In this article, we will look at the 7 Penny Stocks with Low PE Ratios. Let’s look at where Generation Income Properties, Inc. (GIPR) stands against other penny stocks with low PE ratios.
The US economy has evaded the risk of a recession. Instead, it is tilting towards a soft landing. Larry Adam, chief investment officer at Raymond James, recently appeared in a CNBC interview and is of the opinion that the current market is precisely what a soft landing looks like. Talking about how lower interest rates are expected to benefit small caps, in particular the Russell 2000, Adam said that he believes the bull market will continue with the economy inching closer to a soft landing.
Small cap stocks get around 56% of their financing from the short end of the curve, which refers to the short-term interest rate on the yield curve. This typically represents the yields on bonds with shorter maturities, such as 2-year or 5-year Treasury notes. The large-cap companies, in contrast, get only 26% of their financing from these short ends of the curve. Therefore, Adam concludes that as the Fed continues to lower interest rates, small cap companies will be better positioned to meet their financing needs.
He pointed out that the Fed is expected to cut rates twice in 2024 and another four times in 2025, painting a favorable picture for small caps. He iterated that the impact of the rate cuts has been positive for small caps, which have outperformed large caps. Taking this into a historical context, whenever the economy goes towards a soft landing, the circumstances help the small caps more significantly than the rest of the market.
Future Outlook for Small Caps
In one of our recent articles on the 8 Hot Penny Stocks To Invest In According to Hedge Funds, we discussed whether small caps are expected to rally in the coming days. Here is an excerpt from the article:
The US economy has successfully evaded the chances of a recession. The expected performance of small caps in a slowing economy has thus become an important discussion. Nancy Prial, Co-CEO & Senior Portfolio Manager at Essex Investment Management, recently joined CNBC for an interview to talk about the expected performance of small cap stocks in an economy going towards a soft landing. Prial believes this is the beginning of a multi-year bull cycle for small cap stocks. Her claim is based on certain underlying reasons, including small caps being significantly under-owned at present. In fact, they are standing at record lows as a percentage of the total equity market.
In addition, the valuations of small caps are substantially attractive, and are considerably below their large cap counterparts in the S&P 500. The relative earnings growth for small cap stocks is another significant factor. With the earnings growth of small cap stocks expanding. Prial expects small cap stocks to be growing faster than their large-cap counterparts by the end of the year. She thinks that the Federal Reserve interest rate cuts and the confidence that the economy is moving towards a soft landing were what we really needed to turn the situation around.
The S&P 500 EPS growth rate estimates show that the market is anticipated to experience more than a 13% year-over-yearyear-over-year growth in Q4 and more than 15% in the coming year. Since Prial mentioned that small caps are likely to outperform large caps in terms of growth in the coming future, she clarified that the overall indices might not be able to perform above the 15% threshold. Investors thus need to be good stock pickers to capitalize on the earnings growth trend, as she believes in a number of small cap stocks experiencing a 15% to 20% growth in the coming year.
Tom Lee, Head of Research at Fundstrat Global Advisors, expressed a similar bullish sentiment, saying that he expects a considerable rally in small-cap stocks as the rate cut cycle begins. He thinks that the recent volatility in small cap stocks is part of a multi-year bottoming process, propelled by investor expectations and economic data.
Small caps which typically trade at discounted valuations offer considerably better earnings growth prospects than mega-cap growth stocks. The easing of monetary policy and strengthening fundamentals thus make small caps an attractive buy for Lee, even with the unpredictability surrounding near-term volatility.
Our Methodology
We used the Finviz stock screener and Yahoo! Finance to make a list of 15 penny stocks with forward P/E ratios less than 10 and positive EPS growth this year as of October 7. We then sourced their hedge fund sentiment from Insider Monkey’s database, and arranged the stocks in ascending order of their number of hedge fund holders, as of Q2 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).
7 Penny Stocks with Low PE Ratios
Generation Income Properties, Inc. (NASDAQ:GIPR)
Share Price: $2.03
Forward P/E: 1.75
EPS Growth This Year: 14.30%
Number of Hedge Fund Holders: 2
Generation Income Properties (NASDAQ:GIPR) is an internally managed real estate investment trust that focuses on managing and acquiring income-producing office, retail, and industrial properties net leased to high-quality tenants in US markets. Its retail, office, medical retail, and industrial properties are located in a number of states. The company also has several subsidiaries, including Generation Income Properties, GIPVB SPE LLC, GIP DB SPE LLC, GIPVA 2510 WALMER AVE LLC, GIPNC 201 Etheridge Road LLC, and others.
The company has a strong portfolio and is stable in its operations. Its total revenue from operations during the three and six months ending June 30, 2024, stood at $2.3 million and $4.7 million, respectively. These numbers were up from $1.3 million and $2.7 million for the three and six months ending June 30, 2023, respectively. This revenue increase was driven by the integration of the 13 property portfolio that the company acquired from Modiv in August 2023.
It also signed a lease with Auburn University at an industrial building in Huntsville, AL. Its management is continually receiving indicative terms that prove favorable to the company. It currently holds 100% rent collection from its leased properties, and received $2.5 million in cash for its Limited Partnership from a new investor. Generation Income Properties (NASDAQ:GIPR) extended the redemption date for membership interests of its equity partnership in two of its Norfolk, Virginia properties to February 2027 from February 2025.
Its future goals are to provide long-term growth to its investors and pay a 100% covered dividend. Thus, it is undertaking efforts to reach these goals in as little time frame as possible, closely monitoring the dislocated market. Pricing for the assets in the company’s target is tilting in its favor, which is proving beneficial to everyone related to the company. It ranks sixth on our list of the 7 penny stocks with low P/E ratios.
Overall, GIPR ranks 6th among the 7 penny stocks with low PE ratios. While we acknowledge the potential of GIPR 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 GIPR 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.