We recently published a list of the 12 Best Long-Term Penny Stocks to Buy According to Hedge Funds. In this article, we are going to take a look at where Borr Drilling Limited (NYSE:BORR) stands against the other best long-term penny stocks to buy.

What’s the Future Like for Small Cap Stocks in 2025?

On December 3rd, Bob Kaynor, CFA, Head of US Small & Midcap Equities at Schroders, provided a comprehensive outlook for small-cap stocks in 2025, emphasizing their potential as a cost-effective investment in the robust US economy. He mentioned that the economy has shown resilience post-pandemic, bolstered by fiscal stimulus from the Biden Administration through significant legislation like the CHIPS Act and the Inflation Reduction Act (IRA). This recovery is primarily driven by strong consumer spending and a favorable labor market. In this robust environment while large-cap equities may appear expensive and have likely priced in much of the anticipated growth, small and mid-cap stocks remain relatively undervalued. This presents an opportunity for investors to gain exposure to domestic economic strength without incurring high costs.

Kaynor identified several trends, which he believes could enhance the performance of small and mid-cap stocks in 2025. He pointed out that following a downturn in 2022 and 2023 due to recession fears and high valuations, M&A activity is now rebounding. This resurgence is expected to benefit small-cap stocks as they often become acquisition targets. Additionally, increased IPO activity can generate interest and optimism in the small-cap sector. Moreover, the ongoing and anticipated decline in interest rates starting late 2024 is expected to reduce borrowing costs for small-cap companies, which typically rely on short-term financing. This environment is historically favorable for small caps, particularly when inflation stabilizes between 1% and 3%. Kaynor also noted that the service sector of the market is expanding. The services sector not only forms a significant portion of the GDP but also favors small-cap companies primarily those operating within this space. Moreover, trends like reshoring are enabling small firms to become reliable suppliers for larger corporations. He expects that increased CapEx driven by automation and government support in sectors like semiconductors will likely correlate with revenue growth for small caps, further enhancing their investment appeal next year.

Kaynor noted that Wall Street analysts predict a substantial rebound in earnings for small caps beginning in late 2024, with expectations that their growth will outpace large caps throughout most of 2025.

Our Methodology

To curate the list of the 12 best long-term penny stocks to buy according to hedge funds, we used the Finviz stock screener and Seeking Alpha. Using the screener we got an initial list of penny stocks (trading under $5) with more than 20% 5-year sales growth. Next, we cross-checked each stock for 5-year sales growth from Seeking Alpha. Lastly, we ranked these stocks based on the number of hedge fund holders sourced from Insider Monkey’s Q3 2024 hedge funds database. Please note that the stock prices were recorded on December 31, 2024.

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).

Borr Drilling Limited (NYSE:BORR)

Stock Price: $3.90

5-Year Sales Growth: 26.86%

Number of Hedge Fund Holders: 10

Borr Drilling Limited (NYSE:BORR) is an offshore drilling company that particularly focuses on shallow waters, which means they operate in areas where the water depth is up to about 400 feet. It owns and operates jack-up rigs, which are floating platforms that can be raised above the water level for drilling operations. The company currently owns 22 rigs and is in the process of acquiring two more.

During the fiscal third quarter of 2024, Borr Drilling Limited (NYSE:BORR) reported significant developments. It secured contract extensions for several rigs, including Mist, Prospector 1, and Hild. The company noted healthy utilization levels for modern rigs and maintained rates above 94%, despite some regional softness in Asia and the Middle East due to aggressive competition for contracts. However, despite a healthy utilization rate, its revenue decreased by $30.3 million compared to Q2 2024. Management noted that the decline was due to one-off events in the last quarter, including $17.5 million from the termination of the Rig Arabia contract and $10.6 million related to changes in the operating structure of its Mexican joint ventures.

Borr Drilling Limited (NYSE:BORR) anticipates that demand for jack-up rigs will remain strong, supported by stable Brent crude prices above $70 per barrel, making shallow-water projects economically viable. Management also noted that the company will enter 2025 with nearly 80% of its fleet contracted at an average day rate of $148,000 per day, providing strong revenue visibility.

Overall, BORR ranks 9th on our list of best long-term penny stocks to buy according to hedge funds. While we acknowledge the potential of BORR to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than BORR but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.

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