We recently compiled a list of the 10 Best US Stocks to Buy Under $10. In this article, we are going to take a look at where Genworth Financial Inc. (NYSE:GNW) stands against the other US stocks.
Value in Small-Caps
As the market continues progressing, there is a cautiously optimistic sentiment surrounding small-cap stocks. While many investors are comfortable with economic fundamentals, concerns about high valuations persist. Although the overall market may seem expensive, this is primarily due to the largest market-cap stocks, leaving room for growth in smaller companies.
As global markets improve amid a broader easing cycle, these stocks could play an essential role in portfolio diversification. The focus should be on identifying value beyond mega-cap stocks to uncover opportunities in various sectors and regions. This strategic positioning was highlighted by Sebastien Page of T. Rowe Price on CNBC just a few days ago. We covered his opinions regarding small caps in our article on the 10 Most Promising Penny Stocks According to Hedge Funds. Here’s an excerpt from that:
“Page highlighted that their current strategy includes a slight overweight of half a percent in stocks compared to bonds, which marks an increase in risk appetite compared to previous conversations over the last 18 months. He acknowledged that while the overall market multiple may appear expensive, it is skewed by the largest market-cap stocks. This suggests that there are still opportunities beyond mega-cap names, which have become too consensus-driven and costly.
Addressing concerns about valuations, Page pointed out that while the price-to-earnings ratio appears high, it is essential to consider the context. He mentioned that if one adjusts for return on equity, current valuations may fall below historical medians. Additionally, he noted that the average stock globally trades at a P/E of about 13, which aligns with its long-term average. This indicates that while some segments may seem overvalued, many stocks are positioned reasonably relative to their historical performance.”
On October 11, CNBC’s Mike Santoli and Northwestern Mutuals’ Brent Schutte, joined ‘Power Lunch’ on CNBC to discuss the CPI report numbers and the market reaction. Brent Schutte believes that small and mid-cap stocks offer value regardless of the Fed’s landing.
He expressed concerns about the potential for a wage-price spiral, particularly in light of significant wage increases expected for major employers. He highlighted that these wage hikes could contribute to continued inflation, especially as the economy is already in a late-cycle with fewer available workers. Although unemployment has slightly increased, he emphasized that if demand picks up, it would be challenging to keep inflation in check. He pointed out that rising wages represent a critical factor for the Fed as it navigates monetary policy.
Schutte noted that historically, the Fed has struggled with balancing inflation and employment signals, often reacting too late to emerging trends. He indicated that while there are signs of weakening in the labor market, the current inflationary pressures are still significant. He referred to recent data showing that median CPI rose by 0.4%, which suggests that the path forward may be more complicated than investors currently anticipate.
Mike Santoli added to the conversation by discussing what will dominate market focus in the coming weeks. He mentioned earnings reports as a key factor, alongside economic data and potential impacts from the upcoming elections, acknowledging that while stickier inflation could eventually pose challenges for the Fed, he doesn’t believe this will happen immediately given current interest rates between 4.57% and 5%. He suggested that the stock market might not react negatively to less Fed accommodation if it coincides with a stronger economy.
Discussing large-cap stocks and their performance in this late-cycle phase of the economy, Santoli expressed concern about whether small-cap stocks would eventually take over as leaders in the market. He drew parallels to past market conditions where narrow leadership was evident during economic slowdowns. He noted that small and mid-cap stocks have been priced for recession, and their performance on days when rates rise indicates they are under pressure compared to larger stocks.
Schutte then talked about the implications of persistent inflation on small-cap earnings, highlighting that Russell 2000 earnings had been flat for 3 years amid rising rates. He questioned how much of this scenario is already priced into the market and pointed out that many investors have gravitated towards mega-cap stocks due to their perceived stability amidst economic uncertainty.
Schutte emphasized the importance of monitoring economic indicators to make decisions on small-caps among other stocks, but to ease up the search for you, we’re here with a list of the 10 best US stocks to buy under $10.
Methodology
We used the Finviz screener to compile a list of 30 large US stocks that were trading below $10. We then selected the 10 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
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).
An individual signing financial documents with a representative from the life insurance company nearby.
Genworth Financial Inc. (NYSE:GNW)
Share Price as of October 16: $7.14
Number of Hedge Fund Holders: 38
Genworth Financial Inc. (NYSE:GNW) provides life insurance, long-term care insurance, mortgage insurance, and annuities. It provides products and services to individuals and families, helping them protect their financial future.
The company reported a net income of $76 million, and adjusted operating income of $125 million in Q2 2024. Enact had a strong quarter with an adjusted operating income of $165 million to Genworth Financial Inc. (NYSE:GNW), receiving $63 million from Enact in the second quarter. The LTC segment reported an adjusted operating loss of $29 million, while life and annuities reported an adjusted operating loss of $1 million.
Genworth Financial Inc. (NYSE:GNW) reported an outstanding quarter under the multi-year rate action plan, achieving a total of $138 million of gross incremental premiums approved, with an average percentage premium increase of 47%. It continued to scale its CareScout Quality Network in the second quarter, extending its availability to 40+ states as of July 30. It has already achieved ~70% coverage of the age 65-plus census population in the US and now expects to achieve between 80% to 85% coverage by the end of the year.
Its LTC policyholders have quickly adopted CareScout. It has helped hundreds find quality care, saving $1-1.5 billion on LTC claims. It’s seeking approval from the Compact to expand its product reach. The company’s strategic focus on growing its CareScout business and expanding its legacy LTC insurance portfolio positions it well for long-term profitability and shareholder value creation.
Here is what Ravensource Fund has to say about Genworth Financial, Inc. (NYSE:GNW) in its Q4 2021 investor letter:
“Genworth is a U.S. publicly listed (NYSE:GNW) insurance company that covers mortgage, life and long-term care needs. In 2021, the market price of our Genworth common shares increased from $3.78 to $4.05, growing the value of your Ravensource investment by 0.4%.
Much like Quad, Genworth had a transformative year. And much like Quad essentially none of its achievements were reflected in its share price. In 2021, Genworth sold its stake in its Australian mortgage insurance unit and successfully completed a partial IPO of its crown jewel U.S. mortgage insurer, both key milestones for our thesis. These non-core asset sales enabled Genworth to reduce its debt by ~$1bn / 50% in 2021, with over $3bn of total debt reduction since our initial investment. Genworth has gone from a company whose senior debt was trading at 10% yields, to a strong healthy company intending to return capital to shareholders in 2022 — the first time it will have done so since 2008. This is a critical final-stage step to Genworth rebuilding its market credibility and investor base, and will help bridge the gap between the current price and our conservative value of $5.00, representing a 23.5% potential return.”
Overall GNW ranks 5th on our list of the best US stocks to buy under $10. While we acknowledge the growth potential of GNW 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 GNW 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.