We recently compiled a list of the 10 Best Quality Penny Stocks To Buy. In this article, we are going to take a look at where Ferroglobe PLC (NASDAQ:GSM) stands against the other quality penny stocks.
Penny stocks are shares of small companies that usually trade for less than $5 per share. They are often found in smaller or newer businesses and tend to be more volatile and risky because they can rise or fall in value quickly.
Many penny stocks trade on smaller exchanges or over-the-counter (OTC) markets rather than major stock exchanges. While they can offer big rewards if a company grows, they also come with higher risks, as these companies may have unstable finances or less information available to investors.
Most penny stocks usually fall under the small-cap stocks category. However, that is not always the case. Some large companies with high market caps have low share prices due to several factors, even though they are well-established and stable. The most common reason is share dilution.
When a company issues a large number of shares, its share price can be low, even if the company is worth billions overall. We have some companies on our list that fall into the category. This does not necessarily mean the company is struggling or risky like typical penny stocks but the low share price is due to the way its shares are distributed rather than poor performance or instability.
Sustainable Growth Expected in Small Caps Amidst Market Shifts
On July 26, Nathan Moser, Managing Director and Senior Portfolio Manager at Impax Asset Management joined Schwab Network and discussed some long-term possibilities around small-cap stocks. He discussed the recent changes in small-cap stocks and highlighted the positive shift.
He noted that after years of struggles, the recent rise in small caps seems more sustainable, which is driven by strong inflows into ETFs and passive investment vehicles. Moser believes the market’s current move could last for years, despite some short-term volatility, and encouraged buying on any market dips.
Moser pointed out that sectors like regional banks, real estate, and housing have performed well, most likely because investors believe that the Federal Reserve may delay or avoid a recession. He said that the recent rise is just the beginning and compared it to the early stages of a baseball game, with more room for growth in the small-cap sector.
He said, “We’re in the first inning of this move, in my opinion.” However, he advised to keep focus on high-quality, profitable companies due to the risks associated with lower-quality stocks in small caps.
Our Methodology
For this article, we identified 30 quality penny stocks trading under $5, as of September 3. The stocks we identified are profitable, have real sales, and are expected to remain profitable in the future as well. We narrowed down the list to 10 stocks most widely held by institutional investors. We listed the stocks in ascending order of their hedge fund sentiment.
Why are we interested in the stocks that hedge funds pile into? 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).
An underground mine filled with heavy machinery digging up valuable minerals.
Ferroglobe PLC (NASDAQ:GSM)
Stock Price as of September 3: $4.28
Number of Hedge Fund Holders: 30
Ferroglobe PLC (NASDAQ:GSM), a prominent global manufacturer of silicon metal, specialty alloys, and ferroalloys, is currently positioned for significant growth. The company’s diverse product range includes essential materials like ferrosilicon for steelmaking and manganese alloys for steel deoxidizing and desulfurizing.
The company also produces silica fume, which enhances the strength and durability of high-performance concrete. The company’s reach is extensive and diverse as it serves a broad spectrum of fast-evolving markets such as solar energy, electronics, automotive, consumer products, construction, and energy.
In Q2, it reported a non-GAAP EPS of $0.13, which beat expectations by $0.08. The company achieved revenues of $451.05 million, which surpassed forecasts by $25.5 million. The results are a sign of strong operational efficiency and financial health. The company’s adjusted EBITDA for the quarter reached $58 million. The company’s EBITDA margins increased from 7% in the first quarter to 13% in the second quarter, driven by higher sales volumes, improved pricing, and reduced production costs.
Dr. Marco Levi, Ferroglobe’s (NASDAQ:GSM) CEO, noted that the company performed well across various areas during the quarter. Sales increased by 15%, and adjusted EBITDA more than doubled from the previous quarter. A key achievement was the restart of its French operations in April, which boosted production of silicon metal and manganese-based specialty alloys. This operational revival has contributed to the overall increase in volumes and improved financial outcomes.
The company also made significant progress in its U.S. ferrosilicon trade case, where the Department of Commerce imposed substantial anti-dumping and countervailing duties on Russian ferrosilicon imports. This decision, announced in June, is expected to benefit Ferroglobe’s (NASDAQ:GSM) U.S. ferrosilicon business starting in early 2025 by reducing competition from lower-priced imports.
Additionally, the company is advancing in the EV sector. Its testing of Coreshell nanocoating technology for silicon-rich anodes has shown promising results, which places the company well in a good position to capitalize on the growing demand for high-performance EV batteries. It tops our list of the best quality penny stocks to buy.
In the second quarter, 30 hedge funds held positions in Ferroglobe (NASDAQ:GSM) and their stakes amounted to $164.590 million. As of June 30, Hosking Partners is the most dominant shareholder in the company and has a position worth $48.8 million.
Ave Maria Focused Fund stated the following regarding Ferroglobe PLC (NASDAQ:GSM) in its fourth quarter 2023 investor letter:
“Ferroglobe PLC (NASDAQ:GSM) was added to the portfolio in the fourth quarter. Ferroglobe is a leading manufacturer of silicon metal, which is a critical input for hundreds of industrial and consumer applications. It was formed via a merger of two companies, but the integration initially went poorly, causing a decline in the company’s stock price. New management was brought in to rectify the situation. The new team successfully completed the integration, which lowered the ongoing costs of the operations and eliminated the company’s debt. Going forward, regulations in the United States and Europe should dramatically increase the production of solar panels. Silicon metal is an irreplaceable input for solar panels, and this new demand for silicon metal will make Ferroglobe’s revenue less cyclical. Now that Ferroglobe has a fortress balance sheet, management has room to enact a large share repurchase initiative. At the time of the initial investment, the Fund was able to purchase Ferroglobe for almost half the replacement cost of its assets. The Fund exited positions in Nvidia, Tyler Technologies, and Valvoline, in part, to fund the Ferroglobe purchase and increase the position sizes of some existing holdings.”
Overall GSM ranks 1st on our list of quality penny stocks to buy. While we acknowledge the potential of GSM 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 GSM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure. This article is originally published at Insider Monkey.