal cannabis legalization is coming, and the cannabis lifestyle and consumer packaged goods company will benefit massively from it.

Marijuana legalization has broad public support, as well as support from lawmakers on both sides of the aisle. Therefore, it’s only a matter of time before a bill lands on the president’s desk. Legalization would turn TLRY stock into a multi-bagger overnight.

Even without federal legalization, Tilray has strong underlying fundamentals that make it a buy. As InvestorPlace.com contributor Faisal Humayun pointed out recently, Tilray reported cash and equivalents of $433.5 million as of the third quarter and has “ample financial flexibility for organic and inorganic growth.”

TLRY stock is down 41% over the past 12 months. However, shares are moving in the right direction in 2023, rallying 19% year to date.

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, Omor Ibne Ehsan 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.