In this article, we will talk about the 7 cheap new stocks to invest in now.
Capital Markets Buzz Amid Fed Rate Cuts
In light of the recent Fed decision, there is growing optimism regarding increased capital markets activity. Analysts have expressed growing confidence in a soft landing for the economy despite ongoing market volatility. This perspective suggests that supportive monetary policies could create favorable conditions to enhance valuations and drive investment, making it an opportune time for firms to pursue IPOs and M&A. As borrowing costs decrease, investor interest in tech startups and growth-oriented companies is likely to rise. This trend is particularly relevant given the recent performance of the S&P 500, which has rebounded from earlier declines, indicating resilience in the market.
As we approach the end of the year, the combination of lower interest rates and positive economic data sets the stage for a potential surge in IPOs and increased market engagement. Investors may look to diversify their portfolios by exploring new opportunities in, let’s say, emerging tech firms, which could lead to heightened activity in capital markets as these companies capitalize on the favorable economic backdrop. As the current landscape presents an encouraging scenario for both established and young companies looking to enter the public market or expand through strategic partnerships, we covered Stephanie Link’s sentiments on this scenario in our article about the 10 Best Young Stocks To Buy Now. Link, Chief Investment Strategist and Portfolio Manager at Hightower, highlighted a contrasting perspective amidst market volatility and uncertainty. Here’s an excerpt from the article:
“…She believes that the Fed is skillfully guiding the economy towards a soft landing, even amidst the expected market fluctuations before the elections.
Just 3 weeks ago, the S&P 500 had dropped by 4%. Still, it rebounded by 4% the following week. It rose another 1% last week, reaching new highs, and expressed optimism about buying opportunities during any market weakness, citing better-than-expected economic growth driven by recent data, including improved retail sales and manufacturing figures, as well as a decline in weekly jobless claims to a 4-month low. This positive economic backdrop supports an estimated growth rate of 2.9%, which is expected to benefit corporate earnings.
…Link noted a broadening market trend over the past couple of months, indicating that while tech has taken the lead, other sectors such as financials, industrials, materials, and discretionary stocks are also showing strength. She advised investors to remain selective in their choices amidst ongoing volatility…”
On October 3, Tiffany McGhee, CEO and CIO at Pivotal Advisors highlighted the convergence of macro events that may spark market volatility, emphasizing the concept of “convergence” as her word of the day. She noted that this week is marked by a convergence of significant events that could lead to increased volatility in the short term. With macroeconomic factors at play, including a potential port strike and major job reports scheduled for release, Tiffany highlighted that these elements are creating what she described as a “perfect storm.”
Tiffany pointed out that the ongoing conflict in the Middle East and the recent vice presidential debate are critical factors influencing market reactions. She observed that bond prices experienced a sell-off earlier in the week but stabilized as investors sought safety amid rising geopolitical tensions. As the election approaches, she anticipates further short-term volatility due to these developments.
In terms of strategy, Tiffany encouraged investors to reassess their portfolios, particularly those with a heavy concentration in equities. With the S&P 500 up 20% year-to-date and sectors like technology and consumer discretionary having performed well, she suggested that now is an opportune time to take some profits off the table and consider reallocating those funds into different areas of the market.
Tiffany also discussed her investment pick, the mutual fund with ticker AISGS, which is currently outperforming small-cap companies. She expressed a preference for focusing on size and style rather than specific sectors at this moment. By investing in small and mid-cap stocks through active management, such as with the Aerial Fund (ARGFX), investors can capitalize on opportunities created by lower analyst coverage in these segments. This lack of information allows skilled managers to identify undervalued stocks and consistently outperform indices.
Tiffany’s insights underscore the importance of strategic asset allocation and proactive portfolio management during periods of heightened market volatility. By recognizing the convergence of macroeconomic events and adjusting investment strategies accordingly, investors can better navigate potential market fluctuations while positioning themselves for future opportunities. In that context, we’re here with a list of the 7 cheap new stocks to invest in now.
Methodology
We used the Finviz stock screener to compile a list of 20 new stocks that went public recently in the past 2 years and have a forward P/E ratio under 20. We then selected the 7 cheap new 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.
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).
7 Cheap New Stocks To Invest In Now
7. WK Kellogg Co. (NYSE:KLG)
Forward Price-to-Earnings Ratio: 9.24
Market Cap as of October 1: $1.47 billion
Number of Hedge Fund Holders: 25
WK Kellogg Co. (NYSE:KLG) is a food manufacturing company, split from Kellogg’s on October 2 in 2023, formed as part of Kellogg’s spin-off of its North American cereal business. It’s one of the world’s largest producers of breakfast cereals, best known for its iconic brands such as Corn Flakes, Frosted Flakes, Rice Krispies, Pop-Tarts, and Special K. It also produces snacks, frozen foods, and beverages among other food varieties.
In the second quarter of 2024, the company experienced a year-over-year decline of 2.7% in net sales, recording a revenue of $672 million. The company’s Core 6 segment accounts for ~70% of these sales.
Despite this drop, the EBITDA margin improved sequentially, reaching 11.6%. Excluding a one-time insurance benefit of $16 million received in Q2 2023, both gross margin and EBITDA margin improved by over 100 basis points year-over-year.
The US cereal category, as measured by Nielsen xAOC, declined 2% in the quarter and 1.1% year-to-date, with volume declining slightly. Consumers are becoming more price-conscious, favoring value-oriented channels, which have shown year-to-date dollar growth.
Most of the portfolio has performed better or in line with the category. 9 of 11 brands are gaining or holding share year-to-date, with Frosted Flakes and Raisin Bran delivering dollar sales growth. The overall performance lags the category, primarily due to challenges with Special K and Bear Naked. Despite these headwinds, the US share remains at 27.6% year-to-date.
Despite challenges, the strong execution and focus on operational efficiency have positioned WK Kellogg Co. (NYSE:KLG) for continued success, with positive expectations from future prospects, including back-to-school initiatives and supply chain improvements.
Merion Road Capital made the following comment about WK Kellogg Co (NYSE:KLG) in its Q3 2023 investor letter:
“Since the quarter ended I have built a small- to mid-sized position in WK Kellogg Co (NYSE:KLG). KLG is the North American business spun-out from the business formerly known as Kellogg. There is a ton of pessimism around this company. Two weeks before the spin the Wall Street Journal put out a scathing article on the cereal industry titled “It’s the Breakfast of Champions No More: Cereal Is in Long-Term Decline.” Unrelated, Ozempic and other GLP-1s have been a topic dejour and deemed to be a massive headwind to any unhealthy food product. Industry issues aside, KLG has recently performed worst amongst the big three (Post and General Mills being the other). In 2021 their production was stymied by a fire at their plant in Memphis and a strike by 1,400 people; production lagged and KLG generally lost share. Add in the fact that the spin accounted for only ~5% of the value of the parent company and it makes sense why most legacy shareholder receiving the stock would prefer to dump it into the market.
KLG owns highly recognizable and established brands like Frosted Flakes, Raisin Bran, Special K, Fruit Loops, and even Kashi for the health-conscious consumer. They have historically generated about $2.8bn in revenue but EBITDA margins were only in the mid- to high-single digits. Part of this can be explained by being a small part of a much larger company. Some brands were run separately from others, geographies were split, and the sales force was responsible for selling not just cereal but the whole arsenal of Kellogg product. By eliminating silos and having a dedicated sales force management hopes to drive margin improvement and regain lost share. More importantly, however, they plan to invest several hundred million into their outdated manufacturing facilities. Management is targeting a 5% margin improvement over the next couple years which would still leave them below Post, which operates in the 15%-20% range. If margins don’t move up much from here earnings are probably in the $0.75 range putting the stock at 13x. Assuming operating margins improve 3% off LTM figures (to account for any incremental depreciation expense) we would get to $1.50 in earnings or less than 7x. This all compares favorably to Post and General Mills multiples in the mid-teens. While there is a lot to dislike about KLG, the risk return seems attractive.”
6. Phinia Inc. (NYSE:PHIN)
Forward Price-to-Earnings Ratio: 9.43
Market Cap as of October 1: $2.01 billion
Number of Hedge Fund Holders: 35
Phinia Inc. (NYSE:PHIN) is a global, market-leading premium solutions and components provider for the automotive and industrial sectors. With over a century of manufacturing expertise and a strong brand portfolio, it offers a range of products, including fuel systems, electrical systems, and aftermarket solutions. Committed to sustainability, it is exploring advanced technologies to reduce carbon emissions and promote sustainable mobility.
The global commercial and light vehicle markets are softening, partially offset by slower growth in EVs. While internal combustion engines will play a crucial role in achieving carbon neutrality, the company is investing in alternative fuel solutions like ethanol, biofuels, e-fuels, and hydrogen. The past year’s performance validates its long-term strategic plan and demonstrates the progress in executing it.
In Q2 2024, the company made $868 million in revenue, which was slightly lower than Street estimates. Adjusted sales for the quarter were $863 million, lower than the previous year. Adjusted EBITDA declined by $13 million to $117 million, with an adjusted EBITDA margin of 13.6%, down 110 basis points due to increased standalone company costs, transactional currency losses, and lower sales.
The aftermarket business demonstrated resilience and consistent performance, particularly in Europe. However, the Fuel Systems segment faced challenges due to weaker-than-expected commercial vehicle sales in Europe and lower light vehicle sales in China.
Margins remained strong in both Aftermarket and Fuel Systems, at 15.1% and 10.1%, respectively. Total segment-adjusted operating margins were 12.2%, 30 basis points lower than the previous year due to retroactive customer recoveries in Q2 2023.
Phinia Inc. (NYSE:PHIN) has demonstrated strong operational performance and financial discipline in its first year as a stand-alone entity, highlighted by over $180 million returned to shareholders through dividends and share repurchases. It’s well-positioned to become an industry leader.
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.”
5. Solventum Corp. (NYSE:SOLV)
Forward Price-to-Earnings Ratio: 11.85
Market Cap as of October 1: $12.04 billion
Number of Hedge Fund Holders: 37
Solventum Corp. (NYSE:SOLV) is a healthcare company, spun off from 3M in April this year, that offers a range of products and services, specializing in 4 main segments: medical solutions, oral care, health information systems, filtration and engineering, and patient and consumer solutions. It emphasizes innovation, patient-centricity, and efficiency in its approach to developing and delivering its products and services, working closely with healthcare professionals.
The company has a 3-phased approach that focuses on stabilizing the business, repositioning for growth, and optimizing the portfolio. Phase 1 focuses on establishing a new mission, acquiring talent, and restructuring for agility while managing the separation from 3M.
The separation efforts involve relocating manufacturing lines from 67 plants to 29 Solventum plants, including 2 new plants currently under construction. The company is also restructuring its distribution and supply chain by reducing the number of distribution centers from 122 to 73. The rebranding efforts are extensive, spanning over 90 countries, and management has adjusted the commercial distribution models in over 60 countries.
Revenue in Q2 2024 came out at $2.08 billion. MedSurg segment was up 1.8% year-over-year, driven by negative pressure wound therapy and antimicrobial IV site management solutions. Dental segment revenue was down 2%, due to volume pressures from challenging market conditions. HIS segment was up 3.6%, fueled by the adoption of 360 Encompass and steady performance management solutions. The Purification and Filtration segment was down 0.9%, impacted by performance in drinking water filtration.
Its initiatives to streamline its SKU portfolio and improve margins demonstrate a strong focus on operational efficiency. The company’s progress in identifying and eliminating SKUs positions it well for future growth and improved profitability.
4. Nextracker Inc. (NASDAQ:NXT)
Forward Price-to-Earnings Ratio: 13.16
Market Cap as of October 1: $5.38 billion
Number of Hedge Fund Holders: 39
Nextracker Inc. (NASDAQ:NXT) is a leading provider of intelligent, integrated solar tracker and software solutions used in utility-scale and distributed generation solar projects around the world.
The company was selected to provide its NX Horizon-XTR tracker systems for the 1.17 GW Al Kahfah solar power project in Saudi Arabia earlier in 2024. These advanced tracker systems optimize energy output by following the sun’s movement. It will also collaborate with local partners in Saudi Arabia to provide raw materials and manufacturing support. This order expands the company’s total capacity of smart solar trackers in the Middle East, India, and Africa region to over 10 GW.
The company’s revenue grew by 50.13% year-over-year in FQ1 2025, marking the 6th consecutive quarter of double-digit year-over-year revenue growth. US revenue was up 71% year-over-year, while the rest of the world grew by 29%. The backlog increased sequentially to ~$4 billion. It also introduced new products such as agri PV solutions and NX low carbon tracker.
Management announced accepting orders for solar tracker solutions with 100% US domestic content, with production expected to begin in the early calendar year 2025. The company acquired Ojjo and Solar Pile International. By combining tracker systems and foundations, it can offer a comprehensive solution for various soil conditions in utility-scale projects worldwide.
The Biden administration’s imposition of import tariffs on products from China and Southeast Asia has raised concerns among developers about increased module costs, creating unease in the solar market. Despite this, the company stays a market leader with products that enhance utility-scale solar projects, giving it a competitive edge, and positioning it well for success.
3. Atmus Filtration Technologies Inc. (NYSE:ATMU)
Forward Price-to-Earnings Ratio: 17.97
Market Cap as of October 1: $3.13 billion
Number of Hedge Fund Holders: 44
Atmus Filtration Technologies Inc. (NYSE:ATMU) designs, manufactures and sells filtration products under the Fleetguard brand name in North America, Europe, South America, Asia, Australia, Africa, and internationally. The company offers fuel filters, lube filters, air filters, crankcase ventilation, hydraulic filters, coolants, and fuel additives, as well as other chemicals; fuel water separators, and other filtration systems.
To enhance product availability, the company is expanding its distribution network. Over 80% of its products are now handled through Atmus warehouses, and management anticipates that its entire product line will be distributed through this network by year’s end. However, Freight demand remains sluggish, but strong performance in other segments is mitigating market weakness. While US demand is decelerating, India continues to show strength, and China remains slow.
Despite challenges, Q2 2024 revenue increased by 4.59% year-over-year, primarily driven by a 3% increase in sales volume and pricing adjustments of ~2%. Lower commodity costs and strong operational execution contributed to improved sales, gross margin, and adjusted EBITDA.
On August 7, Stephen Macadam, director at the company, bought 8,250 shares of Atmus Filtration Technologies Inc. (NYSE:ATMU), now owning a total of 32,083 shares. Later, on August 23, director Gretchen Haggerty also bought 5,849 shares, now owning a total of 19,881,803 shares.
Atmus Filtration Technologies Inc. (NYSE:ATMU) is capitalizing on partnerships with industry leaders, securing new vehicle platforms that meet the 2027 US EPA emission standards. The company’s leadership in fuel filtration and crankcase ventilation, coupled with its focus on aftermarket expansion, sets it up for ongoing success.
2. GE HealthCare Technologies Inc. (NASDAQ:GEHC)
Forward Price-to-Earnings Ratio: 19.8
Market Cap as of October 1: $42.86 billion
Number of Hedge Fund Holders: 49
GE HealthCare Technologies Inc. (NASDAQ:GEHC) is a medical technology company, spun-off from General Electric on January 4, 2023. It provides integrated care solutions that create actionable insight across the healthcare system and care pathway, enabling better clinical and financial outcomes. Its AI-powered imaging and diagnostic tools, like Edison True PACS, have boosted radiologist efficiency and driven revenue growth in healthcare.
As healthcare providers upgrade their equipment in areas like MRI, CT, and ultrasound, this company is poised to benefit. It’s also expanding its digital health solutions, including AI-powered analytics and cloud-based services to improve patient care and operational efficiency in an increasingly telehealth-focused environment. Strategic partnerships within the healthcare ecosystem enhance its capabilities and drive innovation further.
The company secured contracts with ~$800 million in the US market in Q2 2024, for healthcare equipment, software, and services. In July, it acquired the AI division of Intelligent Ultrasound, specializing in women’s health ultrasound AI, and partnered with AWS to develop foundational models and GenAI tools.
The rising demand for its medical imaging and monitoring technologies, especially in hospitals and outpatient settings, helped Q2 revenue grow 0.46% year-over-year. It delivered 1% organic revenue and 3% orders growth with all segments contributing. Global revenue growth was 4%, and order growth was 6% excluding China.
GE Healthcare Technologies Inc. (NASDAQ:GEHC) is expanding its market share through equipment upgrades, digital health investments, and strategic partnerships. Its focus on sustainability aligns with market trends, making it a promising investment.
Cooper Investors Global Equities Fund stated the following regarding GE HealthCare Technologies Inc. (NASDAQ:GEHC) in its Q2 2024 investor letter:
“However, we are keen to highlight other Stalwarts and Growth businesses we own that should benefit in a more profound way than hardware makers currently enjoying an initial build-out phase. To paraphrase Salesforce CEO Mark Benioff, if hardware is the picks and shovels of GenAI then data is the real gold.
Another example is GE HealthCare Technologies Inc. (NASDAQ:GEHC), a global leader in diagnostic imaging equipment across multiple modalities. AI algorithms are making image quality better, assisting image analysis via computer vision, and enabling devices to be more accessible for new users. The next stage will be data-driven; via its many points of penetration into the patient journey, GEHC is accumulating large amounts of data across pathology, genomics, and imaging. Harnessing AI tools across that data to drive better patient outcomes should enable improved sales, margins and returns from a more competitive product offering.”
1. Kenvue Inc. (NYSE:KVUE)
Forward Price-to-Earnings Ratio: 18.83
Market Cap as of October 1: $44.30 billion
Number of Hedge Fund Holders: 58
Kenvue Inc. (NYSE:KVUE) is a consumer health company, formerly the Consumer Healthcare division of Johnson & Johnson. It operates through three segments: the Self Care segment offers cough, cold, and allergy, pain care, digestive health, smoking cessation, and eye care products; the Skin Health and Beauty segment provides face and body care, hair, and sun products; the Essential Health segment offers oral and baby, women’s health, and wound care products.
Self-care growth slowed, but China’s weak market impacted Dr. Ci:Labo. Tylenol performed well with new products and market share gains. Despite increased marketing investments, essential Health and Listerine saw strong organic growth, 7.6% and 10% respectively. The company expanded its in-store presence and increased media, driving overall growth. Allergy sales recovered in June.
Overall, Q2 2024 revenue was down 0.27% year-over-year. Organic growth in Q2 was 1.5%. Value realization contributed 2.1% to growth. Volume declined slightly in Self Care and Skin Health and Beauty, with a 0.6% year-over-year decrease.
The company has strong financials, including $1 billion in cash and equivalents, a 60% gross margin, and a 17.8% operating margin. Management raised full-year sales guidance to a high end of 3% after Q2 results. Consumer staples stocks like this company have held up well during recession fears, and future growth could be fueled by increased beauty spending, positioning it well for future growth.
Oakmark Fund stated the following regarding Kenvue Inc. (NYSE:KVUE) in its first quarter 2024 investor letter:
“Kenvue Inc. (NYSE:KVUE) became the largest standalone consumer health company following its split-off from Johnson & Johnson in May 2023. The company’s highly recognizable brands, such as Neutrogena, Listerine, Tylenol and Band-Aid, have been market share leaders in their respective categories for generations. However, Kenvue’s first year as a public company was clouded by litigation and market share losses in certain categories. As a result, Kenvue now trades for just 16.5x trailing earnings, a substantial discount to the market and other consumer health and packaged goods companies. We see an opportunity for the company to improve efficiency and re-invest the cost savings into increased product development and marketing, which should help improve its growth and brand equity.”
As we acknowledge the growth potential of Kenvue Inc. (NYSE:KVUE), 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 KVUE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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