We recently published a list of 10 Best US Stocks to Buy Under $5. In this article, we are going to take a look at where Peloton Interactive Inc (NASDAQ:PTON) stands against the other stocks to buy under $5.
Investors are becoming increasingly nervous amid a slowing U.S. economy. Signs of weakness in consumer spending and manufacturing points to an economy that is overheating amid the high interest rate environment
In August, nonfarm payrolls grew by 142,000, an increase from 89,000 in July but short of the 161,000 forecast. The unemployment rate decreased to 4.2%, while the “real” unemployment rate climbed to 7.9%, the highest since October 2021.
According to Dan North, an economist at Allianz Trade, the recent string of economic data has been disappointing, signaling something is wrong. A slowing economy always takes a significant toll on investors sentiments in the equity market.
The slowdown comes when the stock market is at a pivotal level heading into the year-end. The leading market indices are hovering close to all-time highs amid a slowing economy that needs the U.S. Federal Reserve to tweak its monetary policy.
The earnings season has also added another caveat seen by increased volatility. After months of blockbuster gains, significant stock sell-offs linked to artificial intelligence and semiconductors have come into play. Geopolitical worries, the forthcoming presidential race, and shifts in Federal Reserve strategy usher in uncertainty.
Valuations have gotten out of hand as most stocks are trading way above their historical highs. Given that the stock market experiences about four deep pullbacks of more than 5% every year, there is growing concern that one could be on the way heading into the year-end.
Appearing in an interview on CNBC, George Lagarias, the head economist at Forvis Mazars, stated that although it’s impossible to predict the magnitude of the Federal Reserve’s upcoming rate adjustment, he is in favor of a 25-basis point reduction. Analysts do not see the need for a 50 basis point or more reduction as it could confuse the markets and the economy, portraying a sense of urgency.
A more profound interest rate cut would take a significant toll on stocks trading at premium valuations as they would be the hardest hit with heightened volatility. On the other hand, emerging stocks that haven’t caught the Street’s attention yet could offer some good buying opportunities.
Currently, the market appears favorable for the growth of penny stocks and small-cap companies. Chris Retzler, portfolio manager at Needham Small Cap Growth Fund, suggests that while smaller companies are volatile, their long-term outlook is positive. He anticipates a market broadening in the second half of 2024, which could benefit smaller companies that have recently underperformed.
Retzler highlights the liquidity of smaller companies as a key growth factor. As funds shift from larger to smaller companies, many small-cap stocks may see significant price increases. Additionally, the expectation of lower interest rates over the next year is favorable for penny stocks, which require less capital to see price and valuation growth.
Investing in penny stocks or small-cap companies can be risky due to their volatility and limited historical data. However, these high-risk investments can also offer substantial rewards for those with a higher risk tolerance. While many of these companies face significant issues, some are hidden gems.
Our Methodology
We screened for US-listed companies that are trading under $5 and picked the stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them.
At Insider Monkey we are obsessed with 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 group of people in a fitness class with connected fitness products in a studio or gym.
Peloton Interactive Inc (NASDAQ:PTON)
Number of Hedge Fund Holders: 38
Current Share Price: $4.77
Peloton Interactive Inc (NASDAQ:PTON) is a consumer cyclical company that operates a fitness platform. It creates exercise gear for home use that is equipped with digital displays, allowing it to be used for watching online classes or listening to music. It offers connected fitness products under the Peloton Bike Peloton Bike+, Peloton Tread, Peloton Tread+, Peloton Guide, and Peloton Row names.
Peloton Interactive Inc (NASDAQ:PTON) has been one of the biggest disappointments; its market value has shrunk over the past few years as losses grew so large that they threatened the company’s survival. Nevertheless, the company’s fortunes and prospects show signs of improvement going on to its better-than-expected fiscal fourth-quarter results. The results show that business is finally mounting a turnaround.
Revenue in the quarter rose for the first time in 10 months by 0.2% to $643.6 million, exceeding forecasts at $630.6 million. The increase came as the company achieved a 2.3% increase in the subscription area, reaching $431 million.
Peloton Interactive Inc (NASDAQ:PTON) achieved significant gains in its financial performance, as its gross profit margin increased significantly following the closure of its Precor manufacturing plant in North Carolina. This move significantly improved its connected fitness gross margin, rising from -37.5% to 8.3%. It contributed to a rise in adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) from a deficit of $34.7 million to $70.3 million.
Regarding its financial health, the company disclosed a per-share loss of $0.08, an improvement from a loss of $0.68 a share in the same period last year but lower than the anticipated loss of $0.17. A total of 38 funds in Insider Monkey’s database had Peloton Interactive Inc (NASDAQ:PTON) shares in their portfolios in the second quarter of 2024.
Overall PTON ranks 2nd on our list of best US stocks to buy under $5. While we acknowledge the potential of PTON as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PTON 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: None. This article is originally published at Insider Monkey.