We recently compiled a list of the 8 Best Stocks Under $10 To Invest In Now. In this article, we are going to take a look at where Southwestern Energy Company (NYSE:SWN) stands against the other stocks under $10.
Investing in stocks priced under $10 can be an appealing strategy for investors looking for growth opportunities without a significant upfront investment. Such stocks, often referred to as penny stocks or small-cap stocks, can offer high returns but also come with greater risk and volatility compared to blue-chip stocks. However, when chosen carefully based on strong fundamentals, solid management, and positive market sentiment, these investments can yield substantial gains over the long term.
According to BlackRock’s Q4 2024 Equity Market Outlook, there are compelling reasons to consider small caps as part of a diversified portfolio. The firm’s analysis highlights that while the economy continues to face uncertainty, this does not necessarily equate to poor stock performance. Market volatility can present investors with an opportunity to buy high-quality stocks at discounted prices, particularly when driven by sentiment rather than company fundamentals.
Fundstrat’s Tom Lee is also bullish on small caps, we covered this in our article about the 10 Best Young Stocks To Buy Now, here’s an excerpt from it:
“As for small-cap stocks represented by the Russell 2000 index, Lee acknowledged some profit-taking after a strong week but maintained that such fluctuations are typical during bottoming phases. He drew parallels to previous market recoveries, such as energy stocks in 2021, suggesting that while current movements may feel erratic, they signal a multi-year growth opportunity for small caps.”
The past year has seen several “mini rolling recessions,” starting in sectors like technology and housing, as the global economy grapples with a post-pandemic recalibration. Yet, the stock market has shown resilience and adaptability, with many companies adjusting to what can be seen as a return to more stable economic conditions. Volatility, though unsettling, can be a favorable condition for seasoned investors who can spot value opportunities.
In the current environment, where the Federal Reserve’s policy decisions and upcoming elections are expected to further influence volatility, it’s essential for investors to look beyond temporary market disruptions and focus on the fundamentals of individual companies. Historically, the stock market has been a forward-looking mechanism that attempts to predict recessions with mixed success. Market volatility can present investors with an opportunity to buy high-quality stocks at discounted prices, particularly when driven by sentiment rather than company fundamentals.
One key takeaway is that large-cap stocks may present greater opportunities compared to both mega-caps and small-cap stocks. This perspective is based on observations from the third quarter when concerns over a slowing economy led to market turbulence. However, these concerns were largely rooted in sentiment rather than the actual financial health of most companies.
Moreover, volatility can be a double-edged sword. On one hand, it can trigger sell-offs due to investor fear or uncertainty, but on the other, it can provide strategic buying opportunities for fundamentally sound stocks trading at lower prices. Investors should consider adopting a selective approach during these periods, ensuring that they have a deep understanding of the companies in which they invest. This strategy can instill confidence and conviction when markets experience short-term volatility.
Historically, market corrections, defined as declines of 10% or more, are not uncommon. In fact, over the past 35 years, corrections have occurred in 20 years, with an average drawdown of 14%. Yet, during this period, the S&P 500 Index has delivered an average annual return of 11%. Investors who stay the course through these corrections have often been rewarded with strong returns as the market eventually rebounds.
The impact of Federal Reserve rate cuts on different stock categories is also an important consideration. Equity markets generally perform well when the Fed initiates rate cuts, particularly in the absence of a recession. Historical data shows that in the year following the first rate cut of a cycle, large-cap stocks tend to outperform small-cap stocks, with high-quality and low-beta stocks also being strong performers. This trend is observed two and three years after the start of a rate-cutting cycle, suggesting that investors might consider shifting focus to these segments as the Fed’s monetary policy evolves.
Sector performance is another crucial area to explore. Sectors such as healthcare and consumer staples have historically outperformed in the year following the first rate cut of a cycle, driven by their defensive nature and consistent demand. Meanwhile, cyclical sectors like financials typically gain momentum as the cycle progresses and the economy enters a recovery phase.
While every market cycle is unique, the healthcare sector is seen as a potential outperformer over the long term, supported by secular tailwinds such as an aging population and rising health needs. Furthermore, the technology sector, driven by innovation in artificial intelligence and cloud computing, is also poised for long-term growth despite recent setbacks. The integration of AI and machine learning into various industries has created new revenue streams, enhancing operational efficiency and profitability for companies involved.
As the stock market navigates these complexities, investors should maintain a balanced perspective and not shy away from exploring undervalued opportunities. Stocks under $10, while inherently riskier, can still provide substantial upside when identified through rigorous analysis and an understanding of industry trends. For example, some companies in sectors like renewable energy, biotechnology, and digital transformation have shown the potential to scale rapidly from a lower base, driven by strong business models and favorable macroeconomic factors.
Furthermore, sectors that are less sensitive to economic downturns, such as utilities and essential consumer goods, also present interesting opportunities for investing in lower-priced stocks. These sectors tend to exhibit stable revenue streams, which can help cushion portfolios during periods of heightened market volatility. For investors with a higher risk tolerance, energy and tech stocks could offer substantial gains, especially as new innovations and infrastructure developments continue to take shape.
Ultimately, the key to successfully investing in lower-priced stocks lies in adopting a diversified approach, focusing on sectors that demonstrate long-term resilience and growth potential. By analyzing company fundamentals, industry position, and market sentiment, investors can better position themselves to capture opportunities that arise from market fluctuations.
Our Methodology
For this article, we used the Finviz screener and identified 20 stocks with market capitalizations of over $2 billion, having Buy or better rating from analysts, with share prices under $10, as of September 27. Next, we examined Insider Monkey’s data on 912 hedge funds as of Q2 2024. We narrowed down our list to 8 stocks most widely held by institutional investors and ranked them in ascending order of the number of hedge funds that have stakes in them as of Q2 of 2024.
At Insider Monkey we are obsessed with 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 close-up view of an oil rig, its structure illuminated against the setting sun.
Southwestern Energy Company (NYSE:SWN)
Number of Hedge Fund Holders: 49
Share Price as of September 27: $7.11
Southwestern Energy Company (NYSE:SWN), an independent energy firm, specializes in the exploration, development, and production of natural gas, oil, and natural gas liquids (NGLs) within the United States. The company operates through two segments: Exploration and Production, and Marketing. It primarily develops unconventional gas and oil reservoirs in key U.S. regions, including Pennsylvania, West Virginia, Ohio, and Louisiana. Additionally, Southwestern Energy Company (NYSE:SWN) markets and transports natural gas, oil, and NGLs, catering to LNG exporters, energy firms, utilities, and industrial customers. Established in 1929, the company is headquartered in Spring, Texas.
In Q2 2024, Southwestern Energy Company (NYSE:SWN) recorded a net loss of $608 million or ($0.55) per diluted share. This figure, however, includes non-recurring items such as the company’s full-cost ceiling test impairment. Adjusted for these impacts, Southwestern’s adjusted net income stood at $113 million, or $0.10 per diluted share, reflecting a solid operational performance. The company’s adjusted EBITDA came in at $413 million, showcasing its strong ability to generate cash flow from core operations despite the volatile commodity price environment.
Southwestern Energy Company (NYSE:SWN) production metrics for Q2 2024 were also noteworthy, with total net production reaching 379 Bcfe, translating to an impressive daily average of 4.2 Bcfe. This output includes 3.6 Bcf of gas and 101 MBbls of liquids per day. During the quarter, Southwestern invested $430 million in capital, which facilitated the drilling of 30 wells, the completion of 23 wells, and the placement of 22 wells into sales. The company’s proactive adjustment of its production activities in response to changing commodity prices underscores its operational agility.
As of June 30, 2024, Southwestern Energy Company (NYSE:SWN) had a total debt of $4.2 billion, with a net debt to adjusted EBITDA ratio of 2.1x, highlighting a manageable leverage profile. The firm’s weighted average realized price for Q2 2024 was $1.70 per Mcfe, excluding derivatives, which increased to $2.35 per Mcfe when considering derivative impacts, largely due to a favorable movement in liquids prices.
Overall SWN ranks 1st on our list of the best stocks under $10 to invest in now. While we acknowledge the potential of SWN as an investment, our conviction lies in the belief that some 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 SWN 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.