In this piece, we will take a look at the 12 most profitable cheap stocks to buy. If you want to skip our coverage of the latest happenings in the renewable energy industry, then you can skip ahead to 5 Most Profitable Cheap Stocks To Buy.
As investors seek to exit 2023 with the hopes of interest rates coming down, the stock market of today is quite different from the one before the Russian invasion of Ukraine, the 2022 mega inflation cycle, and the pre-coronavirus pandemic era. Interest rates in the U.S. now sit at record high levels for the 21st century, and they have naturally impacted the stock market and its valuations.
One of the most basic ways in which a stock, or even the entire market, is valued is the price to earnings ratio. This ratio measures the premium that investors pay for a firm over its ability to generate bottom line profit, and a higher ratio implies a higher valuation. So when rates are high, investors demand a higher premium for the opportunity cost of parking capital in interest paying securities, and naturally, this leads to depressed demand for stocks that ends up reducing their valuations.
For the prudent investor, this reduction can also present a buying opportunity if the bets are correctly timed. Lower valuations due to monetary policy are mostly unrelated to a firm’s underlying fundamentals. Consequently, there is potential for them to ‘self correct’ should the economic environment improve to provide investors with an opportunity to book a profit.
This became quite clear in December 2023 after the latest comments by Federal Reserve Chairman Jerome Powell. The central bank has raised interest rates to 5.25%, and with the year coming to a close, anything that anyone can talk about is when the rates will start to drop. Well, Mr. Powell’s latest statements warned against the perils of keeping rates too high for too long, and as a result, stock markets soared across the board. For the week ending on December 15th, the S&P 500 gained 2.5%, the Dow Jones Industrial Average (DJIA) soared by 2.9%, and the NASDAQ Composite posted 2.8% in returns as valuations started to adjust due to hopes of lower interest rates.
In fact, the Fed’s decision to keep rates unchanged was quite good for the S&P 500 as the flagship benchmark stock index went on to touch a 23 week high of 4738 points. This came right when billions of dollars poured into equity funds as investors were in no mood to wait and miss out on returns after confidence in a dovish Fed grew. During the week, $2 billion made its way into U.S. equity funds, with technology and high growth stocks leading the charge.
But what about the economy? After all, while interest rates are naturally quite relevant to stock valuations, so is the economic picture. The stock market is a risky investment vehicle and one that sees funds flow only if the economy is expected to perform to expectations. One of the biggest debates that has stemmed from the Fed’s rapid interest rate hikes is whether they carry the potential to tip America into a recession. Should this be the case, then the market will naturally drop, so it’s important to understand where the economy will head next year as the interest rate hikes feed their way into the system.
On this front, data from the Congressional Budget Office (CBO) is quite relevant. Its latest report estimates that GDP growth in the U.S. will slow down to 1.4% in 2024 after posting 2.5% for the full year 2023. The 2.5% figure for this year is an upward revision from the CBO’s previous estimate of 0.9% for a rather sizeable revision. When it comes to inflation, the CBO believes that the personal consumption expenditures (CPE) index will sit at 2.1% in 2024, just 0.1% higher than the Fed’s preferred reading of 2% due to better supply chains. Finally, it also estimates that the economy will grow by 2.2% in 2025 – a noticeable gain but a downward revision from an earlier 2.4% nevertheless.
So, with the market now re calibrating its expectations for the future, we decided to take a look at the most profitable cheap stocks to buy, with the top three picks being First Citizens BancShares, Inc. (NASDAQ:FCNCA), Vodafone Group Public Limited Company (NASDAQ:VOD), and UBS Group AG (NYSE:UBS).
A close up shot of a stock ticker reflecting the performance of Indian equity markets.
Our Methodology
To make our list of the most profitable cheap stocks to buy, we first made a list of the 30 companies with market capitalization greater than $300 million, average analyst ratings of Buy or better, and the lowest price to earnings ratios. Then, they were ranked by their latest trailing twelve month net income figures and the most profitable cheap stocks to buy are as follows.
12 Most Profitable Cheap Stocks To Buy
8. Vermilion Energy Inc. (NYSE:VET)
Latest TTM Net Income: $960 million
Latest P/E Ratio: 2.82
Vermilion Energy Inc. (NYSE:VET) is a Canadian oil and gas exploration and production company with operations in Europe, North America, and Australia. December was a great month for the firm’s investors as it increased its dividend by 20%.
By the end of this year’s third quarter, 15 out of the 910 hedge funds profiled by Insider Monkey had invested in the company. Vermilion Energy Inc. (NYSE:VET)’s biggest investor in our database is Israel Englander’s Millennium Management through its $38.5 million investment.
Vermilion Energy Inc. (NYSE:VET) joins Vodafone Group Public Limited Company (NASDAQ:VOD), First Citizens BancShares, Inc. (NASDAQ:FCNCA), and UBS Group AG (NYSE:UBS) in our list of the most profitable cheap stocks to buy.
11. Cogent Communications Holdings, Inc. (NASDAQ:CCOI)
Latest TTM Net Income: $1.1 billion
Latest P/E Ratio: 3.18
Cogent Communications Holdings, Inc. (NASDAQ:CCOI) is a global telecommunications company headquartered in Washington, D.C. The firm has struggled on the financial front as of late as it has missed analyst EPS estimates in three out of its four latest quarters.
20 out of the 910 hedge funds part of Insider Monkey’s Q3 2023 database had bought and owned Cogent Communications Holdings, Inc. (NASDAQ:CCOI)’s shares. Jim Simons’ Renaissance Technologies was the firm’s largest shareholder due to its $108 million stake.
10. Peabody Energy Corporation (NYSE:BTU)
Latest TTM Net Income: $1.1 billion
Latest P/E Ratio: 3.10
Peabody Energy Corporation (NYSE:BTU) is an American coal mining company with a presence in nearly every continent in the world. Its stock is down 5% year to date, after the shares surged by 162% in 2022 as the Russian invasion of Ukraine brought coal back into the global energy mix.
As of September 2023 end, 31 out of the 910 hedge funds profiled by Insider Monkey were the firm’s shareholders. Peabody Energy Corporation (NYSE:BTU)’s biggest investor among these is Paul Singer’s Elliott Management as it owned $ 548 million worth of shares.
9. Gulfport Energy Corporation (NYSE:GPOR)
Latest TTM Net Income: $1.1 billion
Latest P/E Ratio: 1.48
Gulfport Energy Corporation (NYSE:GPOR) is an American oil and gas exploration and production company. The firm has beaten analyst EPS estimates in all four of its latest quarters and the stock is rated Strong Buy on average.
After digging through 910 hedge funds for their third quarter of 2023 shareholdings, Insider Monkey discovered that 27 were Gulfport Energy Corporation (NYSE:GPOR)’s investors. Edward A. Mule’s Silver Point Capital was the largest shareholder due to its $755 million stake.
8. Enel Chile S.A. (NYSE:ENIC)
Latest TTM Net Income: $1.8 billion
Latest P/E Ratio: 3.03
Enel Chile S.A. (NYSE:ENIC) is a Chilean utility company that distributes electricity. November was a concerning month for the firm as the short interest in its shares jumped by more than 42% in the second half of the month.
During 2023’s September quarter, eight out of the 910 hedge funds profiled by Insider Monkey had held a stake in the company. Enel Chile S.A. (NYSE:ENIC)’s biggest hedge fund investor is Cliff Asness’ AQR Capital Management since it owns 2.8 million shares that are worth $8.4 million.
7. New York Community Bancorp, Inc. (NYSE:NYCB)
Latest TTM Net Income: $2.7 billion
Latest P/E Ratio: 2.80
New York Community Bancorp, Inc. (NYSE:NYCB) is a regional bank headquartered in Hicksville, New York. After it acquired the ailing Signature Bank in March, the deal moved forward in December 2023 when asset management giant Blackstone won the rights to a portion of Signature’s $17 billion loan portfolio.
Insider Monkey scoured through 910 hedge funds for their third quarter of 2023 shareholdings and discovered 35 New York Community Bancorp, Inc. (NYSE:NYCB) shareholders. Irving Kahn’s Kahn Brothers was the largest shareholder through its $71.3 million stake.
6. PBF Energy Inc. (NYSE:PBF)
Latest TTM Net Income: $3 billion
Latest P/E Ratio: 1.98
PBF Energy Inc. (NYSE:PBF) is an American energy company that refines and sells petroleum products. The firm has operations in the U.S., Canada, and Mexico. It has beaten analyst EPS estimates in three out of its four latest quarters and the shares are rated Buy on average.
As of Q3 2023 end, 35 out of the 910 hedge funds part of Insider Monkey’s database had held a stake in the company. PBF Energy Inc. (NYSE:PBF)’s biggest hedge fund investor is Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital as it owns $180 million worth of shares.
First Citizens BancShares, Inc. (NASDAQ:FCNCA), PBF Energy Inc. (NYSE:PBF), Vodafone Group Public Limited Company (NASDAQ:VOD), and UBS Group AG (NYSE:UBS) are some cheap and profitable stocks.
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Disclosure: None. 12 Most Profitable Cheap Stocks To Buy is originally published on Insider Monkey.
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