We recently compiled a list of the 10 Best NASDAQ Penny Stocks To Invest In. In this article, we are going to take a look at where Cipher Mining Inc. (NASDAQ:CIFR) stands against the other NASDAQ penny stocks.
Penny stocks are companies that are trading under $5 per share. They represent a unique and controversial segment of the financial market. Penny stocks are known for their low market capitalization, limited liquidity, and high volatility. While penny stocks can offer significant returns for investors, they are full of risks that often make them unsuitable for the average investor. Moreover, penny stocks are more prone to scams such as pump-and-dump schemes, chop stocks, and reverse mergers. We discussed these scams in detail in our article on the best books on penny stocks.
Despite the risks, penny stocks also come with huge advantages. One of the biggest advantages of penny stocks is their potential for massive gains even with a small increase in price. For example, a $1 stock rising to $2, provides a 100% return on investments, which makes them perfect for investors with high risk tolerance.
Assessing the Favorability of Current Market Conditions for Small-Caps
On July 15, Tom Lee, Fundstrat Global Advisors co-founder and head of research discussed the recent rotation of funds from large-cap stocks into small-cap stocks and expressed optimism about their potential rise, in a CNBC interview. The Russel 2000 small cap index is up 11.55% higher between July 9 and 16. He believes the current rally, which began last week, could be more substantial than the October to December 2023 rally that saw a 27% gain in the small-cap index over eight weeks. Lee attributed this rally to larger institutional short positions and even more oversold conditions, in addition to lower valuations, with median P/E ratios now at 10 times 2025 earnings. He predicts a 40% rise over ten weeks, further fueled by the June CPI data indicating softer inflation, which could lead the Fed to cut rates by September.
Regarding the S&P 500, Lee expects July to be positive and expects the broader market index to possibly reach 5700-5800 (0.6% to 2.3% increase from July 16 levels). However, he expects a more pronounced rotation into small caps in August, potentially leading to flat or slightly declining performance for the broader market. He noted that during the previous small-cap rally, large caps underperformed, and he expects a similar dynamic this time, given the significant current short positions against small caps. If Lee’s prediction holds, penny stocks, which account for a significant number of penny stocks, could prove to be attractive investments.
However, if we look at the broader market apart from the penny stocks, AI has been driving the NASDAQ but market participants have raised concerns about a potential AI bubble. This sentiment is shared by Jefferies analysts, Jim Covello from Goldman Sachs, and David Cahn from Sequoia Capital, among others. These analysts are showing skepticism about AI’s economic impact and suggesting that AI may not deliver substantial returns to justify its high costs. Jefferies highlighted difficulties in AI monetization and noted that global investments in AI servers are expected to range from $400 billion to $500 billion between 2023 and 2025, with high power costs adding to the challenge. The firm emphasized that considerable AI revenue is required for a satisfactory return on investment. While current AI stocks are supported by solid cash flows, unlike during the dot-com bubble, the market may see a correction if monetization goals are not met by 2025 or 2026.
On a positive note, other analysts such as Joseph Briggs of Goldman Sachs are optimistic about AI’s potential. They project that generative AI could automate a substantial portion of tasks, leading to significant productivity and GDP growth over the next decade. Despite high current expenditures, some analysts believe the investment in AI is comparable to past technology cycles. They argue that companies linking AI investments to revenue growth are being rewarded, indicating that the investments may pay off in the long run. While there are short-term challenges like chip shortages, the broader adoption of AI could positively impact various sectors, including utilities, in the future. Finally, the potential for AI to transform industries and drive efficiency remains high, with the possibility of future advancements that could justify current spending.
Our Methodology
For this article, we identified around 90 penny stocks listed on NASDAQ with Buy or better analyst ratings and market capitalizations of over $300 million. We narrowed down our list to 10 stocks based on multiple but different metrics such as future growth prospects, valuations, and analysts’ ratings and comments. We listed the stocks in ascending order of their hedge fund sentiment which was taken from Insider Monkey’s database of over 900 elite hedge funds.
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).
A close-up of a laptop with a Bitcoin ecosystem monitor running in the background.
Cipher Mining Inc. (NASDAQ:CIFR)
Share Price as of July 12: $4.68
Number of Hedge Fund Holders: 37
Cipher Mining Inc. (NASDAQ:CIFR) specializes in the establishment and management of large-scale bitcoin mining facilities across the United States. The company develops and operates industrial-scale bitcoin mining data centers. It also deploys specialized computer servers for Bitcoin mining and security maintenance of the Bitcoin network. Cipher Mining plays a pivotal role in the cryptocurrency ecosystem.
It is one of the best NASDAQ penny stocks as the company’s energy cost efficiency serves as a competitive advantage in the bitcoin mining sector. The company’s strategic focus on securing fixed-price power agreements at exceptionally low rates, averaging around $0.027 per kilowatt hour, positions it as one of the lowest-cost producers in the industry. This cost-effective setup greatly improves Cipher’s (NASDAQ:CIFR) per-unit profitability, allowing it to maintain profitability even during periods of market volatility.
Cantor Fitzgerald is also bullish on Cipher Mining (NASDAQ:CIFR) due to similar reasons. The firm says that all publicly traded bitcoin miners are currently profitable at these levels but Cipher Mining (NASDAQ:CIFR) stands out due to its superior energy cost efficiency, which is significantly lower than its peers. Wall Street analysts have an average price target of $6 for the company stock, showing an upside of 28.2% from current levels.
Cipher Mining’s (NASDAQ:CIFR) valuation also looks quite attractive at current levels as it is trading at a forward price-to-earnings ratio of 11.8x, a 51% discount compared to its peers. While we acknowledge the fact that it’s a risky investment due to its main product being one of the most volatile asset classes, Cipher Mining (NASDAQ:CIFR) is expected to grow its EPS by 120% this year. Moreover, it could benefit significantly if the Federal Reserve decides to cut rates in the coming months which will lead to an increase in investors’ risk appetite.
Furthermore, cryptocurrency is seeing an increase in global interest, and Bitcoin remains at the front of it all. This growing adoption is driven by factors such as inflationary concerns in traditional currencies, institutional acceptance, and broader awareness among retail investors. It is estimated that around 300 million people own cryptocurrencies and this number is expected to reach 1 billion people by the end of the decade, according to Boston Consulting Group.
As of the first quarter of 2024, 12 hedge funds had stakes in Cipher Mining (NASDAQ:CIFR) worth $19.45 million.
Overall CIFR ranks 10th on our list of the best NASDAQ penny stocks to buy. You can visit 10 Best NASDAQ Penny Stocks To Invest In to see the other NASDAQ penny stocks that are on hedge funds’ radar. While we acknowledge the potential of CIFR 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 CIFR 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.