In this article, we will talk about the 10 best US stocks to buy under $10.
Value in Small-Caps
As the market continues progressing, there is a cautiously optimistic sentiment surrounding small-cap stocks. While many investors are comfortable with economic fundamentals, concerns about high valuations persist. Although the overall market may seem expensive, this is primarily due to the largest market-cap stocks, leaving room for growth in smaller companies.
As global markets improve amid a broader easing cycle, these stocks could play an essential role in portfolio diversification. The focus should be on identifying value beyond mega-cap stocks to uncover opportunities in various sectors and regions. This strategic positioning was highlighted by Sebastien Page of T. Rowe Price on CNBC just a few days ago. We covered his opinions regarding small caps in our article on the 10 Most Promising Penny Stocks According to Hedge Funds. Here’s an excerpt from that:
“Page highlighted that their current strategy includes a slight overweight of half a percent in stocks compared to bonds, which marks an increase in risk appetite compared to previous conversations over the last 18 months. He acknowledged that while the overall market multiple may appear expensive, it is skewed by the largest market-cap stocks. This suggests that there are still opportunities beyond mega-cap names, which have become too consensus-driven and costly.
Addressing concerns about valuations, Page pointed out that while the price-to-earnings ratio appears high, it is essential to consider the context. He mentioned that if one adjusts for return on equity, current valuations may fall below historical medians. Additionally, he noted that the average stock globally trades at a P/E of about 13, which aligns with its long-term average. This indicates that while some segments may seem overvalued, many stocks are positioned reasonably relative to their historical performance.”
On October 11, CNBC’s Mike Santoli and Northwestern Mutuals’ Brent Schutte, joined ‘Power Lunch’ on CNBC to discuss the CPI report numbers and the market reaction. Brent Schutte believes that small and mid-cap stocks offer value regardless of the Fed’s landing.
He expressed concerns about the potential for a wage-price spiral, particularly in light of significant wage increases expected for major employers. He highlighted that these wage hikes could contribute to continued inflation, especially as the economy is already in a late-cycle with fewer available workers. Although unemployment has slightly increased, he emphasized that if demand picks up, it would be challenging to keep inflation in check. He pointed out that rising wages represent a critical factor for the Fed as it navigates monetary policy.
Schutte noted that historically, the Fed has struggled with balancing inflation and employment signals, often reacting too late to emerging trends. He indicated that while there are signs of weakening in the labor market, the current inflationary pressures are still significant. He referred to recent data showing that median CPI rose by 0.4%, which suggests that the path forward may be more complicated than investors currently anticipate.
Mike Santoli added to the conversation by discussing what will dominate market focus in the coming weeks. He mentioned earnings reports as a key factor, alongside economic data and potential impacts from the upcoming elections, acknowledging that while stickier inflation could eventually pose challenges for the Fed, he doesn’t believe this will happen immediately given current interest rates between 4.57% and 5%. He suggested that the stock market might not react negatively to less Fed accommodation if it coincides with a stronger economy.
Discussing large-cap stocks and their performance in this late-cycle phase of the economy, Santoli expressed concern about whether small-cap stocks would eventually take over as leaders in the market. He drew parallels to past market conditions where narrow leadership was evident during economic slowdowns. He noted that small and mid-cap stocks have been priced for recession, and their performance on days when rates rise indicates they are under pressure compared to larger stocks.
Schutte then talked about the implications of persistent inflation on small-cap earnings, highlighting that Russell 2000 earnings had been flat for 3 years amid rising rates. He questioned how much of this scenario is already priced into the market and pointed out that many investors have gravitated towards mega-cap stocks due to their perceived stability amidst economic uncertainty.
Schutte emphasized the importance of monitoring economic indicators to make decisions on small-caps among other stocks, but to ease up the search for you, we’re here with a list of the 10 best US stocks to buy under $10.
Methodology
We used the Finviz screener to compile a list of 30 large US stocks that were trading below $10. We then selected the 10 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, as of Q2 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
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).
10 Best US Stocks to Buy under $10
10. Teladoc Health Inc. (NYSE:TDOC)
Share Price as of October 16: $9.51
Number of Hedge Fund Holders: 35
Teladoc Health Inc. (NYSE:TDOC) is a telemedicine and virtual healthcare company headquartered in the US that provides services like telehealth, medical opinions, AI and analytics, telehealth devices, and licensable platform services. Patients can consult with doctors, therapists, and other healthcare professionals via video or phone calls, without the need for in-person appointments.
In the second quarter of 2024, it made $642.44 million in revenue, recording a decline of 1.53% compared to a year-ago period, as average paid users declined by 1.9% sequentially. BetterHelp segment, revenue was down 9%. The decline in revenue and users was a result of fewer user additions to the platform.
The majority of the drop was offset by strong segment results. Integrated Care segment revenue increased 5% year-over-year to $377 million. Chronic Care was a key contributor to this growth. The company ended the quarter with Chronic Care Program Enrollment of $1.17 million, up 9% year-over-year, and up 5% sequentially. The largest drivers of Chronic Care Enrollment growth were the Diabetes Prevention & Weight Management programs, followed by Hypertension. International revenue growth was driven by the B2B business mainly.
Teladoc Health Inc. (NYSE:TDOC) is strategically investing in AI and partnering with tech giants to enhance its virtual care platform. In recent months, the company has collaborated with Microsoft to integrate ambient clinical documentation and OpenAI services into its Solo platform. Additionally, it has been developing its own AI models to improve patient-provider matching and other key functions.
Its integration of AI is poised to drive sustained growth and solidify its position as a leader in virtual healthcare. As AI technology continues to evolve, this company is well-positioned to capitalize on emerging opportunities.
Brown Capital Management Mid Company Fund stated the following regarding Teladoc Health, Inc. (NYSE:TDOC) in its Q2 2024 investor letter:
“Teladoc Health, Inc. (NYSE:TDOC) operates a telehealth platform that provides on-demand healthcare services to its members in the U.S. and abroad. Its solution connects consumers with physicians and behavioral health professionals who treat a range of conditions. The company offers its services through mobile devices, desktop, and by video or phone. Our initial excitement over Teladoc’s market-leading position, large market opportunity and compelling value proposition ran into the reality of the company’s deteriorating fundamentals. Competitive pressure, high customer-acquisition costs and poor customer retention significantly impaired the company since our initial purchase in March 2020. Additionally, questionable acquisitions and executive turnover further weighed on the business, resulting in revenue growth declining from the high-20s/low-30s to low-single-digits without any improvement in profitability. Although we pride ourselves on being patient and tolerant, it became obvious that our investment thesis was wrong, and we sold the company from the Fund.”
9. Marqeta Inc. (NASDAQ:MQ)
Share Price as of October 16: $5.08
Number of Hedge Fund Holders: 35
Marqeta Inc. (NASDAQ:MQ) is a leading modern card issuing platform that enables businesses to create and manage customized payment cards with technology that provides the infrastructure for various payment solutions, including debit cards, prepaid cards, and credit cards. Its platform offers flexibility and scalability, allowing businesses to quickly launch and manage payment programs.
Despite recent partnerships with Varo Bank and Zoho, revenue for this company declined by 45.8% year-over-year due to changes in revenue reporting from Cash App. However, its risk solutions, such as 3DS and risk control, saw a significant increase of 61%. Marqeta Inc. (NASDAQ:MQ) continues to expand its partnerships, with collaborations with Payhawk for advanced card controls and with Rippling for corporate credit cards in Canada.
In late September, it entered the Canadian small business banking market with Rippling, offering a new corporate credit card solution. This move is driven by Canadian businesses’ dissatisfaction with traditional banks and the growing trend towards contactless payments. Rippling’s card, issued by Marqeta Inc.’s (NASDAQ:MQ), provides automated card issuance, expense management, and spending controls, addressing the needs of small and medium-sized businesses.
Around the same time, the company also partnered with Found to offer streamlined expense management solutions for small businesses and the self-employed. Found’s business banking platform, powered by Marqeta Inc.’s (NASDAQ:MQ) card issuing platform, provides features like spending limits, real-time tracking, and simplified tax management to help businesses improve their financial efficiency and security.
The company is poised to benefit from the growing popularity of digital banking among younger demographics. A recent survey found that one-third of consumers now prefer digital-only banks and over 60% of young adults are open to non-traditional financial services.
8. Payoneer Global Inc. (NASDAQ:PAYO)
Share Price as of October 16: $8.03
Number of Hedge Fund Holders: 35
Payoneer Global Inc. (NASDAQ:PAYO) is a global fintech company that provides cross-border payment solutions, offering services that enable businesses and individuals to receive payments from customers around the world. Its platform simplifies international transactions, making it easier for businesses to expand into new markets and for freelancers to get paid for their work.
The company recognizes the challenges associated with cross-border payments but leverages its global presence to mitigate these issues. Its international development program has seen a significant boost, with growth accelerating to 10% in regions like APAC, EMEA, and Latin America. China also contributed to double-digit growth. In Q2 2024, the company achieved record revenue of $239.52 million, a 15.86% year-over-year increase. Average revenue per user surged by 27%. Volume growth was 22%, primarily driven by the B2B sector, which saw a 40% increase.
Additionally, it repurchased $47 million worth of shares during this quarter. In September, it completed its offer to purchase outstanding warrants, resulting in a simplified capital structure. The company redeemed remaining warrants for $0.70 per warrant, with a total expenditure of approximately $18.7 million.
It’s strategically embracing AI to enhance its services and improve operational efficiency. Recent developments include automated real-time currency conversion and user-defined withdrawal rates. These AI-powered features streamline financial management for cross-border SMBs and position the company as a leader in the evolving fintech landscape.
Payoneer Global Inc. (NASDAQ:PAYO) has recently acquired Squad, a company specializing in international employee management. By offering Squad’s services to its existing customer base, this company aims to increase revenue and provide more comprehensive solutions to businesses operating in multiple countries. This acquisition aligns with its ongoing commitment to innovation and value creation for its customers and stakeholders.
7. Goodyear Tire & Rubber Co. (NASDAQ:GT)
Share Price as of October 16: $8.28
Number of Hedge Fund Holders: 36
Goodyear Tire & Rubber Co. (NASDAQ:GT) develops, manufactures, and markets tires for most applications, including cars, trucks, motorcycles, and airplanes, and also manufactures other rubber-related chemicals. It is known for its innovative tire technology and has a long history in the tire industry.
The Americas region was a key driver of the company’s Q2 2024 success, delivering $241 million in segment operating income. Cost control, improved pricing, and increased volume in larger tire segments contributed to this growth. While challenges persist in smaller rim sizes due to low-end competition, the focus on reducing complexity and investing in high-value segments is expected to strengthen its market position.
Sales in Q2 2024 totaled $4.57 billion, down 6.10% from last year, driven by lower volume and unfavorable price mix due to continuing weakness in commercial truck sales and OE RMI index agreements. Unit volume was 2% lower. Overall, replacement volume declined by 7%, driven by decreases in the Americas. Original equipment volume increased by 13%.
Its new Assurance WeatherReady 2 tire has outperformed leading competitors in wet handling, wet braking, and dry handling. The tire offers a 60,000-mile tread life warranty and is available in various sizes to fit a wide range of vehicles.
Goodyear Tire & Rubber Co.’s (NASDAQ:GT) investment to modernize and expand its Ontario plant is meant to create new jobs, increase production capacity, and make the plant net-zero emissions by 2040. The project is supported by federal and provincial funding.
The company demonstrated strong financial performance in Q2 2024, with a segment operating income of $339 million (7.4% margin). This was primarily due to favorable pricing and raw material costs. The ongoing Goodyear Forward Plan, focused on high-margin segments and SKU rationalization, continues to drive profitability, and positions the company well for success.
6. Terawulf Inc. (NASDAQ:WULF)
Share Price as of October 16: $4.61
Number of Hedge Fund Holders: 37
Terawulf Inc. (NASDAQ:WULF) is a North American bitcoin mining company that specializes in the production of bitcoin using renewable energy sources. It owns and operates bitcoin mining facilities in the US, focusing on regions with abundant renewable energy resources, intending to contribute to the growth of the bitcoin ecosystem while promoting sustainable mining practices.
The company generated $35.57 million in revenue for the second quarter of 2024, a 130.16% year-over-year increase. It mined 184 Bitcoins (5.9 daily). Its self-mining capacity increased 100% year-over-year to 10.0 EH/s. The operational hash rate averaged 8.2 EH/s. It operates two Bitcoin mining facilities: the wholly-owned Lake Mariner Data facility in New York (10 EH/s capacity) and the Nautilus Cryptomine facility in Pennsylvania (joint venture with Cumulus Coin). It amended Bitman purchase agreements and acquired 5,000 S21 Pro miners at $16/TH. It also made progress in AI and HPC initiatives through WULF Den and streamlined its capital structure.
Terawulf Inc. (NASDAQ:WULF) sold its 25% stake in Nautilus Cryptomine for $92 million and will reinvest the proceeds to expand its high-performance computing and Bitcoin mining operations at the Lake Mariner facility. It secured a 35-year land lease for 157 acres at the Lake Mariner facility for $281,398.20 annual rent 20 million shares and $12 million in cash. This deal secures the company’s long-term growth trajectory and infrastructure capacity up to 750 MW.
The company’s commitment to sustainability and its significant infrastructure positions it well for growth in the Bitcoin mining and alternative compute hosting sectors. The operational excellence and focus on increasing output demonstrate its potential for sustained profitability in the evolving cryptocurrency market.
5. Genworth Financial Inc. (NYSE:GNW)
Share Price as of October 16: $7.14
Number of Hedge Fund Holders: 38
Genworth Financial Inc. (NYSE:GNW) provides life insurance, long-term care insurance, mortgage insurance, and annuities. It provides products and services to individuals and families, helping them protect their financial future.
The company reported a net income of $76 million, and adjusted operating income of $125 million in Q2 2024. Enact had a strong quarter with an adjusted operating income of $165 million to Genworth Financial Inc. (NYSE:GNW), receiving $63 million from Enact in the second quarter. The LTC segment reported an adjusted operating loss of $29 million, while life and annuities reported an adjusted operating loss of $1 million.
Genworth Financial Inc. (NYSE:GNW) reported an outstanding quarter under the multi-year rate action plan, achieving a total of $138 million of gross incremental premiums approved, with an average percentage premium increase of 47%. It continued to scale its CareScout Quality Network in the second quarter, extending its availability to 40+ states as of July 30. It has already achieved ~70% coverage of the age 65-plus census population in the US and now expects to achieve between 80% to 85% coverage by the end of the year.
Its LTC policyholders have quickly adopted CareScout. It has helped hundreds find quality care, saving $1-1.5 billion on LTC claims. It’s seeking approval from the Compact to expand its product reach. The company’s strategic focus on growing its CareScout business and expanding its legacy LTC insurance portfolio positions it well for long-term profitability and shareholder value creation.
Here is what Ravensource Fund has to say about Genworth Financial, Inc. (NYSE:GNW) in its Q4 2021 investor letter:
“Genworth is a U.S. publicly listed (NYSE:GNW) insurance company that covers mortgage, life and long-term care needs. In 2021, the market price of our Genworth common shares increased from $3.78 to $4.05, growing the value of your Ravensource investment by 0.4%.
Much like Quad, Genworth had a transformative year. And much like Quad essentially none of its achievements were reflected in its share price. In 2021, Genworth sold its stake in its Australian mortgage insurance unit and successfully completed a partial IPO of its crown jewel U.S. mortgage insurer, both key milestones for our thesis. These non-core asset sales enabled Genworth to reduce its debt by ~$1bn / 50% in 2021, with over $3bn of total debt reduction since our initial investment. Genworth has gone from a company whose senior debt was trading at 10% yields, to a strong healthy company intending to return capital to shareholders in 2022 — the first time it will have done so since 2008. This is a critical final-stage step to Genworth rebuilding its market credibility and investor base, and will help bridge the gap between the current price and our conservative value of $5.00, representing a 23.5% potential return.”
4. Peloton Interactive Inc. (NASDAQ:PTON)
Share Price as of October 16: $5.21
Number of Hedge Fund Holders: 38
Peloton Interactive Inc. (NASDAQ:PTON) is a fitness company that offers interactive fitness equipment and subscription-based fitness classes. Products include stationary bikes, treadmills, and rowing machines, which are equipped with screens that allow users to stream live and on-demand fitness classes. It also offers a subscription service that gives members access to a wide variety of fitness classes, including yoga, Pilates, cycling, and running.
It launched a half-marathon training program in June and recently partnered with Truemed to allow customers to use HSA/FSA dollars for equipment purchases. This partnership makes fitness more affordable by providing tax-free payment options. Truemed is devoted to educating consumers about the importance of preventative health. The company is also making progress on key strategic priorities, including improving profitability, investing in innovation, and exploring capital allocation strategies. It aims to deliver stronger bottom-line results to support its investments in software, hardware, and content.
Peloton Interactive Inc. (NASDAQ:PTON) reported better-than-expected FQ4 2024 results. Revenue increased 0.23% year-over-year to $643.60 million, driven by a 2.3% increase in the subscription area. Per-share loss narrowed to $0.08. The improvements came as it reduced total sales and marketing expenses by 19%. The secondary market delivered a 16% increase in paid connected fitness subscribers in FQ4. Connected Fitness revenue from the treadmill portfolio grew 42%. Its strategic focus on improving profitability and investing in innovation positions it for long-term growth and success.
Patient Capital Opportunity Equity Strategy stated the following regarding Peloton Interactive, Inc. (NASDAQ:PTON) in its first quarter 2024 investor letter:
“Peloton Interactive, Inc. (NASDAQ:PTON) declined in the first quarter, hitting its lowest per share valuation in late March since becoming a public company. The company has taken drastic action to right-size the extremely bloated cost structure, expand sales channels (Amazon, Dick’s Sporting Goods), and test other ways to reinvigorate growth. The company is hyper focused on reaching positive free cash flow generation, but the path was pushed out. We continue to believe the value of the business lives in the high-margin, sticky subscription piece of the business. We think at current valuation, the company will either successfully turn things around or be a take-out target.”
3. Hertz Global Holdings Inc. (NASDAQ:HTZ)
Share Price as of October 16: $2.92
Number of Hedge Fund Holders: 38
Hertz Global Holdings Inc. (NASDAQ:HTZ) is a global car rental company that operates in over 100 countries and territories, offering a range of rental vehicles, from economy cars to luxury SUVs. It provides car rental services for both leisure and business travelers, and it also offers additional services such as car sales, truck rentals, and mobility solutions.
Recently, Teamsters reached a tentative agreement with Hertz Global Holdings Inc. (NASDAQ:HTZ), averting a potential strike. Nearly 3,000 Hertz Teamsters members at 20 local unions had voted last week to strike if a new agreement was not reached by Monday. Teamsters members at Hertz were negotiating for higher pay and language in an agreement that they feared would create a “two-tier system.”
The company reported increased direct operating expenses due to non-recurring charges, insurance, personnel, collision, and damage costs in Q2 2024. Rental vehicles increased by 3%, but utilization dropped 2%, leading to overall revenue of $2.35 billion, down 3.45% year-over-year. Q2 revenue resulted from pricing discipline and managed capacity. DPU increased due to fleet refresh acceleration. It renegotiated national contracts and reduced maintenance and collision costs by 12%.
The company is making progress on its strategic priorities, including strengthening its balance sheet, building a strong leadership team, and accelerating its fleet rotation. Hertz Global Holdings Inc. (NASDAQ:HTZ) is confident that these actions will improve its financial performance and create long-term shareholder value.
2. Alight Inc. (NYSE:ALIT)
Share Price as of October 16: $7.29
Number of Hedge Fund Holders: 42
Alight Inc. (NYSE:ALIT) is a cloud-based human capital technology and services provider that operates through the Employer Solutions segment. Its services help businesses manage their workforce, including benefits administration, payroll processing, retirement plans, and HR consulting. Its technology platform enables businesses to streamline their HR processes, improve employee engagement, and reduce costs.
It uses AI to make HR and financial tasks easier. AI examines data sets, enabling companies to predict patterns and spot problems. The company has been investing in improving its cloud-based services, including workforce management, payroll, and benefits administration, positioning itself as a market leader in the quickly changing HR technology sector. It recently finished its two-year transition to cloud technology, which is anticipated to yield $75 million in yearly cost savings from operations, aiding in the growth of margins.
The company won new clients like UPS, Wayfair, American Honda, and Adecco Group in Q2 2024. Revenue declined 2.36% year-over-year, caused by reduced sales, lower net business activity, a decrease in project income in its Employer Solutions division, and the winding down of its Hosted business activities. Annual recurring revenue bookings were up 9% in the first half versus the prior year.
Alight Inc. (NYSE:ALIT) secured €110m in senior debt portfolio financing from Rabobank to develop 220 megawatts peak of small to medium-sized solar parks across Sweden. The first phase of the project will see the construction of three solar parks: a 4MW park in Halland, a 6MW park in Södermanland, and a 15MW park in Uppland.
The company’s collaboration with a major tech firm to integrate advanced analytics into its HCM solutions aims to enhance its offerings, allowing clients to make data-driven decisions. This partnership reinforces this company’s market position and demonstrates its commitment to innovation.
Meridian Growth Fund stated the following regarding Alight, Inc. (NYSE:ALIT) in its Q2 2024 investor letter:
“Alight, Inc. (NYSE:ALIT) is a leading cloud-based human capital technology provider of enterprise-level software that helps businesses and their employees manage critical human resources functions. Through its investments in software and automation, Alight has built a distinct advantage that allows its customers to deliver HR services at a much lower cost while providing a better experience for employees. We slightly trimmed the position early in the quarter when the stock appreciated on the announced sale of a non-strategic business unit and news that an activist investor had initiated a position. Later in the period, the stock declined when Alight announced weaker-than-expected results. We believe the softer quarter will prove to be an isolated event.”
1. Warner Bros Discovery Inc. (NASDAQ:WBD)
Share Price as of October 16: $7.60
Number of Hedge Fund Holders: 48
Warner Bros Discovery Inc. (NASDAQ:WBD) is an American multinational mass media and entertainment conglomerate that owns and operates a vast portfolio of entertainment brands, including Warner Bros., HBO, Discovery Channel, and CNN, among others. It produces and distributes a wide range of content, including movies, TV shows, documentaries, news, and sports.
The company’s revenue comes from network businesses (49%), movie studios (26%), and D2C products (25%). The firm teamed up with Charter Communications to offer Discovery Max and Discovery+ to Charter customers free of charge. Warner Bros. Discovery’s shares jumped by 7% on the announcement. The company’s shares tanked by 10% in August after advertising uncertainty prompted a massive $9.1 billion impairment of TV assets.
Revenue for the second quarter of 2024 was $9.71 billion, although recording a year-over-year decline of 6.23%. There was a 6% increase in subscriber-related revenues, driven by advertising revenues. Content revenue declined 70% due to the timing of licensing deals. Domestic net ad trends remained similar to recent quarters, with growth in retail Max space offset by linear wholesale headwinds. Churn increased after March Madness and the conclusion of the NBA and NHL seasons. Streaming ad revenues doubled year-over-year on continued strong demand for Max inventory and the addition of sports content. Network distribution revenues decreased by 8%.
Recently, Warner Bros Discovery Inc. (NASDAQ:WBD) deployed a new, AI-powered captioning solution built using Google Cloud AI. This solution utilizes Google Cloud’s Vertex AI platform to dramatically improve captioning efficiency, cutting production time and costs. This data-driven approach enables the company to continuously refine and train the caption AI workflow, further reducing errors and striving to deliver consistently precise captions.
The company’s diversified revenue streams, coupled with its ongoing efforts to enhance operations through AI and strategic partnerships, position the company for long-term growth and success in the competitive media and entertainment industry.
Bonhoeffer Capital Management stated the following regarding Warner Bros. Discovery, Inc. (NASDAQ:WBD) in its first quarter 2024 investor letter:
In remembrance of Charlie Munger, I listened to and read his investment speeches in Poor Charlie’s Almanac. His speech to the University of Southern California business school specifically dealt with the application of worldly wisdom to investment management and business. There were five ideas presented by Munger in that speech which are particularly relevant in the Bonhoeffer portfolio. First, over the long term, it’s hard for a stock to earn more than the underlying business earns. As an illustration of this principle, we examined two firms, Old Dominion Freight Line (ODFL) and Warner Bros. Discovery, Inc. (NASDAQ:WBD).
WBD is an example of a value stock whose value has been impaired by a declining intrinsic value over time. Historically, WBD has been consolidating media content and distribution firms. However, the media content and distribution industry has been fragmenting over the past 20 years, with many new competitors and lower barriers to entry. Based upon Morningstar’s estimates, WBD is almost always undervalued, but stock price declined by 13.4% per year less than intrinsic value which declined by 5% per year, which is still a disaster compared to the index which increased by 12.7% per year. The average RoE was 7.2% and was declining through the period and ended negative. The chart below shows both the stock and Morningstar’s estimate of its intrinsic value over time.
These trends of growth and their effects on returns are reflected in the new investments we have invested in and those firms we have sold recently. We have sold most of our telecom and media firms (which have had flat to declining intrinsic values over time). These firms have been replaced by consolidating capital light distribution firms and specialized financial services firms (which have had increased intrinsic value over time) one of which is described below.
While we acknowledge the growth potential of Warner Bros Discovery Inc. (NASDAQ:WBD), 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 WBD but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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