In this article, we will take a detailed look at the 11 Best Value Penny Stocks To Invest In Now.
When 2024 started many analysts were ringing warning bells regarding valuations of mega-cap technology stocks that touched their new highs in the last quarter of 2023 amid the AI boom. These analysts were right about some names (Apple, Tesla, among others) that failed to sustain their bull run, but proved wrong about the leaders in the AI domain (Nvidia, for example). During all this, many experts are also talking about a possible return of value stocks.
The Return of Value in 2024?
In March, a Bloomberg report talked in detail about how many investment firms were pouring money into value stocks from sectors like financials, energy, materials and utilities. Among the investors preferring these sectors included Nanette Abuhoff Jacobson, global investment strategist of Hartford Funds, who liked stocks from these “unloved sectors.” The Bloomberg report also mentioned Presilium Private Wealth, which said it found value investing attractive in the current environment.
BlackRock’s Pivot Towards Value
Another pivot towards value investing came in January 2024 when BlackRock initiated a massive reshuffle to its model portfolios to reflect its preference for value versus growth. According to a Bloomberg report, Michael Gates, who leads Model Portfolio Solutions in the Americas within BlackRock’s Multi-Asset Strategies & Solutions group, said that the company was switching to value from growth style to reflect a “bullish view on the economy and a soft landing.”
Indicating confidence in value investing, Franklin Templeton said in a December 2023 report that value stocks were looking more “promising” for 2024 and beyond amid volatility in the financial markets. The report said comparing trailing P/E multiples for global growth and value stocks with their return over the next 10 years shows that “lower P/E stocks achieved higher future returns over the next decade, based on data from FactSet and MSCI. As such, with growth stocks’ stretched valuations, we see many opportunities to find compelling value opportunities with significant future return potential.”
David Einhorn’s Comments About Value Investing During The 2024 Sohn Conference
Billionaire David Einhorn said during The 2024 Sohn Investment Conference that it’s a great time to be a value investor. But at the same time he’s been saying that value investing as an industry is dead (we covered Einhorn’s thoughts on the demise of value investing industry here). When asked about these apparently contradictory opinions during a program on CNBC, Einhorn said that value investing industry and value investing as an investing strategy are two different things. He said many fund managers who were paid heavily by people to research undervalued stocks for them have lost their jobs and assets under management amid a shift to index funds where “millions of dollars were redeemed” out of those conventional strategies. But Einhorn said that this development has decreased the competition in the industry and people like him are now in a unique position to find undervalued stocks.
Performance of Value Stocks
Vanguard Value Index Fund ETF (NYSEARCA:VTV) is up by 3.9% year to date through April 14, while Schwab US Large-Cap Value ETF (NYSEARCA:SCHV) is up 3.3% in the same period, compared to the S&P 500’s gain of 8%. Russell 1000 Index (INDEXRUSSELL:RUI) is up 7.7% in 2024 through April 13 while the index has gained about 23% over the past one year. RUI tracks mid-cap and large-cap US companies that have value characteristics.
Value Investor Seth Klarman’s Prediction from 2000
Legendary value investor Seth Klarman in his 2000 letter to investors bemoaned the market’s irrational behavior and said that sooner or later investors would come back to the traditional ways of valuing companies:
“I sometimes joke about the new market valuation rules of thumb: stocks that fail to meet earnings expectations all seem to trade at 10 times reduced earnings, while formerly profitable companies that report losses all seem to trade at five dollars per share. Many investors avoid these stocks precisely because others are staying away. Why would those kind of stocks ever go up, they wonder. Even those of us with value investing in our DNA generally prefer situations with catalysts for the realization of underlying value. Over time, this will change. At some unknowable future point, the undervaluation of small capitalization stocks lacking exciting growth characteristics will become so gaping that investors will once again be attracted. The point of investing, after all, is not to have a great story to tell; the point of investing is to make money with limited risk. At some point, investors will drop their Pulitzer prize winning story stocks and revisit their attention on the old classics, stocks that make you money because their undervaluation creates a compelling imbalance between risk and return.”
Methodology
For this article we first used a stock screener to identify penny stocks with PE ratios under 15. From these stocks we picked 11 companies with the highest number of hedge fund investors. We gave preference to stocks that come from sectors like consumer, healthcare, energy, materials and utilities. Unlike famous names like Microsoft Corp (NASDAQ:MSFT), NVIDIA Corp (NASDAQ:NVDA) and Eli Lilly And Co (NYSE:LLY), which keep making headlines, the stocks mentioned in this list are relatively unknown and don’t create a lot of buzz in the news.
Why do we pay attention to hedge fund sentiment? Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here).
11. Ambev SA (NYSE:ABEV)
Number of Hedge Fund Investors: 13
Beverage company Ambev SA (NYSE:ABEV) is one of the best value penny stocks to buy according to hedge funds. A total of 13 hedge funds tracked by Insider Monkey had stakes in Ambev SA as of the end of 2023. The biggest stake in Ambev SA is owned by Jean-Marie Eveillard’s First Eagle Investment Management which owns an $876 million stake in Ambev SA.
10. Gerdau SA ADR (NYSE:GGB)
Number of Hedge Fund Investors: 13
Steel company Gerdau SA ADR (NYSE:GGB) is one of the best value penny stocks to buy according to hedge funds. Insider Monkey’s analysis shows that 13 funds had stakes in Gerdau SA ADR as of the end of 2023. Jon Bauer’s Contrarian Capital owns an $88 million stake in Gerdau SA ADR.
9. Destination XL Group Inc (NASDAQ:DXLG)
Number of Hedge Fund Investors: 14
With a low PE ratio, apparel company Destination XL Group Inc (NASDAQ:DXLG) is one of the top undervalued penny stocks to buy according to hedge funds. Insider Monkey’s database of hedge funds shows that 14 funds had stakes in Destination XL Group Inc as of the end of 2023.
Last month Destination XL Group Inc posted Q4 results. Adjusted EPS in the period came in at $0.10 beating estimates by $0.03. Revenue in the quarter fell 4.7% year over year to $137.1 million, missing estimates by $1.24 million.
8. Banco Santander S.A. ADR (NYSE:SAN)
Number of Hedge Fund Investors: 14
Banco Santander S.A. ADR (NYSE:SAN) is one of the most undervalued stocks in the financials space trading under $5 as of April 12. Last month, Barclays upgraded the stock to Overweight from Equal Eight. Barclays likes Banco Santander S.A. ADR’s (NYSE:SAN) earnings progression expectations for the long term.
7. Icl Group Ltd (NYSE:ICL)
Number of Hedge Fund Investors: 14
Specialty minerals company Icl Group Ltd (NYSE:ICL) is one of the best value penny stocks to buy according to hedge funds.
Earlier this year Icl Group Ltd said it acquired Nitro 1000, a manufacturer, developer and provider of biologicals in Brazil for approximately $30 million.
Unlike Microsoft Corp, NVIDIA Corp and Eli Lilly And Co, which are highly popular among hedge funds, ICL is a small company with just 14 hedge fund investors.
6. Eastman Kodak Co. (NYSE:KODK)
Number of Hedge Fund Investors: 14
Of the 14 hedge funds that had stakes in Eastman Kodak Co. (NYSE:KODK) as of the end of 2023, Paul Marshall and Ian Wace’s Marshall Wace LLP was the biggest stakeholder of Eastman Kodak Co. with a $2.7 million stake.
During its Q4 earnings call, the company talked about important business insights:
“We are very comfortable, with our levels of working capital and have maintained our focus on serving our customers, throughout this difficult economic period. Cash used in investing activities with $32 million in the current year, a decrease of $24 million, when compared to the prior year. The prior year includes a $25 million equity interest investment in Wildcat Discovery Technologies. Cash provided by financing activities with $85 million in the current year, compared to $43 million in the prior year. This improvement in cash from financing activities is driven by the impacts, of the refinancing transaction, which occurs in the third quarter of 2023. Cash provided by financing activities in the prior year, includes $49 million of incremental cash after fees and expenses, driven by proceeds received from the delayed draw term loan exercise in the second quarter of 2022.”
Read the full earnings call transcript here.
In March Eastman Kodak Co. posted Q4 results. Gross profit in the period came in at $47 million, compared with $43 million posted in the last quarter of 2022. In addition to KODK, hedge funds are also buying major mega-cap names like Microsoft Corp, NVIDIA Corp and Eli Lilly And Co.
5. Five Point Holdings LLC (NYSE:FPH)
Number of Hedge Fund Investors: 14
Real estate company Five Point Holdings LLC (NYSE:FPH) shares have gained about 38% over the past one year. The stock’s PE ratio is still attractive, at 12.70 as of April 12.
Insider Monkey’s database of 933 hedge funds shows that 14 funds had stakes in Five Point Holdings LLC as of the end of 2023.
Third Avenue Real Estate Value Fund stated the following regarding Five Point Holdings, LLC in its fourth quarter 2023 investor letter:
“Furthermore, Five Point Holdings, LLC (NYSE:FPH) (a U.S.-based land development company) launched an exchange offer for its Senior Unsecured Notes, whereby it proposed to pay down $100 million of principal, while also extending the maturity date on the remaining amount to 2028 and introducing an optional amortization feature. The offer was accepted by more than 99.0% of the holders, thus allowing the company to move forward with the well-designed transaction that will further reduce debt and grant Five Point more flexibility as it seeks to unlock the value embedded in its incredibly scarce land positions—an amount that seems much more significant than currently implied by the prevailing price for its common stock, in Fund Management’s view.
The Fund participated in several of these developments, primarily by (i) increasing its position in Ingenia Communities alongside the Sun Communities offering and (ii) agreeing to engage in the Five Point exchange offer, which is expected to close in January 2024. The Fund also increased its position in Sun Communities during the period and trimmed back certain holdings for portfolio management purposes.”
4. Banco Bradesco S.A. ADR (NYSE:BBD)
Number of Hedge Fund Investors: 16
Insider Monkey’s database of 933 funds shows that 16 hedge funds had stakes in the Brazil-based financial services company Banco Bradesco S.A. ADR (NYSE:BBD). The stock has a dividend yield of about 7.9%.
Ken Fisher’s hedge fund was the biggest shareholder of Banco Bradesco S.A. ADR as of Q4’2023 with a $242 million stake.
3. Nordic American Tankers Ltd (NYSE:NAT)
Number of Hedge Fund Investors: 16
With a dividend yield of over 11% and a low PE ratio, Nordic American Tankers Ltd (NYSE:NAT) is a popular penny stock among elite money managers. A total of 16 funds had stakes in Nordic American Tankers Ltd as of the end of 2023.
In February Nordic American Tankers Ltd upped its dividend by 100%.
2. Hallador Energy Co (NASDAQ:HNRG)
Number of Hedge Fund Investors: 17
Goldman Sachs recently published a list of stocks that could benefit if Donald Trump wins the 2024 election. Colorado-based coal company Hallador Energy Co (NASDAQ:HNRG) was part of the list under coal theme.
A total of 17 hedge funds in Insider Monkey’s database have stakes in Hallador Energy Co as of the end of 2023.
Cove Street Small Cap Value Fund stated the following regarding Hallador Energy Company in its first quarter 2024 investor letter:
“Hallador Energy Company (NASDAQ:HNRG) is a classic case of “I guess we should have sold it all.” We don’t pretend that the coal business and the coal power generation business is not cyclical, but this was past the north-end of our expectations. A warm winter and low gas prices were the simple double whammy. We see the opposite this summer. Underneath short-term movement, the U.S. remains in a dance between the desire for Green and the necessity of consistently keeping the lights on. These assets get more valuable every day in our opinion.”
1. Amylyx Pharmaceuticals Inc (NASDAQ:AMLX)
Number of Hedge Fund Investors: 36
Amylyx Pharmaceuticals Inc (NASDAQ:AMLX) shares keep falling despite Amylyx Pharmaceuticals Inc’s (NASDAQ:AMLX) latest announcement of encouraging phase 2 data on its treatment, AMX0035, for the rare disease Wolfram syndrome.
Of the 36 hedge funds that had stakes in the biopharma company Amylyx Pharmaceuticals Inc, Andreas Halvorsen’s Viking Global had the biggest stake ($44 million).
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Disclosure. None. 11 Best Value Penny Stocks To Invest In Now was initially published on Insider Monkey.
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