In this article, we will take a look at 13 most promising low-cost stocks according to analysts. To skip our analysis of the recent market activity, you can go directly to see the 5 Most Promising Low-Cost Stocks According to Analysts.
For the purpose of this article, we have defined low-cost stocks as stocks that are priced below $15 at the time of writing. More often than not, stocks priced in this range typically fall in the small-cap universe, i.e. their market capitalizations are below $2.0 billion. Nearly 9,500 stocks trade on major U.S. stock exchanges with nearly half of them having market capitalizations of less than $2.0 billion. The small-cap stocks and low-cost stocks offer unique characteristics to investors which can significantly improve their investment outcomes.
A major benefit of investing in low-cost stocks is the fact that these stocks, due to their lack of huge “brand values”, typically trade at much lower price/book (P/B) ratios as compared to midcap and large cap stocks. This provides a more attractive entry point for investors with the potential for more attractive returns in the future. In addition, low-cost stocks typically include growth companies as well as companies working in niche markets with established market positions and shares. Even though
Royce Investment Partners’ Co-CIO Francis Gannon made the following comments about the outlook for small-cap companies with respect to investment opportunities and valuations:
“While the near-term view is as cloudy as any we’ve seen, there are enough positives for us to have a very constructive view for long-term small-cap returns going forward. Valuations for small-cap stocks are looking more attractive in aggregate. Small caps finished October in a bear market, with the Russell 2000 losing -30% from its last peak on 11/8/21 through the end of the third quarter. Many companies we’ve looked at would appear to have already priced in a recession. Both in terms of price-to-earnings (P/E) and EV/EBIT (enterprise value over earnings before interest and taxes), many small caps look undervalued to us. They look even cheaper compared to large caps. In fact, based on EV/EBIT, small caps remained close to 20-year lows relative to large caps at the end of September. So, the opportunity set in small cap does look compelling to us from a valuation standpoint.”
Based on the dovish pivot from the Federal Reserve earlier this month, U.S. stocks have rallied significantly. Major small-cap indices, the Russell 2000 and S&P SmallCap 600 Index have gone up 16.6% and 14.6%, respectively. On the other hand, major U.S. stocks indices such as the S&P 500 has gone up 24.6% while NASDAQ Composite Index and the Dow Jones Industrial Average Index have gone up 44.7% and 13.1%, respectively.
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Methodology
We used stock screeners to shortlist stocks that were trading at a share price of less than $15 as of December 20. To find the most promising stocks among the shortlisted stocks, we narrowed down our selection by retaining only stocks that had more than 30% upside potential based on average price targets. We then sorted the resultant dataset in descending order of market cap and picked the top 13 stocks. With each stock we have mentioned its upside potential based on average price target.
Data from around 900 elite hedge funds tracked by Insider Monkey in the third quarter of 2023 was used to identify the number of hedge funds that hold stakes in each firm. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
13. Full Truck Alliance Co. Ltd. (NYSE:YMM)
Upside Potential as of December 20: 62.72%
Number of Hedge Fund Holders: 17
Guiyang, China-based Full Truck Alliance Co. Ltd. (NYSE:YMM) is a leading digital freight platform in China, connecting shippers with truckers to facilitate shipments across distance ranges, cargo weights and types. The company facilitated 42.5 million fulfilled orders on its FTA platform during Q3 2023.
On November 20, Full Truck Alliance Co. Ltd. (NYSE:YMM) released its financial results for Q3 2023. Its revenue increased by 25% y-o-y to $310 million while its net income surged by 56% y-o-y to $85 million. It generated a normalized EPS of $0.11 which surpassed the consensus estimates by $0.03.
On December 6, JP Morgan initiated coverage of Full Truck Alliance Co. Ltd. (NYSE:YMM) shares with a price target of $10 and an ‘Overweight’ rating. The price target represents a potential upside of 49.70% based on the share price on December 20.
As of Q3 2023, Full Truck Alliance Co. Ltd. (NYSE:YMM) shares were owned by 17 hedge funds with a total value of $551 million according to the Insider Monkey database. Thomas Steyer’s Farallon Capital was the largest hedge fund shareholder with ownership of 38.2 million shares valued at $269 million.
12. Permian Resources Corporation (NYSE:PR)
Upside Potential as of December 20: 30.45%
Number of Hedge Fund Holders: 35
Midland, Texas-based Permian Resources Corporation (NYSE:PR) is an independent oil and natural gas company focused on responsible acquisition, optimization, and development of oil and liquids-rich natural gas assets. Its assets and operations are concentrated in the core of the Delaware Basin.
On November 1, Permian Resources Corporation (NYSE:PR) closed the acquisition of Earthstone Energy, creating the second largest Permian Basin pure-play E&P company. The all-stock transaction valued the target company at $4.5 billion.
On November 30, Stifel analyst Derrick Whitfield lowered the price target for Permian Resources Corporation (NYSE:PR) shares to $18 from $20 and maintained a ‘Buy’ rating. The target price represents a potential upside of 35.14% based on the share price on December 18.
Permian Resources Corporation (NYSE:PR) shares, worth $505 million, were held by 36 of the 910 prominent hedge funds tracked by Insider Monkey, as of Q3 2023.
11. Southwestern Energy Company (NYSE:SWN)
Upside Potential as of December 20: 32.23%
Number of Hedge Fund Holders: 44
Spring, Texas-based Southwestern Energy Company (NYSE:SWN) is a leading U.S. producer and marketer of natural gas and natural gas liquids focused on developing large-scale energy assets in the nation’s most prolific shale gas basins.
On November 2, Southwestern Energy Company (NYSE:SWN) released its quarterly results for Q3 2023. It generated total revenues of $1.4 billion and net income of $45 million. It reported a normalized EPS of $0.10 for the quarter, which exceeded the consensus estimates by $0.03.
As of Q3 2023, 44 hedge funds out of the 910 hedge funds tracked by Insider Monkey were bullish on Southwestern Energy Company (NYSE:SWN) and held shares valued at $932 million. D E Shaw held the highest number of shares among hedge funds with ownership of 28.7 million shares, valued at $185 million.
10. Roivant Sciences Ltd. (NASDAQ:ROIV)
Upside Potential as of December 20: 57.33%
Number of Hedge Fund Holders: 44
New York-based Roivant Sciences Ltd. (NASDAQ:ROIV) is a commercial-stage biopharmaceutical company focused on accelerating the development and commercialization of medicines. It targets a wide range of diseases including uterine fibroids, endometriosis, prostate cancer, Parkinson’s disease, diabetes, pulmonary arterial hypertension, and multiple rare and fatal pediatric conditions.
On October 23, Roivant Sciences Ltd. (NASDAQ:ROIV) announced entry into a definitive agreement under which Roche Holding AG (OTC:RHHBY) will acquire Telavant Holdings, Inc., owned by Roivant Sciences Ltd. (NASDAQ:ROIV) and Pfizer Inc. (NYSE:PFE) for a purchase price of $7.1 billion and a milestone payment of $150 million.
Roivant Sciences Ltd. (NASDAQ:ROIV) owns 75% of Telavant while Pfizer Inc. (NYSE:PFE) owns the remaining 25%. The agreement includes the development, manufacturing and commercialization rights in the US and Japan for RVT-3101, a novel TL1A directed antibody for people suffering from inflammatory bowel disease, including ulcerative colitis and Crohn’s disease.
As of Q3 2023, 44 of the 910 hedge funds tracked by Insider Monkey were long Roivant Sciences Ltd. (NASDAQ:ROIV) and held shares worth $3.2 billion. Daniel Gold’s QVT Financial held the most shares of the company with ownership of 11.5 million shares valued at $1.3 billion.
9. Grab Holdings Limited (NASDAQ:GRAB)
Upside Potential as of December 20: 47.95%
Number of Hedge Fund Holders: 34
Singapore-based Grab Holdings Limited (NASDAQ:GRAB) is a leading superapp in Southeast Asia, providing everyday services such as mobility, deliveries, and digital financial services to millions of Southeast Asians.
On November 9, Grab Holdings Limited (NASDAQ:GRAB) released its financial results for Q3 2023 which were nearly in-line with the consensus estimates. The company generated a revenue of $615 million and a normalized EPS of -$0.01.
As of Q3 2023, Grab Holdings Limited (NASDAQ:GRAB) shares were held by 34 hedge funds with the total shares held by hedge funds valued at $531 million. Tiger Global Management LLC was the leading hedge fund investor with ownership of 51.3 million shares valued at $182 million.
Like other stocks such as Barclays PLC (NYSE:BCS), Roivant Sciences Ltd. (NASDAQ:ROIV), and Banco Santander, S.A. (NYSE:SAN), Grab Holdings Limited (NASDAQ:GRAB) is among the 13 most promising low-cost stocks according to analysts.
8. NIO Inc. (NYSE:NIO)
Upside Potential as of December 20: 30.93%
Number of Hedge Fund Holders: 18
NIO Inc. (NYSE:NIO), based in Shanghai, China, is a leading company in the premium smart electric vehicle market. Founded in 2014, the company designs, develops, jointly manufactures, and sells premium smart electric vehicles with advanced capabilities in autonomous driving, digital technologies, electric powertrains, and batteries.
NIO Inc. (NYSE:NIO) began deliveries of its first model in June 2018. Its product portfolio comprises ES8, a six- or seven-seater flagship SUV, the ES7, a five-seater SUV, the ES6, a five-seater high-performance SUV, the EC6, a five-seater coupe SUV, the ET7, a flagship sedan, and the ET5, a mid-size sedan.
On December 18, NIO Inc. (NYSE:NIO) announced that it has entered into a share subscription agreement with CYVN Holdings, a specialist investment vehicle based in Abu Dhabi. CYVN will invest $2.2 billion in cash to acquire 294 million newly issued Class A shares of the company.
Combined with the $738 million strategic equity investment in July 2023 and the acquisition of an additional $350 million worth of its shares from Tencent Holdings Ltd., CYVN will own nearly 20.1% stake in NIO Inc. (NYSE:NIO) after the closing of the transactions.
7. CNH Industrial N.V. (NYSE:CNHI)
Upside Potential as of December 20: 31.96%
Number of Hedge Fund Holders: 29
CNH Industrial N.V. (NYSE:CNHI) is a world-class capital goods company specializing in equipment and services for Agriculture and Construction. Its brand portfolio includes brands Case IH, New Holland Agriculture, CASE and New Holland Construction Equipment.
According to Insider Monkey data on 910 hedge funds, 29 hedge funds held shares of CNH Industrial N.V. (NYSE:CNHI), valued at $590 million, as of Q3 2023.
In its Q3 2023 investor letter, Oakmark Funds, advised by Harris Associates, made the following comments about CNH Industrial N.V. (NYSE:CNHI):
“CNH Industrial’s share price fell following its second quarter results, as agriculture equipment sales rose 5% in local currency, a slowdown from the prior quarter. This performance fell below market expectations due to destocking activity in Brazil and some production ramp-up issues for its new Patriot sprayer. We believe the production issues are temporary while the destocking actions will better position the business for the midterm. Pricing power remains quite strong and increased by roughly 7%, and precision agricultural sales grew by 21%. While the market was overly focused on near-term demand and sales growth, the agriculture equipment division produced its highest quarterly margin ever at 16.8%—an encouraging development that supports our view of the company’s long-term profitability. Further, the much smaller construction business delivered strong results, including its own quarterly margin record. Management maintained guidance for the rest of the company’s current fiscal year and indicated it expects to exceed the 2024 targets laid out at a capital markets day in 2022. [. . .] We believe CNH Industrial remains a solid business in an attractive industry that is run by a much-improved management team.”
6. Centrais Eletricas Brasileiras SA (NYSE:EBR-B)
Upside Potential as of December 20: 46.39%
Number of Hedge Fund Holders: 7
Founded in 1962, Rio De Janeiro, Brazil-based Centrais Eletricas Brasileiras SA (NYSE:EBR-B) is the leading electric power generation and transmission company in Brazil. It had an installed electricity generation capacity of 43.8 GW and 73,437 km of transmission lines, as of September 30, 2023.
On November 8, Centrais Eletricas Brasileiras SA (NYSE:EBR-B) released its financial results for Q3 2023. Its revenue increased by 7% y-o-y to R$10.6 billion, while it generated a net income of R$1.5 billion, compared to a net loss of R$0.1 million. The company is working on plans to streamline its organizational structure by consolidating its subsidiaries through buyout of minority shareholders.
Like other stocks such as Barclays PLC (NYSE:BCS), Roivant Sciences Ltd. (NASDAQ:ROIV), and Banco Santander, S.A. (NYSE:SAN), Centrais Eletricas Brasileiras SA (NYSE:EBR-B) is among the 13 most promising low-cost stocks according to analysts.
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Disclosure: None. 13 Most Promising Low-Cost Stocks According to Analysts is originally published on Insider Monkey.