In this article, we will look at the 10 Worst Affordable Stocks Under $10.
Can the Interest Rates Rise in the Long Run, Despite the Fed Cut?
Wall Street and the market are celebrating the Fed rate cut from last week. However, the shadows of uncertainty are still hovering over, especially with the upcoming elections. Fundstrat Global Advisors’ Co-Founder Tom Lee and Professor Jeremy Siegel are optimistic about the market going into a period of growth at least until the elections.
We recently discussed this point of view about how the market is expected to grow with the interest rates coming down. You can take a look at 10 Worst Performing Affordable Stocks Under $40, to read more about it. Here’s an excerpt from the article:
“Jeremy Siegel, professor emeritus of finance at the University of Pennsylvania’s Wharton School of Business and Wisdom Tree chief economist, recently appeared on CNBC and expressed that he was pleasantly surprised by the Federal Reserve’s decision to make a 50 basis point cut. While talking about how the market is going to perform after the announcement, Professor Siegel said the market is going to be at an all-time high and there are not going to be any fluctuations as we have seen in the past few days.
The word “recalibration” holds significance here, the market has been 100% towards the target unemployment around 80% to 90% towards the inflation target and the Fed hasn’t moved the interest rate. Professor Siegel pointed out that the gap has been growing between the Fed Funds and the market conditions and they were thinking about a single cut by year-end until June. However, the latest announcement mentioned the Fed will cut rates at each meeting making a total of 6 cuts until June of next year. This will bring the Fed Funds rate down 200 basis points to 3.3%, which is where the professor thinks it should be.”
It is true that interest rate cuts help both growth and value stocks, but which ones are doing better? The current market trend shows the interest rate cut expectation and the announcement supported growth stocks more than the value stocks and also resulted in small caps becoming new favorites.
Talking about value stocks and how the market could be entering into a slower growth period, Vahan Janjigian, Chief Investment Officer at Greenwich Wealth Management, and Margaret Patel, Senior Portfolio Manager for multi-asset solutions at Allspring Global Investments discussed this in a recent CNBC interview. Janjigian expressed his cautiousness regarding the market even after the Fed cut rates. He believes that interest rates will go up in the long term. It is because the market is eventually going to get a more normalized yield curve, which he believes is good for the economy. If the yield curve continues to follow the upward trajectory, it will favor value stocks more than growth stocks.
Stated that the market moves in the direction Janjigian expects, we can see a sell-off for the stocks that are currently moving higher, including the tech and growth stocks. Moreover, he also pointed towards some of the biggest investment risks. He mentioned that the rising deficit, debt, and cost of servicing the debt are some of the biggest threats. Debt is also one of the reasons interest rates could potentially go up in the future, as the debt grows it can potentially push the market-determined interest rate higher.
It is important to note that Janjigian’s strategy is somewhat hedged, meaning he has stakes in both large and small-cap stocks, indicating that any market outcome will eventually benefit his portfolio.
Adding to this Patel is thinking along the same lines as well. She also believes that the upcoming quarter could be slower, mainly due to the delay by the Fed in lowering the rates. Patel expects the economy will continue to grow but at a slower rate of merely 1% to 1.5%. Talking about her popular stock picks, she prefers companies with sustainability and earnings levels above the market average.
Now let’s look at the 10 worst affordable stocks under $10.
A portfolio manager studying various stocks and other securities on a tablet.
Our Methodology
We used the Finviz stock screener to get a list of stocks under $10 that are trading at a discount to the market average (forward P/E is 23 according to data from WSJ) with earnings expected to grow this year. Using this criteria, we shortlisted 20 stocks and then selected 10 stocks that were most widely held by hedge funds. We ranked the stocks in descending order of the number of hedge funds that have stakes in them, as of Q2 2024. Please note that all data was recorded on September 22, 2024.
Why do we care about what hedge funds do? 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 Worst Affordable Stocks Under $10
10. Full Truck Alliance Co. Ltd. (NYSE:YMM)
Share Price: $7.60
Forward P/E Ratio: 14.94
Earnings Growth This Year: 32.40%
Number of Hedge Fund Holders: 28
With digital transformation taking charge in various industries, Full Truck Alliance Co. Ltd. (NYSE:YMM) has emerged as a freight dispatch company, specializing in its digitally integrated platform. The company uses the latest technologies including cloud computing, big data, mobile internet, and artificial intelligence to make it easier for shippers to connect with truck drivers for their shipping needs.
The platform by Full Truck Alliance Co. Ltd. (NYSE:YMM) is not only feasible for one-time shipments but also a viable option for online trading services as it simply enhances the overall logistics of the supply chain for businesses. Based in China, the company aims to revamp the logistics industry through its platform.
As far as the second quarter results are concerned, it seems that management has been doing well so far to meet that goal. Its average monthly active user base continued to improve during the quarter and reached 2.65 million after growing 32.8% year-over-year.
A growing user base directly translated into increased order fulfillment. The orders fulfilled during the first half of 2024 improved 25% year-over-year indicating its ability to capitalize on its market reach. Full Truck Alliance Co. Ltd. (NYSE:YMM) aims to target and support more than 30 million small and medium-sized enterprises with their shipment requirements.
Talking about profitability, the company has done well to maintain a healthy net income. Its net income for the second quarter was $115.7 million, up 38% from the comparable quarter last year. The stock is also popular among hedge funds and ranks at the lower end of our worst affordable stocks under $10. It was held by 28 hedge funds in Q2 2024, with total stakes worth $662.2 million. Farallon Capital is the top shareholder, with a position worth more than $207 million.
Here is what Baron Funds specifically said about Full Truck Alliance Co. Ltd. (NYSE:YMM) in its Q2 2022 investor letter:
“Full Truck Alliance Co. Ltd. (NYSE:YMM) is the largest digital freight platform in the world. Shares of the China-based company rallied after a cybersecurity review greenlighted the use of its Apps to add new user registrations. We remain investors. Digital platform penetration into China’s four trillion RMB full truck-load market is still just in the single digits. We see major upside based on the expected rollout of transaction commissions to truckers from the current 6% market penetration and less than 1% take rate, and we expect revenue to grow at 50% CAGR over the next five years.”
9. Tencent Music Entertainment Group (NYSE:TME)
Share Price: $9.86
Forward P/E Ratio: 14.11
Earnings Growth This Year: 26.40%
Number of Hedge Fund Holders: 25
If you are looking to invest in China, you might be interested in Tencent Music Entertainment Group (NYSE:TME). The company is a leading player in online music and audio-based entertainment mainly in China. It operates as a subsidiary of Tencent Holdings and has a diverse range of music-related services delivered through applications including QQ Music, Kugou Music, Kuwo Music, and WeSing.
While it is true that the company has been facing difficulties from the recent live-streaming ban in Beijing and is one of the worst affordable stocks under $10. However, the management was able to control the damage on the back of growing paying subscribers.
The overall revenue of Tencent Music Entertainment Group (NYSE:TME) decreased by around 17% year-over-year, mainly due to the decline in revenue from social entertainment services hindered by the live streaming ban. However, the music segment acted as a cushion for the falling revenue. The company grew its paying music users by 17.7% and paying entertainment users by 5.3% year-over-year.
The increase in revenue generated from the music subscriptions was up 29.4% from the comparable quarter last year. Moreover, despite the overall revenue falling during the quarter, Tencent Music Entertainment Group (NYSE:TME) was still able to deliver net income growth at 31.1% year-over-year, indicating its ability to remain profitable in a challenging environment.
Management believes that the challenge from the live stream ban will remain for some time, however, they expect growth in their music segment to diminish the overall impact of the ban over time.
Polen Global SMID Company Growth Strategy stated the following regarding Tencent Music Entertainment Group (NYSE:TME) in its Q2 2024 investor letter:
“Tencent Music Entertainment Group (NYSE:TME), China’s equivalent to Spotify, posted another robust quarter with continued improvement in profitability. Its music business has continued to perform well in a robust pricing environment, leading to robust revenue and earnings growth. The company now has over 113 million paying music subscribers, a more than 20% year-over-year increase and revenue mix shift. Higher average revenue per paying user has led to the company’s highest gross margin in five years.”
8. Coty Inc. (NYSE:COTY)
Share Price: $9.19
Forward P/E Ratio: 16.48
Earnings Growth This Year: 51.40%
Number of Hedge Fund Holders: 23
Coty Inc. (NYSE:COTY) is a beauty company that specializes in developing and selling a range of beauty products including fragrances, cosmetics, and skincare. Its brand portfolio is categorized into three main areas namely Consumer beauty and Prestige. While Consumer beauty includes mass-market products like makeup and fragrances, the Prestige segment deals with high-end products. The company has a market presence in more than 121 countries and its products are readily available through various retail channels including physical stores and online platforms.
Management of Coty Inc. (NYSE:COTY) under the leadership of CEO, Sue Nabi has transformed its strategy from being a beauty leader to becoming a beauty trendsetter. The company has done that through various partnerships with models and by maintaining a high Advertising & Consumer Promotion (A&CP) of 20%. This strategy has turned out to be good for the company as it was able to once again deliver double-digit growth for its like-for-like (same-store) sales. The like-for-like revenue for fiscal 24 was up 11% and management believes to have outperformed the market which grew at 9%.
This strong revenue growth for the same stores has proved to be a differentiating factor for Coty Inc. (NYSE:COTY). The growth has led to improved margins that align with management’s expectations. For fiscal 24, the company grew its adjusted margins by 50 basis points to 64.4%, including the adjusted gross margin expanding by 140 basis points during the fourth quarter alone.
Advertising and marketing are key when it comes to consumer businesses, especially beauty, management expects their 20% A&CP to start paying off shortly. Moreover, looking ahead at F25, the company expects EPS between $0.540 and $0.570 aligning well with what analysts expect from the company.
While Coty Inc. (NYSE:COTY) is one of the worst affordable stocks under $10, it does not overshadow its potential to grow in the future. Hedge funds are bullish on the stock. It was held by 25 institutional investors in the second quarter of 2024, with total stakes worth more than $218 million. Point72 Asset Management is the top shareholder of the company with a position worth more than $55.9 million.
ClearBridge Mid Cap Strategy stated the following regarding Coty Inc. (NYSE:COTY) in its fourth quarter 2023 investor letter:
“Our holdings in the consumer staples sector also helped drive performance. Restaurant foodstuff distributor Performance Food Group continues to benefit from greater consumer spending on dining. Likewise, Coty Inc. (NYSE:COTY), the global beauty company comprised of a market-leading prestige fragrance business and mass cosmetic business, reported strong quarterly earnings with outperformance across all geographic regions and operating segments. With the continued strength of the prestige fragrance market globally, we believe the company’s fundamentals have improved much more than the stock’s valuation.”
7. ADT Inc. (NYSE:ADT)
Share Price: $7.25
Forward P/E Ratio: 10.86
Earnings Growth This Year: 33.30%
Number of Hedge Fund Holders: 23
ADT Inc. (NYSE:ADT) is a smart home and home security company operating in the United States. The company provides security systems inducing burglar alarms, life safety alarms, smart security cameras, and video surveillance systems. Moreover, it also provides home automation systems that allow customers to control lighting and security, remotely through mobile phones or online apps.
ADT Inc. (NYSE:ADT) has established itself as a trusted leader in the home security industry throughout the United States. The company has a vast customer base spanning over 6.4 million subscribers. Many differentiating factors help fuel the growth of the company, one of the major differentiating factors is the average retention time of customers. Users of ADT Inc.’s (NYSE:ADT) technology have an average retention time of more than 8 years, meaning the company generates a significant amount solely through its recurring revenue. It generates around $4.3 billion in annualized recurring monthly revenue.
In addition to this, the investment and growth case for the company is even more impressive. According to the US Census Bureau, around 59 million people had home security systems installed in their homes, this number is expected to grow at a CAGR of 8% to reach 85 million people by 2027. As ADT Inc. (NYSE:ADT) is one of the leading providers of security technologies, this growth in users will directly translate into the company gaining more customers.
Talking about the second quarter results of the company, its revenue grew 3% year-over-year to reach $1.2 billion, with adjusted free cash flow improving 14% during the same time. The stock was held by 23 institutional investors in Q2 2024, with total positions worth $407 million.
Ariel Fund stated the following regarding ADT Inc. (NYSE:ADT) in its Q2 2024 investor letter:
“Leading provider of automated security solutions ADT Inc. (NYSE:ADT) also traded up in the quarter. A top- and bottom-line earnings beat, highlighted by strong growth within the consumer and small business segment, low attrition, an improving payback period and margin expansion aided shares. Meanwhile, ADT sold its commercial business and is winding down its solar business to focus on profitability in the residential sector and pay down debt. We continue to believe ADT’s industry-leading brand and national presence, coupled with its Google and State Farm strategic partnerships, position it to be a prime beneficiary of growing demand for smart home technologies, including fully monitored residential security.”
6. CEMEX, S.A.B. de C.V. (NYSE:CX)
Share Price: $6.44
Forward P/E Ratio: 8
Earnings Growth This Year: 575.00%
Number of Hedge Fund Holders: 22
CEMEX, S.A.B. de C.V. (NYSE:CX) is one of the largest suppliers of cement in Latin America. The company sells a range of basic building materials to the native Mexico market, the United States, and internationally. It has operations in more than 50 countries.
The strategic edge of the company lies in its special focus on sustainability. The company has pledged to reduce its carbon dioxide emissions by 40% by 2030. This strategic focus has turned out to be one of the differentiating factors, especially with the current hype for sustainable and climate-friendly industries. Management and analysts alike expect that the sustainability motto of CEMEX, S.A.B. de C.V. (NYSE:CX) will help it win crucial government contracts as governments around the world are struggling to balance the growing need for construction with climate priorities.
The company in its second quarter 2024 results highlighted that it has been facing some challenges from the weather conditions, which resulted in flat net sales during the quarter. However, it was still able to increase its EBITDA by 2%, marking the 6th consecutive quarter of growth, with the highest EBITDA margin in 8 years.
The growth was due to management’s strategic focus on investments. It has more than 400 ongoing projects out of which 299 have been completed. These growth investments contributed around 10% to the overall earnings of the company.
Although CEMEX, S.A.B. de C.V. (NYSE:CX) ranks as one of the worst affordable stocks under $10, the figures and investment case discussed above point towards improved prospects of growth for the company.
5. Banco Bradesco S.A. (NYSE:BBD)
Share Price: $2.63
Forward P/E Ratio: 8.9
Earnings Growth This Year: 9.40%
Number of Hedge Fund Holders: 20
Banco Bradesco S.A. (NYSE:BBD) is one of the largest banks in Brazil and focuses primarily on commercial banking. The range of banking services provided by the company includes deposits, loans, credit cards, insurance, and digital banking. The consolidated group assets of the bank amounted to BRL 2.1 trillion ($390 billion) during the first half of 2024. Moreover, its recurring net income during the same time was BRL 8.9 billion ($1.64 billion).
The bank has a special focus on improving its digital banking network while keeping its operational income steady. During the second quarter results of 2024, management disclosed that it has achieved a 99% digital transaction level, with 95% of users connected through mobile or the internet.
As far as the second quarter results are concerned, Banco Bradesco S.A. (NYSE:BBD) achieved a net income of BRL 4.7 billion ($870 million), indicating a 12% increase from the previous quarter. Moreover, the bank’s profitability has improved significantly due to an increase in net interest income, which improved 5% on a subsequent basis.
The financial company has seen growth in fees and commissions, especially regarding capital markets. Moreover, it is controlling its expenses through strategic hiring. Another positive for Banco Bradesco S.A. (NYSE:BBD) is its growing loan portfolio. The bank witnessed year-over-year growth among all loan categories, with SME loans growing 10.2%.
4. Nokia Oyj (NYSE:NOK)
Share Price: $4.28
Forward P/E Ratio: 11.11
Earnings Growth This Year: 19.40%
Number of Hedge Fund Holders: 18
Nokia Oyj (NYSE:NOK) is a Finnish company specializing in technology and services for the telecommunication and networking industry. Some of the major operations include network infrastructure comprising both wireless and wired communication and software solutions that help manage networks effectively. The company also develops new technologies related to the Internet of Things that help connect day-to-day appliances to the Internet.
Nokia Oyj (NYSE:NOK) has been facing challenges in terms of market weakness. As a result, its net sales for Q2 2024 declined 18% in constant currency. India was one of the major contributors to the decline. Although trading at a discounted forward P/E of 11, with earnings expected to grow at 19.40% during the year the stock still ranks as one of the worst affordable stocks under $10.
While it is true that the glory days of the company when it used to dominate as a prominent hardware maker are history, management is making efforts to strengthen its network infrastructure business. In an attempt to do that the company has announced divestment of ASN business and has shown an intent to purchase Infinera. Nokia Oyj (NYSE:NOK) is currently under an ongoing cost-saving transformation and the management has reiterated targeted savings of EUR 800 to EUR 1 200 million ($893.64 million to $1340.46 million) by 2026.
On the bright side, the order intake for the second quarter improved significantly, indicating an improved second half of the year. Taking confidence from improved order intake and free cash flow of $450 million during the quarter, management has kept its full-year guidance unchanged.
Nokia Oyj (NYSE:NOK) was held by 18 hedge funds in Q2 2024, with total stakes worth $418.70 million. Pzena Investment Management is the top shareholder of the company with a position worth more than $311.9 million.
Artisan International Value Fund made the following comment about Nokia Oyj (NYSE:NOK) in its second quarter 2023 investor letter:
“Nokia Oyj (NYSE:NOK) is the world’s third-largest provider of telecommunications equipment. The company sells its products to service providers, such as AT&T and Vodaphone. While we have held the stock, new management has simultaneously improved competitiveness and reduced costs—a remarkable achievement that has resulted in improved growth and profitability. Despite that, the share price has declined, and the valuation multiple has shrunk below 10X forward earnings. The reason is that telecommunications operators are cutting back on investment. Higher interest rates, inflation and competition are eating into customer cash flows, resulting in less capital spending. For now, Nokia will experience reduced demand. At some point, the ever-increasing need for wire and wireless bandwidth will force service providers to increase investment. In addition, Nokia’s market share is improving due to geopolitical changes and improved market competitiveness. The share price declined by 15% during the quarter.”
3. Harmony Gold Mining Company Limited (NYSE:HMY)
Share Price: $9.86
Forward P/E Ratio: 8.42
Earnings Growth This Year: 19.60%
Number of Hedge Fund Holders: 17
Harmony Gold Mining Company Limited (NYSE:HMY) is an international gold mining and exploration company with a growing copper footprint around the globe. The company has over 74 years of mining experience in South Africa and currently, more than 90% of its gold comes from this location. Moreover, the company has a significant presence in Papua New Guinea and Australia where it is involved in mining copper.
The company has shifted its focus to gaining operational excellence. During the fourth quarter 2024 earnings call release, management highlighted that their gold production increased by 6% to 1.56 million ounces beating their upper limit of the revised guidance. In addition to improving production, Harmony Gold Mining Company Limited (NYSE:HMY) was also able to reduce its sustaining cost per ounce by 4% to $1,500.
Moreover, the Underground recovered-grades improved for the company resulting in a 100% increase in Free Cash Flow to $681 million at 22% margins. One of the key factors while analyzing a mining company is the safety of its operations as even the slightest incident has the potential to halt operations. Harmony Gold Mining Company Limited (NYSE:HMY) has been able to keep its injury frequency rate per million ounces below 6% for the past consecutive 3 fiscal years, indicating that it owns up to its motto of “a safe mine being a profitable mine”.
Lastly, the company has also remained focused on transforming its assets to improve their life. Its Mine Waste Solution project has extended the life of mine by 14 years. Moreover, the Mponeng extension extended the life of mine by 20 years adding 2.34 million ounces to Mineral Reserves. The stock was held by 17 hedge funds in Q2 2024, with total stakes worth $171.9 million. Kopernik Global Investors is the top shareholder of the company with a position worth more than $26.9 million.
2. Sasol Limited (NYSE:SSL)
Share Price: $6.85
Forward P/E Ratio: 2.86
Earnings Growth This Year: 174.40%
Number of Hedge Fund Holders: 11
Sasol Limited (NYSE:SSL) is an international producer of chemicals and energy. The company has two main divisions Energy and Chemical, with Energy dealing in mining, gas, and fuel production. Whereas the Chemical division deals in manufacturing advanced materials, base chemicals, and other performance solutions. The company uses the proprietary Fischer-Tropsch technology to manufacture fuel from natural gas and coal. It is also one of the largest chemical and oil producers in the South African region.
Sasol Limited (NYSE:SSL) is valued cheaply, with a forward P/E at 2.86, around 82.80% discount to its sector. However, the company has faced macroeconomic challenges, with year-over-year turnover and margins going down 5% and 1% respectively. Moreover, earnings across all its major operations including mining, gas, fuel, and chemicals also took a hit and were down on a year-over-year basis. It is one of the worst affordable stocks under $10 with only 11 institutional investors having stakes in the company.
However, there is some silver lining for Sasol Limited (NYSE:SSL). While the market condition has been tough the company was still able to pull off a few positive highlights from its fiscal 2024 fourth-quarter results. Its productivity and sales volumes were up when compared to last year, with Mozambique gas production improving the most by 6%.
Moreover, management was able to reduce its capital expenditure by 2$ during the year, while improving the free cash flow generated during the second half of the year. Although the free cash flow was considerably down when analyzed every year. However, cash flow generation during the second half of FY24 was almost 100% more than the first half indicating a strong comeback.
White Falcon Capital Management made the following comment about Sasol Limited (NYSE:SSL) in its second quarter 2023 investor letter:
“Precious Metals Royalty basket (WPM, Sasol Limited (NYSE:SSL), TFPM): In the current macroeconomic environment, there are many ways to ‘win’ with gold. It is remarkable that even with record positive real yields, gold is flirting with all time highs. Why? Western central banks are increasing interest rates which means that they will have to pay more interest on the record levels of debt that their government’s owe. Where will the money come from to pay the higher interest expense? The answer is simple – more debt and more money printing! We believe the gold knows this! We believe that precious metals will protect real purchasing power and act as a hedge to the portfolio when macroeconomic uncertainty arises. Owning royalty companies at reasonable valuations gives us a high quality exposure to precious metals without project or cost inflation risks inherent in a mining company.”
1. Banco Santander, S.A. (NYSE:SAN)
Share Price: $5.08
Forward P/E Ratio: 6.22
Earnings Growth This Year: 14.50%
Number of Hedge Fund Holders: 9
Banco Santander, S.A. (NYSE:SAN) is an international bank based in Spain. It primarily operates as a retail and commercial bank, with operations in Europe, the United Kingdom, the United States, and Latin America.
Although the bank ranks as one of the worst affordable stocks under $10, its recent financial report says otherwise. The financial company reported significant profits during the first half of fiscal 2024. The total attributable profits for the first half amounted to approximately $6.81 billion, out of which $3.2 billion came in from the second quarter only.
Management has been focused on improving automation and making its banking services simpler and more accessible. This strategy has been one of the main factors boosting profitability. As a result of automation Banco Santander, S.A. (NYSE:SAN) was able to achieve an efficiency ratio of 41.6%, the best in 15 years.
Talking about other financial achievements, the bank significantly improved its net interest income during the first half of the year. The NII improved 12% year-over-year to approximately $26.202 million. High net interest income topped with net income fee resulted in overall revenue growing 9% year-over-year. Management expects the growth trend to continue for the rest of the year and has upgraded its full-year outlook to high single-digit growth.
Banco Santander, S.A. (NYSE:SAN) is trading at a 48% discount to its sector with earnings expected to grow by 14.5% during the year. Making SAN a cheap stock to buy.
While we acknowledge the potential of Banco Santander, S.A. (NYSE:SAN) to grow, 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 a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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