We recently compiled a list of the 10 Worst Affordable Stocks Under $10. In this article, we are going to take a look at where Full Truck Alliance Co. Ltd. (NYSE:YMM) stands against the other worst affordable stocks to buy under $10.
Can the Interest Rates Rise in the Long Run, Despite the Fed Cut?
Wall Street and the market are celebrating the Fed rate cut from last week. However, the shadows of uncertainty are still hovering over, especially with the upcoming elections. Fundstrat Global Advisors’ Co-Founder Tom Lee and Professor Jeremy Siegel are optimistic about the market going into a period of growth at least until the elections.
We recently discussed this point of view about how the market is expected to grow with the interest rates coming down. You can take a look at 10 Worst Performing Affordable Stocks Under $40, to read more about it. Here’s an excerpt from the article:
“Jeremy Siegel, professor emeritus of finance at the University of Pennsylvania’s Wharton School of Business and Wisdom Tree chief economist, recently appeared on CNBC and expressed that he was pleasantly surprised by the Federal Reserve’s decision to make a 50 basis point cut. While talking about how the market is going to perform after the announcement, Professor Siegel said the market is going to be at an all-time high and there are not going to be any fluctuations as we have seen in the past few days.
The word “recalibration” holds significance here, the market has been 100% towards the target unemployment around 80% to 90% towards the inflation target and the Fed hasn’t moved the interest rate. Professor Siegel pointed out that the gap has been growing between the Fed Funds and the market conditions and they were thinking about a single cut by year-end until June. However, the latest announcement mentioned the Fed will cut rates at each meeting making a total of 6 cuts until June of next year. This will bring the Fed Funds rate down 200 basis points to 3.3%, which is where the professor thinks it should be.”
It is true that interest rate cuts help both growth and value stocks, but which ones are doing better? The current market trend shows the interest rate cut expectation and the announcement supported growth stocks more than the value stocks and also resulted in small caps becoming new favorites.
Talking about value stocks and how the market could be entering into a slower growth period, Vahan Janjigian, Chief Investment Officer at Greenwich Wealth Management, and Margaret Patel, Senior Portfolio Manager for multi-asset solutions at Allspring Global Investments discussed this in a recent CNBC interview. Janjigian expressed his cautiousness regarding the market even after the Fed cut rates. He believes that interest rates will go up in the long term. It is because the market is eventually going to get a more normalized yield curve, which he believes is good for the economy. If the yield curve continues to follow the upward trajectory, it will favor value stocks more than growth stocks.
Stated that the market moves in the direction Janjigian expects, we can see a sell-off for the stocks that are currently moving higher, including the tech and growth stocks. Moreover, he also pointed towards some of the biggest investment risks. He mentioned that the rising deficit, debt, and cost of servicing the debt are some of the biggest threats. Debt is also one of the reasons interest rates could potentially go up in the future, as the debt grows it can potentially push the market-determined interest rate higher.
It is important to note that Janjigian’s strategy is somewhat hedged, meaning he has stakes in both large and small-cap stocks, indicating that any market outcome will eventually benefit his portfolio.
Adding to this Patel is thinking along the same lines as well. She also believes that the upcoming quarter could be slower, mainly due to the delay by the Fed in lowering the rates. Patel expects the economy will continue to grow but at a slower rate of merely 1% to 1.5%. Talking about her popular stock picks, she prefers companies with sustainability and earnings levels above the market average.
Our Methodology
We used the Finviz stock screener to get a list of stocks under $10 that are trading at a discount to the market average (forward P/E is 23 according to data from WSJ) with earnings expected to grow this year. Using this criteria, we shortlisted 20 stocks and then selected 10 stocks that were most widely held by hedge funds. We ranked the stocks in descending order of the number of hedge funds that have stakes in them, as of Q2 2024. Please note that all data was recorded on September 22, 2024.
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 view of an open cargo shipping yard, highlighting the companies freight listing services.
Full Truck Alliance Co. Ltd. (NYSE:YMM)
Share Price: $7.60
Forward P/E Ratio: 14.94
Earnings Growth This Year: 32.40%
Number of Hedge Fund Holders: 28
With digital transformation taking charge in various industries, Full Truck Alliance Co. Ltd. (NYSE:YMM) has emerged as a freight dispatch company, specializing in its digitally integrated platform. The company uses the latest technologies including cloud computing, big data, mobile internet, and artificial intelligence to make it easier for shippers to connect with truck drivers for their shipping needs.
The platform by Full Truck Alliance Co. Ltd. (NYSE:YMM) is not only feasible for one-time shipments but also a viable option for online trading services as it simply enhances the overall logistics of the supply chain for businesses. Based in China, the company aims to revamp the logistics industry through its platform.
As far as the second quarter results are concerned, it seems that management has been doing well so far to meet that goal. Its average monthly active user base continued to improve during the quarter and reached 2.65 million after growing 32.8% year-over-year.
A growing user base directly translated into increased order fulfillment. The orders fulfilled during the first half of 2024 improved 25% year-over-year indicating its ability to capitalize on its market reach. Full Truck Alliance Co. Ltd. (NYSE:YMM) aims to target and support more than 30 million small and medium-sized enterprises with their shipment requirements.
Talking about profitability, the company has done well to maintain a healthy net income. Its net income for the second quarter was $115.7 million, up 38% from the comparable quarter last year. The stock is also popular among hedge funds and ranks at the lower end of our worst affordable stocks under $10. It was held by 28 hedge funds in Q2 2024, with total stakes worth $662.2 million. Farallon Capital is the top shareholder, with a position worth more than $207 million.
Here is what Baron Funds specifically said about Full Truck Alliance Co. Ltd. (NYSE:YMM) in its Q2 2022 investor letter:
“Full Truck Alliance Co. Ltd. (NYSE:YMM) is the largest digital freight platform in the world. Shares of the China-based company rallied after a cybersecurity review greenlighted the use of its Apps to add new user registrations. We remain investors. Digital platform penetration into China’s four trillion RMB full truck-load market is still just in the single digits. We see major upside based on the expected rollout of transaction commissions to truckers from the current 6% market penetration and less than 1% take rate, and we expect revenue to grow at 50% CAGR over the next five years.”
Overall YMM ranks 10th on our list of the worst affordable stocks under $10. While we acknowledge the potential of YMM 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 a promising AI stock 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.