10 Most Promising Small-Cap Stocks According to Hedge Funds

3. PHINIA Inc. (NYSE:PHIN)

Number of Hedge Fund Holders: 35

Market Capitalization as of October 10, 2024: $1.96 Billion

With 35 hedge funds bullish on PHIN as of Q2 2024, the company ranks third on our list of the most promising small-cap stocks according to hedge funds. PHINIA Inc. (NYSE:PHIN) is a fuel-efficient company that develops and supplies fuel injection systems for the automotive and industrial sectors. Some of its products include alternative fuel systems, evaporative canisters, electrical systems, fuel delivery modules, and hydrogen solutions.

The company is committed to sustainability and is making significant investments to reduce carbon emissions. In September, PHINIA Inc. (NYSE:PHIN) launched a first-to-market technology that reduces emissions and increases fuel efficiency for small highway diesel engines. For the fiscal year ended 2023, the company invested 78% of its research and development spend in fuel efficiency and alternative technology initiatives. Of this 30% was directed to zero and low-carbon fuel systems.

In the second quarter of 2024, PHINIA Inc. (NYSE:PHIN) logged $863 million in revenue. Through the decade, the company grew its organic sales at a compound annual growth rate of 2% to 4%. Revenue growth was primarily driven by non-contractual commercial negotiations and increasing sales in Europe for its aftermarket segment. However, vehicle sales were slower in the region but were offset by aftermarket sales.

For the complete fiscal year 2024, PHINIA Inc. (NYSE:PHIN) expects revenue to range between $3.4 billion to $3.6 billion. The company has a diverse range of offerings and has strong fundamentals, allowing it to meet the growing demand for carbon-free solutions.

Ariel Investments’ Ariel Focus Fund stated the following regarding PHINIA Inc. (NYSE:PHIN) in its first quarter 2024 investor letter:

“Manufacturer of premium fuel and electrical systems, Phinia Inc. (PHIN) also traded up in the period on solid earnings results and a positive full year 2024 outlook. Healthy consumer pricing, new business wins across all end markets, ongoing weakness in electric vehicles, growth in light vehicle original equipment and strong cost controls, more than offset disappointing commercial vehicle sales in China. Meanwhile, management continues to prioritize capital returns to shareholders via buybacks and dividends. Looking ahead, we expect PHIN to deliver sustainable, profitable growth and significant cash generation as it captures operational efficiencies, exits agreements with its former parent company BorgWarner Inc. and also expands its industrial and aftermarket customer base.”