We recently compiled a list of the 10 Best Fast-Growing Penny Stocks to Buy Now. In this article, we are going to take a look at where Indie Semiconductor Inc. (NASDAQ:INDI) stands against the fast-growing penny stocks.
Rate Cuts Are Around the Corner
September tends to be the worst month for the stock market, however 2024 might just be an outlier in history. Considering that the economy is doing worse than what was estimated earlier, the Fed needs to decide on a cut rate soon. We discussed this earlier in our article about the 10 Most Buzzing Stocks To Buy Now, here’s an excerpt from it:
“Investors are concerned that the FED will be slower to lower interest rates while inflation remains sticky and GDP growth begins to cool. Stovall expects three 25-basis point cuts this year, followed by another four in 2025. He thinks that while a 50 basis point cut is rare since it only ever happened twice, in 2001 and then 2007, it is still not unlikely given that the economy is worse than expected.
According to Stovall, investors need to be prepared for this increased volatility as the market digests the Fed’s actions and the potential impact on the economy. The market will likely remain uncertain until the Fed can find the right balance between slowing down the economy and stopping inflation, without causing a recession.”
Michael Feroli, JPMorgan’s chief US economist, recently discussed whether a 50 basis point cut is an overreaction. Feroli advocates for the Fed to implement a 50 basis point rate cut during its upcoming meeting on September 17-18, suggesting that this move would help return the economy to a neutral stance.
He thinks that although the economy is softening rather than collapsing, the Fed should not wait long enough for it to collapse before implementing a 50 basis point cut. The call for a significant rate cut comes in light of recent labor market data, and disappointing job growth, coupled with a downward revision of July’s figures, intensifying speculation regarding the Fed’s monetary policy direction.
Fed officials have been cautious in providing specific guidance regarding the size of the anticipated rate cut. Fed Chair Jerome Powell indicated that the central bank has largely succeeded in controlling inflation through high interest rates but expressed concerns about further weakening in the job market.
However, George Lagarias, chief economist at Forvis Mazars, believes that a 50 basis point rate cut by Fed this month could pose considerable risks to financial markets, and send a misleading signal about imminent recession risk. He thinks that unemployment alone does not translate into a recession, especially considering that China continues to deflate the global economy.
He advocates for a more measured approach, suggesting a quarter-point reduction instead of a 50 basis point cut, which he believes could imply a sense of urgency that may become a self-fulfilling prophecy. Lagarias says that unless there is a significant market disturbance, there is no cause for alarm, and a drastic cut could mislead both the markets and the economy.
According to CME’s FedWatch tool, 30% of market participants are expecting a 50 basis points cut while 70% are expecting a 25 basis point cut. Lagarias’ caution reflects a broader sentiment among economists who advise against hasty decisions that could destabilize financial markets.
Rate cuts are good for business and several small companies that have been under pressure due to higher rates could soar as interest rates come down.
Methodology
To compile our list, we used a stock screener to screen for companies that are trading under $5 and have grown their earnings by double digits over the past year. We made an initial list of 25 stocks and then selected the ones that have grown their revenue by at least 30% over the past 3 years and are also popular among elite hedge funds and analysts. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
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).
A semiconductor chip with intricate circuitry, highlighting the company’s tech capabilities.
Indie Semiconductor Inc. (NASDAQ:INDI)
3-Year Revenue CAGR: 95.42%
Year-over-Year Revenue CAGR: 51.23%
Share Price as of September 5: $3.90
Number of Hedge Fund Holders: 16
Indie Semiconductor Inc. (NASDAQ:INDI) designs and makes specialized chips used in cars and other electronic devices. It provides automotive semiconductors and software solutions for advanced driver assistance systems, autonomous vehicles, and in-cabin, connected car, and electrification applications.
Investors are interested in this company because it brings about immense revenue growth despite its small size. It has a 3-year revenue compound annual growth rate of 95.42%. In the second quarter of 2024, 16 hedge funds were long in the company. The biggest stake is held by Soros Fund Management amounting to $16,537,673.
The company recorded a revenue of $52.36 million in Q2, exhibiting a 0.47% year-over-year improvement. This revenue was lower than Street estimates and came with a loss per share of $0.09.
These results were similar to the overall car industry, as global economic problems slowed down car production by 2%. In the next quarter, sales are expected to grow slightly, although car sales are expected to fall by about 2.5%.
The main thing that sets this company apart from its competitors is that it is the only chip vendor offering all 4 of the key ADAS sensors (radar, vision, LiDAR, and ultrasound). Hence it can offer any combination of these sensors to its partners.
Its new radar front-end application was recently validated and made it a leader in the market for next-generation radar solutions. Management noted that the company’s new product launches and current customer status will enable the company to continue delivering growth above the market and reach outsized growth levels in 2025.
Baron Opportunity Fund stated the following regarding Indie Semiconductor, Inc. (NASDAQ:INDI) in its first quarter 2024 investor letter:
“Indie Semiconductor, Inc. (NASDAQ:INDI) is a fabless designer, developer, and marketer of automotive semiconductors for advanced driver assistance systems and connected car, user experience, and electrification applications. Shares fell during the quarter as the company guided revenue growth for 2024 below Street expectations as its customers digest excess inventory in the early parts of the year. While indie conservatively still expects to be growing at a healthy 25%-plus year-over-year growth rate, well above the industry and peers, investors are concerned the inventory digestion could last longer into 2024 than initially expected despite management confidence in a strong second half of 2024 driven by over 20 new projects layering in through the year across various automakers and applications. Despite the near-term softening, we believe indie remains well positioned for growth over the medium and long term supported by its $6.3 billion design win backlog (versus $220 million in 2023 revenue), and its large program ramps in 2025, including a marquee radar-related rollout, the biggest program in the company’s history. We believe indie can continue to significantly outpace the broader industry and approach $1 billion in revenue by 2028 with premium margins, all supported by its contracted visibility.”
Overall INDI ranks 7th on our list of the best fast-growing penny stocks to buy. While we acknowledge the potential of INDI as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than INDI 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.