On January 20, Bloomberg reported that relief swept through the markets as it became clear that Donald Trump would not immediately impose China-specific tariffs on his first day in office, sparking a rally in US equity futures and a decline in the dollar. According to people familiar with the plans, the Trump administration is pivoting towards a more engagement-oriented approach with Beijing, rather than pursuing another trade war. The administration also plans to issue a memorandum directing federal agencies to study existing trade policies and relationships with China, Canada, and Mexico, rather than imposing new tariffs.
This change in strategy has been welcomed by investors, who were concerned that a trade war with China could have significant negative consequences for the global economy. The relief has propelled US equity futures higher, with contracts on the S&P 500 rising 0.5%. The dollar, on the other hand, slumped, with a gauge of the dollar dropping as much as 1.1%. Additionally, Trump’s conversation with China’s leader Xi Jinping, which he described as “very good”, boosted Asian stocks on Monday. However, not all markets were positive, after Trump announced plans to invoke emergency powers to boost domestic energy production while shifting away from renewable sources.
Read Also: 12 Cheapest Stocks with Biggest Upside Potential and Top 10 Undervalued Tech Stocks to Buy According to Hedge Funds.
In an interview with CNBC on January 20, Stanley Druckenmiller, Chairman and CEO of Duquesne Family Office, a financial services company, shared his insights on the markets and the incoming administration. Druckenmiller began by describing the current state of the economy, noting that the United States is experiencing a very low unemployment rate of around 4% and a strong GDP growth rate of 3%. He mentioned that, in his 49 years of experience, the country is likely transitioning from the most anti-business administration to the opposite, which has led to a significant shift in business confidence.
According to Druckenmiller, CEOs are feeling “somewhere between relieved and giddy” about the change in administration. He cited a recent statement by Paul Ryan that discussed a 32% increase in business confidence over the last 12 months, which Druckenmiller believed was likely a record. This surge in confidence, combined with the strong economic indicators, suggests that the economy will remain robust for at least the next six months. Druckenmiller’s firm is a believer in the concept of “animal spirits,” which refers to the idea that business confidence and sentiment can have a significant impact on economic activity.
Despite the positive economic indicators, Druckenmiller noted that the earnings yield to bond yield is at its most unattractive level in 20 years. This means that the return on investment in stocks is relatively low compared to the return on bonds, which could make it challenging for the market to continue its upward trend. As a result, Druckenmiller is cautious in his predictions, citing the push and pull between a strong economy and rising bond yields. He acknowledged that every change creates opportunities for price changes, and the radical shift in administration, combined with innovation and deregulation, could lead to significant disruptions in the market.
The recent changes in trade policies and economic outlook have created a mix of challenges and opportunities for investors. While there are uncertainties, the overall sentiment in the market remains positive with room for growth. With that in context, let’s take a look at the 12 stocks under $5 with biggest upside potential.
A close-up of a stock market ticker displaying the company’s stocks.
Our Methodology
To compile our list of the 12 stocks under $5 with biggest upside potential, we used Finviz and Yahoo stock screeners to find the 30 largest companies trading under $5 as of January 17. From that list, we narrowed our choices to the 12 stocks that analysts see the most upside to. We also included their stock price as of January 17 and their hedge fund sentiment, which was taken from Insider Monkey’s Hedge Fund database of 900 elite hedge funds as of Q3 of 2024. The list is sorted in ascending order of analysts’ average upside potential as of January 17.
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).
12 Stocks Under $5 With Biggest Upside Potential
12. Ultrapar Participações S.A. (NYSE:UGP)
Upside Potential: 67.04%
Stock Price as of January 17: $2.67
Number of Hedge Fund Investors: 10
Ultrapar Participações S.A. (NYSE:UGP) is a Brazilian conglomerate with diversified operations in fuel distribution, chemicals, and storage. The company’s primary business is Ipiranga, a major fuel distribution network, serving gas stations and industries. The company also operates Ultragaz, an LPG distributor company, Ultracargo, the leading bulk liquid storage provider in Brazil, and Oxiteno, a producer of specialty chemicals.
Ultrapar Participações S.A. (NYSE:UGP) is investing in new energy sources and technologies to diversify its portfolio and reduce its dependence on traditional fuels. Ultragaz, the LPG distributor, is expected to contribute significantly to the company’s growth, with a focus on expanding its customer base and increasing its share of new energy sources, such as biomethane and electricity. The company is also exploring opportunities to leverage its logistics and storage capabilities to support the growth of its energy businesses. For example, Ultracargo is developing new terminals and expanding its storage capacity to meet the growing demand for fuel and other energy products.
Ultrapar Participações S.A. (NYSE:UGP) is also investing in its Texaco brand, which is expected to contribute to the company’s expansion in the Brazilian market. The company is also exploring opportunities to support the development of Hidrovias do Brasil, a company in which Ultrapar Participações S.A. (NYSE:UGP) has a stake, and is working to expand its logistics and storage capabilities to support the growth of its energy businesses.
11. Globalstar, Inc. (NYSEAMERICAN:GSAT)
Upside Potential: 76.19%
Stock Price as of January 17: $1.89
Number of Hedge Fund Investors: 17
Globalstar, Inc. (NYSEAMERICAN:GSAT) is a satellite communications company that provides voice and data services through its global satellite network. The company has a strong foundation in mobile satellite services and generates revenue from device sales, service subscriptions, and IoT solutions.
Globalstar, Inc. (NYSEAMERICAN:GSAT) has recently announced a new deal with Apple, that includes the provision of a new network, in addition to the existing one, and the launch of new satellites. The company has established a special-purpose entity to hold the new network assets, which will be funded by a prepayment of $1.1 billion for infrastructure, Apple will also invest $400 million to acquire a 20% passive equity stake in the special-purpose entity. This deal is expected to generate significant revenue for Globalstar, Inc. (NYSEAMERICAN:GSAT), with revenues projected to more than double the company’s current annual run rate. The new satellites and network will also enable Globalstar, Inc. (NYSEAMERICAN:GSAT) to offer expanded mobile satellite services, including increased global MSS licensing, and will provide the company with a strong foundation for future growth.
Furthermore, Globalstar, Inc. (NYSEAMERICAN:GSAT) is investing in the development of new technologies and services. The company is currently in the alpha stage of testing a new system that has been under development and expects to progress to beta testing with key customers. The company is also expanding its XCOM RAN private network 5G access solution, a private wireless network technology designed for high-performance, flexible connectivity in applications such as warehouse automation and factory operations.