We recently compiled a list of the 10 Best Fundamentally Strong Penny Stocks to Invest In. In this article, we are going to take a look at where Safe Bulkers, Inc. (NYSE:SB) stands against the other fundamentally strong penny stocks.
As per Royce Investment Partners, small caps saw a rebound in Q3, exhibiting a strong advance on both an absolute and relative basis. As per the investment management firm, the Russell 2000 Index saw an increase of ~9.3% in Q3 2024, surpassing the large-cap Russell 1000 Index (which rose ~6.1%) and the mega-cap Russell Top 50 Index (which increased ~4.2%). The investment firm believes that small caps see a long road back to the top, with large caps holding a commanding lead through the initial 9 months of 2024.
On a YTD basis, the Russell 2000 saw an increase of ~11.2% compared to the respective gains of ~21.2% and ~27.3% for the Russell 1000 and Russell Top 50, in the third quarter of 2024. The investment firm said a confluence of factors might support small-caps in sustaining market leadership. The still-growing US economy, together with a more typical interest rate environment, might support small-cap leadership.
Investment Themes in the US
As per Russell Investments, the US equity-market leadership reversed during Q3 2024, with small-cap stocks surpassing the returns delivered by their large-cap counterparts. Also, the value factor outperformed the growth factor. This means there was a significant pivot from the first 2 quarters of 2024, during which market returns were dominated by the US large-cap growth stocks— the Magnificent 7, to be precise.
Russell Investments highlighted that, from Q2 2024 to Q3 2024, there was a moderate change in the US average daily turnover, with $578.8 billion in Q3 2024 as compared to $581.5 billion in Q2 2024. Q3 2024 saw a shift in investor focus from high-flying tech stocks to more traditional sectors. Small-cap and value stocks surpassed the performance of large-cap and growth stocks, thanks to the broader market rotation. Moreover, utility stocks saw significant traction due to higher investments in energy infrastructure in a bid to support the elevated demand from AI and data centers.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
Expectations for 2025
Wall Street experts believe that the shifts in monetary policy, sectoral innovation and developments, a favorable interest rate environment, and supportive regulatory environment are expected to fuel growth in small and emerging stocks over the next year.
As per Francis Gannon, Co-Chief Investment Officer, and Managing Director of Royce Investment Partners, earnings form the foundation for long-term performance. This means that earnings tend to support the broader market over the long term. He noted that the Russell 2000 saw a near-record number of companies having no earnings, with a total of ~44.6% (as of September end). Despite this, the earnings growth for the small-cap companies that have them has been estimated to be higher than large-cap ones in 2025.
Chuck Royce, Founder and Senior Advisor at Royce Investment Partners, believes that the lower rates are expected to help the M&A activity. The potential buyers have been waiting for the US Fed to act before they go ahead with acquisitions. He believes that many small-caps want to get merged. Therefore, there are expectations of more strategic buyouts moving forward.
Our Methodology
To list the 10 Best Fundamentally Strong Penny Stocks to Invest In, we used Finviz and Yahoo screeners to extract stocks trading under $5. Next, we selected the companies that have reliable 3-year revenue and 3-year net income growth rates. Finally, the stocks were arranged in ascending order of their hedge fund holdings, as of Q2 2024.
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).
A fleet of vessels sailing in tandem, illuminated by the setting sun.
Safe Bulkers, Inc. (NYSE:SB)
Stock Price as of 4 November: $4.12
3-Year Revenue Growth: 7.3%
3-Year Net Income Growth: 13.8%
Average Upside Potential: ~31%
Number of Hedge Fund Holders: 15
Safe Bulkers, Inc. (NYSE:SB) offers marine drybulk transportation services.
Safe Bulkers, Inc. (NYSE:SB) has plans to expand its fleet with a strong emphasis on environmental upgrades and renewal strategy. Market experts believe that the drybulk outlook is favourable with limited supply and resilient demand. Safe Bulkers, Inc. (NYSE:SB)’s fleet renewal strategy consists of the divestment of older vessels and the addition of second-hand vessels and Phase 3 new builds. The company highlighted that upgrades to the existing fleet, which includes low-friction paints, led to significant fuel consumption savings.
Safe Bulkers, Inc. (NYSE:SB) plans to invest in fleet upgrades using the revenue from scrubbers, and it is open to selling older ships at premium prices because of good condition and recent upgrades. The company has a clear strategy for fleet expansion and renewal and an emphasis on sustainability and operational efficiency. With a favorable outlook for the broader drybulk market, Safe Bulkers, Inc. (NYSE:SB) is well-positioned to capitalize on market opportunities.
The company stated that critical developments of Q2 2024 include the stronger market as compared to the prior year, implementation of its new integrated management system in accordance with DryBMS standards, and the order of 2 additional Phase 3 new builds consistent with its fleet renewal strategy. Safe Bulkers, Inc. (NYSE:SB) has been gradually renewing its fleet with newbuilds which are designed to address the most recent International Maritime Organization (IMO) regulations associated with the reduction of greenhouse gas emissions and nitrogen oxide emissions, and selectively selling older vessels.
Overall SB ranks 1st on our list of the best fundamentally strong penny stocks to invest in. While we acknowledge the potential of SB as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than SB 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.