We recently compiled a list of the 10 Best Quality Penny Stocks To Buy. In this article, we are going to take a look at where BRF S.A. (NYSE:BRFS) stands against the other quality penny stocks.

Penny stocks are shares of small companies that usually trade for less than $5 per share. They are often found in smaller or newer businesses and tend to be more volatile and risky because they can rise or fall in value quickly.

Many penny stocks trade on smaller exchanges or over-the-counter (OTC) markets rather than major stock exchanges. While they can offer big rewards if a company grows, they also come with higher risks, as these companies may have unstable finances or less information available to investors.

Most penny stocks usually fall under the small-cap stocks category. However, that is not always the case. Some large companies with high market caps have low share prices due to several factors, even though they are well-established and stable. The most common reason is share dilution.

When a company issues a large number of shares, its share price can be low, even if the company is worth billions overall. We have some companies on our list that fall into the category. This does not necessarily mean the company is struggling or risky like typical penny stocks but the low share price is due to the way its shares are distributed rather than poor performance or instability.

Sustainable Growth Expected in Small Caps Amidst Market Shifts

On July 26, Nathan Moser, Managing Director and Senior Portfolio Manager at Impax Asset Management joined Schwab Network and discussed some long-term possibilities around small-cap stocks. He discussed the recent changes in small-cap stocks and highlighted the positive shift.

He noted that after years of struggles, the recent rise in small caps seems more sustainable, which is driven by strong inflows into ETFs and passive investment vehicles. Moser believes the market’s current move could last for years, despite some short-term volatility, and encouraged buying on any market dips.

Moser pointed out that sectors like regional banks, real estate, and housing have performed well, most likely because investors believe that the Federal Reserve may delay or avoid a recession. He said that the recent rise is just the beginning and compared it to the early stages of a baseball game, with more room for growth in the small-cap sector.

He said, “We’re in the first inning of this move, in my opinion.” However, he advised to keep focus on high-quality, profitable companies due to the risks associated with lower-quality stocks in small caps.

Our Methodology

For this article, we identified 30 quality penny stocks trading under $5, as of September 3. The stocks we identified are profitable, have real sales, and are expected to remain profitable in the future as well. We narrowed down the list to 10 stocks most widely held by institutional investors. We listed the stocks in ascending order of their hedge fund sentiment.

Why are we interested in the stocks that hedge funds pile into? 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).

BRF S.A. (NYSE:BRFS)

Stock Price as of September 3: $4.35

Number of Hedge Fund Holders: 10

BRF S.A. (NYSE:BRFS) stands out as a major force in the global food industry and one of Brazil’s largest food processors. The company, established in 1934 through the merger of Sadia and Perdigão, has built a strong presence in the market by raising, producing, and processing poultry and pork.

It also produces a range of other products including fresh meat, processed goods, pasta, margarine, and pet food. Operating across over 150 countries, the company has a portfolio of more than 30 recognized brands such as Sadia, Perdigão, and Qualy.

Its operational footprint is extensive, with over 103 distribution centers and 40 production facilities spread across Brazil and several international locations, including the United Arab Emirates, the Netherlands, and Malaysia. Serving over 300,000 customers and handling more than 500 million deliveries each month, the company demonstrates a significant reach and operational scale.

According to our database, 10 hedge funds held stakes in BRF S.A. (NYSE:BRFS) in the second quarter, with positions worth $135.525 million. Polunin Capital is the biggest shareholder in the company and has a position worth $72.1 million as of Q2.

BRF S.A. (NYSE:BRFS) has shown strong growth in Q2, marking the sixth consecutive quarter of increased profitability. The company achieved a margin of 17.6% and saw revenue rise by 22.3% compared to the same period last year. The growth is attributed to a 5.4% increase in volumes sold, a 16.0% rise in average prices, and favorable effects from the exchange rate on international revenues.

In the domestic market, the company achieved an adjusted EBITDA of R$1.076 billion (1 BRL = US$ 0.18 as of September 3) with a 15.7% margin, showing a 6% year-over-year increase. The company expanded its market presence by adding 10,400 new points of sale, bringing its total to 302,000 customers, which is a 3.6% increase from the previous quarter.

Internationally, it experienced a 17% rise in revenue, supported by a nearly 5% increase in volume and a more than 10% improvement in realized pricing. The performance was driven by stronger pricing in the halal/Gulf region and an enhanced mix of processed food products. The company’s net profit reached R$1.1 billion, and its free cash flow surged to R$1.7 billion, more than double the amount recorded in the previous quarter.

Additionally, BRF S.A. (NYSE:BRFS) has been active in returning value to its shareholders. On August 14, the company approved the acquisition of up to 17 million additional shares as part of its share buyback program, which is set to continue until October 7, 2025. The move is evidence of the company’s commitment to enhancing shareholder value. It is among our best quality penny stocks to buy.

Overall BRFS ranks 9th on our list of quality penny stocks to buy. While we acknowledge the potential of BRFS 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 BRFS but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

Read Next: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.

Disclosure. This article is originally published at Insider Monkey.