We recently compiled a list of the 7 dirt cheap stocks to invest in now. In this article, we are going to take a look at where Vale S.A. (NYSE:VALE) stands against the other the Dirt cheap stocks to invest in now.
The stock market is at a turning point after one of the longest bull runs in recent history. With major market indices close to all-time highs, valuations are getting out of hand. Likewise, the earnings season has seen increased volatility, though, with some significant selling of semiconductor and artificial intelligence stocks that used to draw investors.
Soaring geopolitical tensions in the Middle East are complicating the situation and triggering risk aversions in the market. Investors are becoming increasingly cautious and resorting to safe-haven assets due to concerns about a full-blown war in the Middle East that could seriously impact the global economy.
READ ALSO: 10 Stocks That Will Make You Rich in 5-10 Years and Bill Ackman Stock Portfolio: 8 Top Stock Picks.
Growing geopolitical tensions have been a factor in the stock market’s erratic start to October. According to Barbara Doran, founder of BD8 Capital Partners, things getting out of hand in the Middle East could cause stocks to decline.
Surveys of public opinion already indicate that jitters are rising in the market. A gauge of consumer confidence saw its most significant one-month drop in over three years last week. Furthermore, the National Federation of Independent Business reports that a recent survey of confidence among small-business owners dropped more than anticipated in early September, maintaining the gauge below its 50-year average for 32 straight months.
“We’re in a Goldilocks moment for the U.S. economy,” said Rich Nuzum, chief investment strategist at Mercer. “But Goldilocks moments are rare, and they tend not to last long. So when does something go bump in the night?”
Bargain Hunting in an Overvalued Market
While the market is priced at a premium due to the artificial intelligence frenzy, it does not mean there are no bargains. There are dozens of dirt cheap stocks to invest in now that are trading at discounted valuations depicted by low price-to-earnings multiple and solid underlying fundamentals.
Interest rate reduction was expected to benefit small-cap stocks. That isn’t happening. The Federal Reserve’s dramatic interest rate cut two weeks ago has caused the small-cap-focused Russell 2000 index to fall by 0.5%, lagging behind the S&P 500’s 1.3% gain.
According to Bank of America, investors should be aware of a few important US stocks while navigating the current market climate. In a note to clients, strategist Nigel Tupper stated that a combination of improving global earnings cycle, easier monetary policy in the US as inflation returns to the target level, and China’s recent multifaceted stimulus appears supportive of equity markets and cyclicals.
It is important to note that not all investments will yield significant returns, considering valuations have gotten out of hand with the S&P 500 at an all-time high. Nevertheless, long-term investors can make substantial gains by selecting solid growth stocks trading at discounted valuations. An undervalued company backed by excellent financial fundamentals, such as robust revenue and earnings growth, will always elicit strong interest from professional investors. Therefore, it is likely to enjoy significant share price appreciations down the line.
The Organization for Economic Cooperation and Development predicts that declining interest rates and rising real wages will contribute to a modest increase in global economic growth this year and next year, which is one of the reasons to be bullish about dirt-cheap stocks.
Our Methodology
To compile the list of dirt cheap stocks to invest in now, we sifted through screeners and reports, scanning for high-quality stocks trading at discounted valuations. From an initial list of 20 stocks, we settled on the top seven stocks that were trading under a forward P/E of 10, as of October 7, and were the most widely held by hedge funds. The stocks are ranked in ascending order based on the number of hedge funds that hold them, as of Q2 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).
Vale S.A. (NYSE:VALE)
Forward Price-to-Earnings Ratio: 5.60
Number of Hedge Fund holders as of Q2: 45
Vale S.A. (NYSE:VALE) is a heavy mining company and one of the largest iron ore pellets and nickel producers. While headquartered in Brazil, it operates in more than 20 countries. It is the world’s leading iron and nickel producer, and other metals like manganese and copper are used in battery production.
Consequently, Vale S.A. (NYSE:VALE) is one of the companies well-positioned to benefit from the electric vehicle revolution, fuelling strong demand for nickel used in batteries and iron. The company benefits from the scale of its operations by the impressive results it always generates as demand for basic materials increases.
The company delivered better-than-expected second-quarter results, with net profit soaring to record highs of $2.77 billion, nearly triple what it generated last year in the same quarter. The fact that Q2 net profit was 65% higher than in the first quarter underscores the underlying growth as the company benefits from high commodity prices. Revenues were up 3% to $9.9 billion as iron shipments soared 7%
Vale S.A. (NYSE:VALE) remains in a solid financial position, consistently generating a healthy amount of free cash flow from its operations. With dividend yields expected to surpass 7% in 2024 and 2025 from the current 5, there is no doubt that Vale is one of the dirt cheap stocks to invest in now for passive income—additionally, the stock trades at a discount with a price-to-earnings multiple of 5.60.
Hedge funds with investments in Vale S.A. (NYSE:VALE) were 34 in the quarter, with positions worth $1.15 billion. GQG Partners is the top shareholder in the company as of Q2 of 2024, with a position worth $334.61 million.
Overall VALE ranks 5th on our list of 7 dirt cheap stocks to invest in now. While we acknowledge the potential of VALE 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 VALE, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.