In an interview with CNBC on January 25, Jill Carey Hall, Global Research Head of U.S. Small and Mid-Cap Strategy at BofA, discussed her outlook for the small-cap and mid-cap space. She believes that this year may not be the best for small caps, citing a tough backdrop and disappointing profit growth. According to Hall, the profit growth recovery story that many investors were bullish on last year has continued to get revised down and pushed out further into 2025, resulting in negative year-over-year earnings growth in the small-cap segment.

Hall thinks that mid-caps are a better bet, citing better fundamentals and balance sheets. She notes that if the market broadens out, mid-caps could offer the best risk-reward, especially in an environment where multiple rate cuts have gotten priced out of the market. BofA expects the Fed to stay on hold and not cut rates further, which could pose refinancing risks for small caps. In contrast, mid-caps have better balance sheets and fundamental trends, making them a more attractive option.

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Despite the optimism around the economy and potential policies from the Trump administration, Hall believes that rates still matter more than anything else. She notes that small caps have underperformed for a decade and are due for an outperformance cycle, but this year may not be the best time to jump back in. Hall thinks that investors are nervous about small caps and need to see a more convincing profit turn and stabilizing rates before becoming more bullish. However, she does see opportunities in domestic mid-caps, particularly those with less leverage, less refinancing risk, and economic sensitivity.

Hall advises being selective in the small-cap space, rather than owning a benchmark. She believes that certain pockets of the market, such as financials, are well-positioned to benefit from the current backdrop, and that owning stocks with rising earnings estimates could be a good strategy. She emphasizes the importance of watching rates and profit growth, and being selective in one’s investments, rather than making broad bets on the small-cap space.

While small caps may face headwinds this year, mid-caps appear to present a more favorable opportunity due to stronger fundamentals and reduced refinancing risks. With that in context, let’s take a look at the 10 best affordable stocks under $5 to buy now.

Our Methodology

To compile our list of the 10 best affordable stocks under $5 to buy now, we used Finviz and Yahoo stock screeners to identify 25 companies with a forward price-to-earnings (P/E) ratio below 15 as of January 24, and an average analyst-projected earnings growth of at least 8% for the current year. We then used Insider Monkey’s Hedge Fund database to rank 10 stocks according to the largest number of hedge fund holders, as of Q3 2024. The list is sorted in ascending order of hedge fund sentiment.

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).

10 Best Affordable Stocks Under $5 to Buy Now

10. Getty Images Holdings, Inc. (NYSE:GETY)

Number of Hedge Fund Holdings: 4

Forward P/E Ratio as of January 24: 14.77

Earnings Growth This Year: 10.53%

Stock Price as of January 24: $2.62

Getty Images Holdings, Inc. (NYSE:GETY) is a leading global provider of premium visual content and services. The company offers an extensive collection of high-quality images, videos, and other media assets to businesses, media organizations, and creative professionals worldwide. Getty Images Holdings, Inc. (NYSE:GETY) operates through three primary brands: Getty Images, iStock, and Unsplash+.

Getty Images Holdings, Inc. (NYSE:GETY) has been expanding its subscription business, which contributed to over 50% of its total revenue in Q3. The company has experienced nine consecutive quarters of strong double-digit growth in its annual subscriber base. This growth has been fueled by the success of its e-commerce platforms, particularly iStock and Unsplash+, which have attracted new customers from target growth markets across EMEA, APAC, and the Americas and supported the company’s geographic expansion strategy.

Getty Images Holdings, Inc. (NYSE:GETY) is also emphasizing its Custom Content offering, which has been trusted by leading brands such as Citi, Mitsubishi Motors, HSBC, Asahi, and 3M to produce tailored product and brand-specific content. These projects not only generate significant revenue but also strengthen customer relationships and create additional opportunities for upselling and cross-selling. Additionally, Getty Images Holdings, Inc. (NYSE:GETY) is leveraging its extensive archive to create commercials for global brands, including Prime Video. The company has also partnered with Sony Pictures on its Venom series and will utilize Getty Images Holdings, Inc.’s (NYSE:GETY) high-quality generative AI models to support the Venomize My Pet promotional campaign.

9. Inter & Co, Inc. (NASDAQ:INTR)

Number of Hedge Fund Holdings: 6

Forward P/E Ratio as of January 24: 8.81

Earnings Growth This Year: 53.85%

Stock Price as of January 24: $4.95

Inter & Co, Inc. (NASDAQ:INTR) is a leading financial technology company in Brazil, known for its innovative “Super App” that integrates a wide range of financial services, from banking and credit to investments, insurance, and e-commerce.

Inter & Co, Inc. (NASDAQ:INTR) is continuously enhancing its Super App to offer a more comprehensive and seamless user experience. The app is designed to go beyond traditional banking services and integrates features such as hyper-personalization, AI-powered concierge services, and a robust content platform. Hyper personalization is a key focus and the company using advanced data analytics to tailor services and offerings to individual client needs to drive higher conversion rates and increased sales. Furthermore, Inter & Co, Inc. (NASDAQ:INTR) recently launched an AI-powered Inter Shop Concierge which is expected to further drive traffic and monetization in the company’s e-commerce platform.

Inter & Co, Inc. (NASDAQ:INTR) is focusing on global expansion through its Global Account initiative. The company has already made significant inroads in the U.S. using its services for banking, investing, and shopping. The Global Account feature allows clients to manage international transactions and investments. Inter & Co, Inc. (NASDAQ:INTR) also plans to launch a credit card in the U.S. by 2025, which will further enhance its offerings. Beyond the U.S., Inter & Co, Inc. (NASDAQ:INTR) plans to explore other international markets through a bank-as-a-service model by leveraging its existing technology and financial infrastructure.