We recently compiled a list of the 10 Best Long-term Penny Stocks to Buy Now. In this article, we are going to take a look at where FinVolution Group (NYSE:FINV) stands against the other long-term penny stocks.

Analysis of the Current Market Environment

A market analysis discussion was held on July 8 with a CNBC panel comprising Carson Group chief market strategist, Ryan Detrick, and Wealth Enhancement Group SVP, Nicole Webb. Both panelists believe that we are in a bullish market and the trend is expected to continue. Webb expressed optimism about the market’s potential to churn higher, even during the current overbought environment. She expects continued defensiveness and earnings growth from mega-cap tech companies. Webb is hopeful for a shift towards rate normalization rather than abrupt cuts.

Ryan Detrick shared bullish sentiments, basing his outlook on the improving inflation data. He pointed out that 34% of the core Personal Consumption Expenditures (PCE) components are experiencing deflation, with notable declines in used car prices and grocery store prices. He expects the Fed to cut rates in September and November, and he believes that these cuts will be in response to declining inflation rather than a sign of economic weakness.

When the CNBC interviewer noted the significant gains leading tech companies contributed and questioned the reliance on these firms for sustained market growth, Nicole Webb acknowledged the complexity of these market themes. However, she maintained a positive outlook and expects broader market earnings growth in the second half of the year. She mentioned favorable conditions for rate cuts and ongoing advancements in AI-driven productivity and cost-cutting as supportive factors for the bull market.

Penny Stocks: Opportunities and Risks in the Current Market Environment

The current market conditions as discussed above present a mixed bag for penny stocks. On one hand, the overall bullish sentiment and expected rate cuts could provide a favorable environment. Lower interest rates typically reduce borrowing costs and can lead to increased investment in riskier assets, including penny stocks. Additionally, a strong economy and rising market indices may boost investor confidence, which could potentially drive more speculative investments into lower-priced stocks.

However, there are also significant challenges. The reliance on mega-cap tech companies for market gains suggests that investors are favoring well-established, financially stable firms over riskier, smaller companies. This preference for safety and quality can limit the flow of capital into penny stocks. Furthermore, the high valuations and earnings expectations for larger firms mean that any market corrections or shifts in sentiment could disproportionately impact smaller, more volatile stocks. This would especially be true if we take Morgan Stanley’s Mike Wilson’s comments into account. In a Bloomberg TV interview on July 8, he said that there is a high chance of a 10% correction between now and the US election and added that the third quarter of the current year is going to be “choppy.”

Overall, while some positive macroeconomic trends could benefit penny stocks, investors need to be cautious. The market’s current emphasis on stability and proven performance may not bode well for these highly speculative investments. Thorough research and a clear understanding of the risks should be on top priority for those considering penny stocks in this environment.

Our Methodology

For this article, we identified around 20 fundamentally strong penny stocks (trading below $5 on July 18) from several financial media websites and sources. We only chose the stocks that have been profitable for at least over a year, showed signs of earnings growth, and have significant future growth prospects. We narrowed down our list to 10 stocks most widely held by institutional investors. The stocks are listed in ascending order of their 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).

FinVolution Group (NYSE:FINV)

Share Price as of July 18: $4.96

Number of Hedge Fund Holders: 11

FinVolution Group (NYSE:FINV) takes the 8th spot on our list of the best long-term penny stocks to buy now. The company is China-based and runs a fintech platform that connects borrowers with financial institutions. The company has a diverse client base, including individual borrowers, institutional funding partners, and individual investors.

The company offers a variety of services designed for these clients, such as different types of loans including standard and consumer loans for borrowers. It also provides investment services for individual investors, which include self-directed and automated investing tools. Additionally, the company connects borrowers with institutional funding partners and provides credit assessment services to streamline the lending process.

At the close of the first quarter, FinVolution Group (NYSE:FINV) showed a robust liquidity position with total cash and cash equivalents plus short-term investments amounting to RMB8.5 billion (1 RMB = US$0.14), which marked a 10% increase from the previous year. This strong balance sheet shows the company’s capacity to support its ongoing business expansion initiatives and explore new growth opportunities while also maintaining its commitment to returning significant value to its shareholders.

In line with its shareholder-centric approach, FinVolution Group (NYSE:FINV) executed a share repurchase program and deployed over $27 million in the first quarter of 2024 alone. This initiative reflects an increase of approximately 1x compared to the previous year’s repurchase activities, which highlights the management’s confidence in the company’s intrinsic value and its commitment to improving shareholder returns. Additionally, since the inception of its capital return program in 2018, the company has returned a substantial $632 million to shareholders through buybacks.

Furthermore, in 2023, FinVolution Group (NYSE:FINV) distributed dividends totaling 62 million shares alongside its significant share repurchase program, which amounted to approximately $100 million. This combined payout represented a smart allocation of resources and was equal to around 49% of the company’s net income for the year.

Looking ahead, FinVolution Group (NYSE:FINV) is committed to creating long-term shareholder value through sustained high-quality growth and a robust capital return program. The company’s approach, which combines dividends and share repurchases, shows its stance on enhancing capital capability and delivering tangible returns to shareholders.

In Q1, 11 hedge funds held stakes in FinVolution Group (NYSE:FINV), with positions worth $28.142 million. As of March 31, GLG Partners is the most significant shareholder in the company with a position worth $13.54 million.

Overall FINV ranks 8th on our list of the best long-term penny stocks to buy. You can visit 10 Best Long-term Penny Stocks to Buy Now to see the other long-term penny stocks that are on hedge funds’ radar. While we acknowledge the potential of FINV as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than FINV but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.