We recently compiled a list of 13 Best Growth Stocks Under $10 to Buy. In this article we will look at where LegalZoom.com, Inc. (NASDAQ:LZ) ranks among the best growth stocks under $10 to buy.
After a summer dip, stocks recovered in Q3 2024, setting new records after the quarter. More than 60% of the 500 largest companies’ components outperformed the overall index that covers these stocks in the quarter. The index that tracks the 500 largest companies traded in the US is up more than 20% year-to-date, at record-high levels. Bonds also fared well, helped by declining inflation and the Federal Reserve’s aggressive half-percentage-point drop, which indicated a move away from combating inflation and toward promoting growth. Fed rate reductions boost small-cap companies, industries, and regional banks.
Value and small-cap companies overtook large tech in the major rotation that occurred during the general stock market rally. Subsequently, expensive large-cap growth names lost investor attention, while previously underperforming markets saw strong gains. The consolidation of technology is a positive development, according to King Lip, chief strategist at BakerAvenue Wealth Management. He states that ” “We’re not in a bear market for tech by any means. But you’ve definitely seen some evidence of rotation.”
Nonetheless, in Q3 2024, eight of the 500 largest companies’ eleven sectors outperformed the broader index of these 500 companies. According to Tajinder Dhillon, senior research analyst at LSEG, the Magnificent Seven companies are predicted to raise earnings by almost 20% in the third quarter of 2024, compared with a profit rise of 2.5% for the rest of the 500 largest companies. That disparity is predicted to diminish in 2025, with the remainder of the index expected to raise earnings by 14% for the full year against a 19% rise for the mega-cap group.
The Magnificent Seven “should not have to carry the profit rebound alone,” according to Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, in recent research, providing a soft landing scenario. ” “For the soft landing, we are in the ‘show me’ stage.”
Moreover, soft employment figures helped allay concerns about a recession and modest inflation. Even though the unemployment rate has increased, the overall economic trend points to strong, albeit sluggish, growth. The market is now even more optimistic due to the Fed’s aggressive rate decrease and the likelihood of future rate reductions.
It is anticipated by Morningstar analysts that the “great rotation” away from large-cap tech stocks would continue as Q4 approaches, presenting opportunities in undervalued industries. The financial services, real estate, energy, and healthcare industries are expected to grow as per Morningstar analysts, particularly with the current decline in interest rates.
According to Morningstar analysts, going ahead, the possibility of additional rate cuts and higher government expenditure in this election year should boost markets, but prudence is still advised because lower-income people are still being negatively impacted by continued inflationary pressures. Value stocks and industries with strong prospects for future recovery should be the main focus of investors.
Methodology:
We sifted through holdings of iShares Morningstar Small-Cap Growth ETF to form an initial list of 20 highest-weighted Growth Stocks Under $10 in the ETF. Then we selected the 13 stocks that were the most popular among hedge funds as of Q2, 2024. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024. We have used the stocks’ current market cap as a tie-breaker in case two or more stocks have the same number of hedge funds invested.
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)
LegalZoom.com, Inc. (NASDAQ:LZ)
Number of Hedge Fund Investors: 26
Market Capitalization as of October 3, 2024: $1.12 billion
LegalZoom.com, Inc. (NASDAQ:LZ) is an online service provider serving American consumers and small businesses with their legal needs. The company also offers services that include continuous compliance and tax guidance and files, business licenses, bookkeeping, virtual mailbox and e-signature solutions, trademark applications, and estate plans.
Meridian Small Cap Growth Fund stated the following regarding LegalZoom.com, Inc. (NASDAQ:LZ) in its Q2 2024 investor letter:
“LegalZoom.com, Inc. (NASDAQ:LZ) is a leading online platform providing small businesses with legal, compliance, and tax services that allow them to start and operate within the required regulations. The stock underperformed during Q2 on weak guidance from management that indicated its small businesses, the company’s core customers, were under pressure. We believe that the company will continue to gain share due to its strong brand and network effects which will allow them to sell a broad range of services to small businesses. We also see room for significant operating leverage as the expanded range of products and services begins to generate revenue after several years of investment. We added to our position during the period on share price weakness.”
Analyst Brent Thill of Jefferies raised LegalZoom from Hold to Buy, maintaining a $8 price target. The analyst tells investors in a research report that the company is “washed out” after falling 41% so far this year and that projections “appear low enough.” LegalZoom is the leading digital player, according to the firm, with a 10% market share of business formations and 70% boosted brand awareness; nevertheless, the market is still very small, with only 4% of legal services performed online in the United States. The company’s revenue growth will not remain around 3%, as Jefferies anticipates a return to double digits, according to the analyst.
William Royan, Khai Ha And Alex Migon’s GPI Capital is the largest stakeholder in the company from among the funds in Insider Monkey’s database. It owns 9,541,916 shares worth $80.05 million as of Q2.
Overall LZ ranks 9th on our list of Best Growth Stocks Under $10 to Buy. While we acknowledge the potential of LZ 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 LZ 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 on Insider Monkey.