In this article, we will take a detailed look at the 13 Penny Stocks that Captured the Attention of Billionaires. For a quick overview of such stocks, read our article 5 Penny Stocks that Captured the Attention of Billionaires.
Investors are jubilant after the Fed’s clear signal that it would begin cutting interest rates in 2024. Markets have remained under pressure due to uncertainty caused by higher interest rates. While many believe we are still not out of the woods, the Fed’s acknowledgement that its efforts against inflation are working and its readiness to take a dovish stance is enough to soothe investors’ nerves in the short term.
But will stocks keep rebounding in 2024? Will socks rise after the Fed actually starts to cut interest rates? An interesting report from LPL Research takes a look at the behavior of equities during interest rate cuts. The report said that while assessing or predicting stock movements driven by interest rate cuts, it’s extremely important to pay attention to where we actually are in the business cycle. For example, the report said that when the Fed began to cut rates after series of hikes in January 2001 and September 2007, the economy entered recessions. However, rate cuts of 1984, 1987, 1989, 1995, and 1998 saw the S&P 500 significantly rise over the next six to 12 months.
A report by Meeder Investment Management takes an interesting look at the effect of rate cuts on stocks and whether it makes sense to be overly bullish on stocks on expectations of rate cuts next year.
“One common perception among investors is that the stock market will perform well once the Fed starts cutting interest rates. History tells us this is not necessarily always the case. In fact, over the past nine initial interest rate cuts, more than half of the Fed’s first cuts were followed by declines in the S&P 500 Index ranging from -22.6% to -55.5%. The Technology bubble in the early 2000s and the Great Financial Crisis proved to be the worst scenarios, with the Fed cutting interest rates at two different times during the secular bear market of 2000–2009. On the other hand, four of the nine occurrences were followed by minimal weakness and achieved strong 6-month returns. On balance, over the past nine initial interest rate cuts, the S&P 500 Index had an average decline of -20.5% and an average 6-month return of 3.4%. So while the market has experienced both bull markets and bear markets following the first rate cut, history does not indicate that the Fed’s accommodative policy will simply carry the market higher. Valuations matter too. When the market had a decline of at least -20% after the Fed’s first cut, the average S&P 500 trailing PE ratio was 18. On the other hand, when the S&P 500 had a decline of less than -10%, the average PE ratio was 11.4. The current P/E ratio of 22 could be another reason to be more cautious once the Fed makes its first cut.”
Risky stocks were ruthlessly shunned by investors when the inflation storm forced the Fed to take a hawkish stance. The market was more gravitated towards safe stocks like Coca-Cola Co (NYSE:KO), Bank of America Corp (NYSE:BAC) and Kroger Co (NYSE:KR). But as investors begin to look towards the era of rate cuts and monetary ease, small companies might see a rebound in investor interest in the coming weeks and months. In this environment, it makes sense to see which penny stocks are bought by smart money investors.
Methodology
For this article we scanned Insider Monkey’s database of billionaire-owed stocks and picked 13 penny stocks (trading under $5) with the highest number of billionaire investors. These penny stocks are popular among smart money investors and thus deserve investor attention.
13. Banco Bradesco SA (NYSE:BBD)
Number of Billionaire Investors: 9
Brazilian financial services company Banco Bradesco SA (NYSE:BBD) ranks 13th in our list of the best penny stocks to buy now according to billionaire investors.
A total of 9 billionaires tracked by Insider Monkey had stakes in Banco Bradesco SA (NYSE:BBD) as of the end of September this year. Some notable shareholders of Banco Bradesco SA (NYSE:BBD) included hedge funds of Ken Fisher, Howard S. Marks, Israel Englander and Ken Griffin.
12. Medical Properties Trust Inc (NYSE:MPW)
Number of Billionaire Investors: 9
Medical Properties Trust Inc (NYSE:MPW) is a REIT focused on healthcare facilities. The stock is down by over 50% year to date through December 12. The stock has a dividend yield of over 12%. In November, Stifel downgraded the stock to Hold from Buy amid concerns that Medical Properties Trust Inc’s (NYSE:MPW) problems would increase in a high interest rate environment.
“The higher for longer interest rate environment and the overall difficulty in getting credit is increasing the likelihood of additional tenant credit issues,” Stifel analyst Stephen Manaker wrote in a note.
As of the end of the third quarter of 2023, some notable billionaires having stakes in Medical Properties Trust Inc (NYSE:MPW) are Philippe Laffont, Israel Englander and Cliff Asness. Unlike Coca-Cola Co (NYSE:KO), Bank of America Corp (NYSE:BAC) and Kroger Co (NYSE:KR), Medical Properties is a small company with some risks involved.
Miller Value Income Strategy made the following comment about Medical Properties Trust, Inc. (NYSE:MPW) in its Q3 2023 investor letter:
“Medical Properties Trust, Inc. (NYSE:MPW) was the top detractor during the quarter. The health care real estate investment trust (REIT) reported 2Q23 revenue of $337.4MM, -15.7% Y/Y, below consensus of $351.3M, and Normalized Funds from Operations (FFO) per share of $0.48, +4.3% Y/Y, ahead of consensus of $0.38. The company ended the quarter with total debt of $10.3B and an Adjusted Net Debt to Adjusted Annualized Earnings Before Interest, Taxes, Depreciation, and Amortization for Real Estate (EBITDAre) ratio of 6.8x, compared to 6.3x at the end of 2Q22. The company announced an updated capital allocation strategy going forward, which includes: i) a ~48% quarterly dividend cut to $0.15/share (11.0% annualized yield), ii) the pursuit of refinancing, asset sales, and joint[1]venture opportunities that bolster liquidity and enable the repayment of debt, and iii) a reduction in discretionary operating expenses and other costs for better alignment with the expected decrease in the company’s asset base and near-term acquisition activities. Management also continues to target a long-term Net Debt to Adjusted EBITDAre leverage ratio of 5-6x. Management revised FY23 guidance for normalized FFO/share of $1.55 (vs. prior guidance of $1.58), or a P/FFO of 3.5x.”
11. Opendoor Technologies Inc (NASDAQ:OPEN)
Number of Billionaire Investors: 9
Online real estate platform company Opendoor Technologies Inc (NASDAQ:OPEN) ranks 11th in our list of the penny stocks that captured the attention of billionaires this year. As of the end of the third quarter of 2023, 9 billionaire-led hedge funds reported having stakes in Opendoor Technologies Inc (NASDAQ:OPEN). The biggest stakeholder of Opendoor Technologies Inc (NASDAQ:OPEN) was Daniel Patrick Gibson’s Sylebra Capital Management which owns a $69 million stake in Opendoor Technologies Inc (NASDAQ:OPEN).
Opendoor Technologies Inc (NASDAQ:OPEN) is one of the best-performing stocks in 2023, having gained about 226% year to date.
10. Dish Network Corp (NASDAQ:DISH)
Number of Billionaire Investors: 10
Dish Network Corp (NASDAQ:DISH) fell in November after weak Q3 results and its CEO’s departure. Dish Network Corp (NASDAQ:DISH) recently said it appointed Hamid Akhavan as president and CEO in addition to his current role as CEO and president of EchoStar.
9. Lufax Holding Ltd – ADR (NYSE:LU)
Number of Billionaire Investors: 10
Chinese personal finance services company Lufax Holding Ltd – ADR (NYSE:LU) was in 10 billionaire-led hedge fund portfolios as of the end of the third quarter of 2023.
8. Compass Inc (NYSE:COMP)
Number of Billionaire Investors: 10
Residential real estate brokerage company Compass Inc (NYSE:COMP) ranks 8th in our list of the penny stocks that remained on billionaires’ radar this year. A total of 10 billionaires tracked by Insider Monkey had stakes in Compass Inc (NYSE:COMP).
The company during Q3 earnings call talked about how it’s using AI to optimize its business:
Recently, we’ve further enhanced that offering by integrating the ChatGPT API into Compass AI, which has already proved to be a game changer for our agents. For those of you who have used AI, you know this technology has seemingly unlimited potential. But it is only as good as the data and you want to context from which it draws.
Compass As is custom built to support real estate agents and over time will be supercharged by a vast amount of proprietary Compass data drawn from our hundreds of thousands of transactions, which is a major competitive advantages over other brokerages. Right now, Compass AI is already augmented with smart, real estate-specific system prompts, as well as contacts taking directly from her proprietary platform data set. And in the future, Compass AI is poised to become a personalized solution trained to a proprietary data and customizable by our agent users. This is a significant advantage for Compass agents compared to agents at other brokerages who typically use general purpose solutions or otherwise search public databases for best practices.
Read the entire earnings call transcript here.
7. Altice USA Inc (NYSE:ATUS)
Number of Billionaire Investors: 10
Altice USA Inc (NYSE:ATUS) got hammered this year, losing about 50%. The stock was spotted in 10 billionaire-led hedge fund portfolios. Cliff Asness and Israel Englander were notable billionaires with stakes in Altice USA Inc (NYSE:ATUS) as of the end of the third quarter of 2023. However, the biggest stakeholder of Altice USA Inc (NYSE:ATUS) was Jonathan Kolatch’s Redwood Capital Management which had a $52 million stake in Altice USA Inc (NYSE:ATUS).
6. Petco Health and Wellness Company Inc (NASDAQ:WOOF)
Number of Billionaire Investors: 10
Petco Health and Wellness Company Inc (NASDAQ:WOOF) sells pet food and services. The stock ranks 6th in our list of the penny stocks that captured the attention of billionaires. Recently, Goldman Sachs in its Equity Research report issued a list of out of favor stocks it believes could rebound early next year. Petco Health and Wellness Company Inc (NASDAQ:WOOF) was one of these stocks.
As of the end of the September quarter of 2023, 10 billionaire-led hedge funds reported owning stakes in Petco Health and Wellness Company Inc (NASDAQ:WOOF). Unlike Coca-Cola Co (NYSE:KO), Bank of America Corp (NYSE:BAC) and Kroger Co (NYSE:KR), Petco is a risky stock with growth catalysts.
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Disclosure. None. 13 Penny Stocks that Captured the Attention of Billionaires was initially published on Insider Monkey.