We recently compiled a list of the 10 Best Penny Stocks To Buy According to the Media. In this article, we are going to take a look at where Grab Holdings Limited (NASDAQ:GRAB) stands against the other penny stocks.
Penny stocks are those that trade below the price of $5. These stocks represent companies with smaller market capitalization, high risk, and high volatility. Risk-tolerant investors find potential for above-average returns in penny stocks, however, investing in these stocks requires caution and care.
Expected Trends for Small Cap Stocks
On July 17, Chris Retzler, Needham’s small-cap growth portfolio manager, appeared on CNBC where he expressed optimism for the small-cap companies and suggested that we are in a cycle that will prove to be good for many small-cap companies. The Russell 2000 index jumped 3.5% higher on the July 16, hitting the highest levels since January 2022, and was up more than 10% in the previous week. This was one of the biggest rallies investors have seen in the past 4 years.
Retzler believes that small cap stocks have been waiting for a drop in inflation and interest rate cuts. With inflation easing, interest rates are expected to go down as well. He also sees the market broadening, with small companies that have underperformed benefiting from a drop in inflation.
Retzler agrees with Fundstrat’s Tom Lee’s, who sees the Russell 2000 gaining 40% by the end of summer. He believes that the liquidity of small cap companies gives them an edge as it does not take a lot of money to push the stock prices higher, and some expansions by these companies followed by lower interest rates can prove to be good for Russell 2000 companies. We have discussed Tom Lee’s views on how favorable current market conditions are for small-cap companies in 10 Best NASDAQ Penny Stocks To Invest In.
Moreover, Ryan Detrick, who is the Chief Market Strategist at Carson Group also presented his bullish thesis for small and mid-cap companies. He believes that small and mid-cap are going to lead the market in the second half of the year. While addressing the earnings capability of these companies, Detrick said small-cap companies will outperform large-cap companies in 2025 and 2026. As per estimates, S&P 600’s earnings were 4.1% in 2024, whereas S&P 500 earnings were 12.7%. However, moving forward analysts expect S&P 600’s earnings to be at 17.7% in 2025, surpassing estimates of 14.2% for the S&P 500. Detrick believes small-cap stocks now look cheap, economic conditions are favorable, and any interest rate cuts that come along the way will further benefit them.
Now that we’ve discussed what experts think about small caps, let’s now look at the 10 best penny stocks to buy according to financial media.
Our Methodology
To compile our list of the best penny stocks to buy according to media, we aggregated 50 plus penny stocks from financial media websites on the internet. We then selected the top 10 penny stocks that were the most widely held by hedge funds, as of Q1 2024. The list is in ascending order of the number of hedge funds holders in each stock.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A customer enjoying the convenience of a mobile financial services transaction.
Grab Holdings Limited (NASDAQ:GRAB)
Number of Hedge Fund Holders: 37
Grab Holdings Limited (NASDAQ:GRAB), also known as the Uber of Southeast Asia, operates a super-app which provides delivery, mobility, and financial services in the region. People use the company’s app to request cabs, order food, and make online payments. This penny stock is an investors’ favourite and we say that because it was held by 37 hedge funds at the close of Q1 2024 with stakes worth nearly $613 million.
In Q1 2024, Grab (NASDAQ:GRAB) reported an all-time-high adjusted EBITDA of $62 million and raised its adjusted EBITDA guidance for the full year to a range between $250 million and $270 million (prior range: $180-$200 million). Revenue grew by 24% year over year to $635 million, driven by strong performance across the board. While these numbers are decent, what’s more important is that the company grew its monthly transacting users to 38 million during the quarter, up from 33 million a year ago.
Why are users growing you might ask and the reason is simple: Grab’s (NASDAQ:GRAB) app is getting better due to the company’s approach to using AI. The company’s AI engines are trained with its local markets in mind, on a Southeast Asia-specific dataset. This is why when a Malaysian consumer enters “mekdi” in Grab’s search bar, the term gets matched to “McDonald’s”, and similarly other local dialects are interpreted by its AI and matched to the corresponding intended terms.
The company is committed to improving its app using AI and spent $250 million collectively on AI development between 2019 and 2020. In May, Grab (NASDAQ:GRAB) entered a partnership with OpenAI to build and deploy models that will enrich user experience via AI-powered customer support chatbots, improve navigation on maps, and improve accessibility for visually impaired and elderly individuals.
GRAB is a risky investment, no doubt about that, but for risk-tolerant growth investors here’s the takeaway:
Grab (NASDAQ:GRAB) has a near-monopoly position in Southeast Asia when it comes to ride-hailing and delivery services. It acquired Uber’s Southeast Asian operations back in 2018 and also made a bid for Singapore’s third-largest taxi operator, Trans-cab, back in 2023. Although the deal is under regulatory review, if it goes through, it will strengthen Grab’s (NASDAQ:GRAB) market position.
Moreover, a steady growth in users on its app, driven by a better and more personalized experience for them, can potentially translate into higher earnings. While it is unprofitable right now, you need to see that there are over 675 million people in Southeast Asia and Grab (NASDAQ:GRAB) has only captured about 6% of its total addressable market. So, there is potential here and the stock has room to run. The company ended the quarter with $2.1 billion in cash and only lost $294 million over the past twelve months.
Grab (NASDAQ:GRAB) can use its cash reserves to facilitate growth over the next several quarters and potentially deliver strong returns. Analysts hold a consensus Buy opinion on the stock and their 1-year median price target points to a 32% upside from current levels.
Overall GRAB ranks 1st on our list of the best penny stocks to buy according to the media. You can visit 10 Best Penny Stocks To Buy According to the Media to see the other penny stocks that are on hedge funds’ radar. While we acknowledge the potential of GRAB as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GRAB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.