We recently compiled a list of the 10 Best Value Penny Stocks to Invest in Now. In this article, we are going to take a look at where OPAL Fuels Inc. (NASDAQ:OPAL) stands against the other value penny stocks.
The US market has been resilient over the past years despite higher interest rates, however, recent reports showed a sharp decline in the growth of the U.S. job market. According to reports from the Labor Department, the economy added just 114,000 jobs in July compared to 179,000 in June. This marks a sharp drop in employment generation from 482,000 in January 2023, raising the unemployment rate to 4.3% in July 2024, the highest level in nearly 3 years. The significant slowdown in hiring can potentially make the economy vulnerable to recession and therefore leads to an ease in monetary policy guaranteeing an interest rate cut in September. Economists are calling for a 50 basis point reduction in borrowing costs.
With the current uncertainty in the market and delay in rate cuts, investors are worried about a possible recession. The question is should investors pick penny stocks to diversify their portfolios? Penny stocks, though cheap, are without any doubt risky investments with a high rate of volatility and are even more sensitive to monetary policy changes. A higher interest rate negatively affects stocks’ earnings performance because these stocks are mostly running on debt and, therefore, can benefit from a possible rate cut in September 2024.
Moreover, these stocks are prone to speculative trading and scams, and therefore, are suitable for investors that can do diligent research and have a high tolerance for risk. However, not all stocks are the same and investors may yet benefit from long-term investments in high quality penny stocks with strong fundamentals. Value investing is an investment strategy focused on finding stocks that are being traded for less than their intrinsic or true value. In other words, value stocks are undervalued by the market and can be rewarding long-term investments once the market realizes their true value.
Investing in small-cap penny stocks is no doubt risky owing to their high volatility and low liquidity, however, using the value investing strategy one can generate long-term profits from investing in these stocks.
Investing in Small-cap Stocks in 2024
Most penny stocks have small market caps. Large-cap stocks generally dominate the market outperforming small-caps, and last year was no different as the large-cap stocks beat small-cap stocks by an average of 9.6 percentage points. Moreover, in 9 out of the last 10 years, large caps outperformed penny stocks, however, small caps showed competitiveness back in the days of the internet boom, when the dot-com bubble was breaking in the period 1999 to 2004.
There is hope for a small-cap rebound in 2024, and that is because the historical trends tell us that after nearly a decade of underperformance, the tables turn and small-caps, which include many penny stocks, can rebound. Moreover, in the fourth quarter of 2023, penny stocks showed a recovery in growth and this could set the stage for a renaissance for the small-caps in 2024.
In a recent interview with CNBC, Fundstrat’s head of research, Tom Lee expressed optimism about the potential rise of small-cap stocks in 2024 owing to the softening of inflation in June. Tom Lee further discussed the performance of the small-cap stocks that rose 30% in 8 weeks from October to December 2023. Lee believes that the current rally can be even more substantial compared to last year as it’s driven by factors like larger institutional short positions, small-cap even more oversold, and valuations like median P/E at 10 times 2025 earnings. In addition, June’s Consumer Price Index has declined to its lowest level in the last 3 years, this can lead to the feds cutting the interest rate expected in September 2024. According to the estimates of Tom Lee, in case the interest rate is cut down, the small caps can gain as much as 50% in 2024.
Secondly, presidential elections have been historically in favor of these stocks, research shows that seven out of eleven election times, the small-cap outperformed by an average of 2.68 percentage points.
The recent consumer price index data released in June 2024, suggests a deceleration in inflation, the prices are getting stabilized particularly in core consumer segments such as shelter and food. According to the latest Inflation report, the Personal Consumption Expenditure index (PCE) rose by 0.1% from April matching the Wall Street expectations. Furthermore, the report shows a growth of 0.5% in personal income in the U.S. which is up by $114.1 billion. This potential relief to consumers can stabilize the US market and might influence the Federal Reserve’s Monetary policy decisions in favor of small-cap by cutting interest rates as expected by the end of 2024.
Methodology:
To compile this list of the 10 best-value penny stocks to invest in, we used a screener to narrow down penny stocks trading under $5 on the basis of relatively lower forward p/e ratios compared to their respective industry averages. We further screened these stocks by using metrics like institutional ownership of greater than 40% and ensured that the companies had positive upsides based on analysts’ consensus.
After shortlisting the stocks based on the above-mentioned value metrics, we ranked those stocks based on hedge fund sentiment towards each stock. To rank the penny stocks, we assessed Insider Monkey’s database of hedge fund sentiment of 920 elite hedge funds and their holdings tracked at the end of the first quarter of 2024.
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).
A natural gas pipeline glowing in the night sky, revealing its importance to everyday life.
OPAL Fuels Inc. (NASDAQ:OPAL)
Number of Hedge Fund Holders: 14
OPAL Fuels Inc. (NASDAQ:OPAL) is a fully integrated firm that together with its subsidiaries engages in the production of low-carbon intensity renewable natural gas. The company operates a waste-to-energy model that combines the upstream production and downstream distribution approach to decarbonize the heavy-duty transportation industry. With over 20 years of experience, the experts in OPAL Fuels Inc. (NASDAQ:OPAL) capture methane emissions at their source, purify it, and offer a scalable and low-cost RNG resource that can replace diesel and other high-carbon fossil fuels.
OPAL Fuels Inc. (NASDAQ:OPAL) reported solid growth in revenue in the first quarter of 2024 as the results are aligned with expectations, the company is on track to meet its full-year guidance. The company generated a revenue of $65 million up by 51% compared to $43 million same period last year. This growth was driven by an increase in production and higher environmental credit sales including RNG fuel, Fuel station services, joint venture projects, and third-party RNG supplies.
In addition, the company became profitable as it reported a net income of $0.7 million, a robust improvement from a net loss of $7.3 million in Q1 2023. This significant development in net income was primarily driven by the increase in revenue from the timing of environmental credit sales. In addition, the Emerald RNG project gained recognition as it came online and attracted investments giving the revenue a much-needed boost.
Last year, on June 12 2023 OPAL Fuels and GFL Environment Inc. announced the completion of their largest landfill gas to RNG production facility called Emerald RNG. The facility is said to have a nameplate capacity of 10,000 SCFM (Standard Cubic Feet Per Minute). Emerald RNG is poised to restore naturally occurring biogas from the decomposition of organic matter and will refine it into low-carbon RNG. The facility can efficiently generate over 2.5 million MMBtu (Metric Million British thermal units).
Landfill gas to RNG is a relatively cleaner source of energy and is a proven solution to reduce emissions across the transportation ecosystem. The drastic effects of climate change have led the world economies to look for alternative or cleaner sources of energy to lower the global carbon imprint.
In the wake of climate change, the Renewable Natural Gas industry can grow significantly, for instance in 2022, the global RNG market size was over $8 billion and is projected to reach over $215 billion by 2031, exhibiting a CAGR of 44%. These growth figures are encouraging for investors looking to benefit from the long-term growth of companies like OPAL Fuels Inc. (NASDAQ:OPAL).
Furthermore, the company recently announced the 9th RNG facility called the Prince William has commenced operations and has begun construction on the 15th RNG project at the Cottonwood landfill which has 0.7 million MMBtu design capacity. In addition, Sapphire and Polk RNG construction projects remain on track to begin operations in the 3rd and 4th quarters. All these combined projects are poised to bring out the aggregate portfolio of operating and in-construction RNG projects to 10.3 million annual MMBtu of design capacity.
Though the company is benefitting from industrial tailwinds that encourage the production of RNG, the firm is still awaiting the Internal Revenue Service (IRS) clarification to govern the ITC eligibility for landfill gas to RNG projects. Therefore, this important point should be factored in to forecast the company’s future earnings.
Furthermore, there are some ongoing disputes currently in arbitration related to EPC contractors and owners for the California Dairy Biogas projects. In addition, the renewal power revenue decreased from $15.4 million in Q1 2023 to $10.1 million in Q1 2024 because the Emerald RNG project used up gas available for renewable power. Despite positive results, the recent ramp-up of the Emerald project reduced the firm’s utilization of inlet gas from 86% down to 81% YoY.
According to Insider Monkey’s database, 14 hedge funds held stakes in OPAL Fuels Inc. (NASDAQ:OPAL).
Overall OPAL ranks 3rd on our list of the best value penny stocks to buy. While we acknowledge the potential of OPAL 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 OPAL 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.
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