In this article, we discuss the 7 cheap rising stocks to invest in along with the probable impacts of the latest Federal Reserve rate cuts
The recent Fed rate cuts have been a major catalyst for the market, and have provided an additional boost to an already strong performance. The market started the day with another all-time high on September 26 and it seems like the cuts have been positively influencing market sentiment and activity.
Nevertheless, some experts are still saying that investors are moving with caution as the timeline moves closer to the US elections. Wisdomtree CEO, Jonathan Steinberg recently joined CNBC “Money Movers” as he discussed the impact of the Fed’s actions on market flows and noted that while the 50-basis-point rate cut may reduce recession risks, a significant amount of money remains on the sidelines.
Steinberg explained that many investors are cautious, keeping money in safe places like money market funds, due to uncertainty about the upcoming election and its potential impact on the economy. The differing policies of the candidates make it hard to predict market trends, so people are waiting to see the election results before making big investment decisions.
Expert Opinions on the Election
As the elections move closer, the sentiment has been quite mixed around the candidates as it seems like a very close one. While many have a solid opinion on their favorite candidates, economists and market experts might not be feeling the same.
In our article 7 Best Revenue Growth Stocks to Buy According to Analysts, we discussed Professor Jeremy Siegel’s opinions on the Fed cuts and upcoming elections. Here is an excerpt from the article:
“In a discussion about economic policies from the presidential candidates, Professor Siegel critiqued both sides as extreme and said that their policies are unlikely to be implemented. He said that there would be a divided government that would limit any drastic changes. He stressed that while some policies might be proposed, actual governance would lead to compromises rather than sweeping reforms.”
While Professor Siegel remained neutral and criticized both sides, Harvard professor and former Chairman of the Council of Economic Advisers, Jason Furman seems to be leaning more toward the Democratic Party. However, he too criticized the economic plans of both candidates on September 20 in an interview on CNBC’s Squawk Box.
Insights from Jason Furman on Fed Policy
In the discussion about the Fed’s rate cut policy, Furman noted that while he would have preferred a smaller 25-point cut, he does not believe the Fed has inside knowledge of serious economic risks.
He thinks the move only shows caution over rising unemployment. About the unemployment situation, he said that he is, “a little bit nervous about it too, just not quite as nervous as 50 basis points.”
Furman acknowledged that inflation has come down but pointed out that risks such as potential wage-driven inflation and the possibility of a recession are still there. He appreciated the Fed’s gradual approach, which allows for adjustments in future rate decisions if needed.
With that, we look at the 7 Cheap Rising Stocks to Invest in.
7 Cheap Rising Stocks to Invest In
Our Methodology
For this article, we used stock screeners to identify over 30 stocks with more than 10% share price gain over the last month and a forward price-to-earnings ratio of less than 15 as of September 27. We narrowed our list to 7 stocks most widely held by institutional investors. The 7 cheap rising stocks are listed in ascending order of their hedge fund sentiment which was taken from Insider Monkey’s database of over 900 elite hedge funds.
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 Rising Stocks to Invest In
7. United Airlines Holdings, Inc. (NASDAQ:UAL)
FWD PE Ratio: 6.02
1-Month Stock Price Performance: 36.00%
Number of Hedge Fund Holders: 56
United Airlines Holdings, Inc. (NASDAQ:UAL) operates as a major provider of air transportation services across the globe. With a vast network that spans North America, Asia, Europe, Africa, the Pacific, the Middle East, and Latin America, the company transports both passengers and cargo through its mainline and regional fleets.
Additionally, it offers a variety of services including catering, ground handling, flight training, and maintenance for third parties, further diversifying its business operations. It ranks at 7 on our list of cheap rising stocks to invest in.
In the second quarter, the airline achieved a remarkable milestone by transporting 44.4 million passengers, which is the highest number for this period in the company’s history. It shows a strong recovery in air travel demand and a well-executed operational strategy.
On a single day during the quarter, the company set a new record by serving 565,000 travelers, which shows its capacity to handle high volumes while maintaining service quality. Moreover, its international capacity was 35% greater than that of its closest U.S. competitor, a sign of its strong market position and extensive global reach.
In a significant move to advance the passenger experience, United Airlines (NASDAQ:UAL) entered into a groundbreaking agreement in September with SpaceX to provide Starlink’s high-speed Wi-Fi service on its aircraft.
The partnership represents the largest deal of its kind in the aviation industry, which will allow it to offer fast, reliable internet connectivity to its travelers at no cost. The new service will allow passengers to access live TV, streaming, social media, shopping, and gaming during flights, transforming the inflight experience.
With plans to equip over 1,000 aircraft with Starlink connectivity, the company is set to lead the industry in providing unparalleled inflight internet access. Testing is expected to begin in early 2025, with the first passenger flights featuring Starlink service later that year.
According to our database, 56 hedge funds held stakes in United Airlines (NASDAQ:UAL) in the second quarter, with positions worth $1.468 billion. PAR Capital Management is the biggest shareholder in the company and has a position worth $221.843 million as of Q2.
6. JD.com, Inc. (NASDAQ:JD)
FWD PE Ratio: 10.04
1-Month Stock Price Performance: 51.40%
Number of Hedge Fund Holders: 59
JD.com, Inc. (NASDAQ:JD) operates as a leading technology and service provider in China, focusing on supply chain solutions. The company offers a wide variety of products, including computers, communication devices, consumer electronics, and home appliances.
In addition to these categories, it provides general merchandise such as food, beverages, fresh produce, baby and maternity items, as well as furniture and household goods. The platform serves consumers directly and offers marketplace services for third-party merchants, marketing solutions, and omnichannel strategies for both customers and offline retailers.
Furthermore, JD.com (NASDAQ:JD) is involved in online healthcare services and manages its own logistics facilities, which improves the efficiency of its operations. The company takes its place among our cheap rising stocks to invest in.
In Q2, it reported over $4 billion in revenue or earnings of $1.13 per share for the period ending in June. While sales showed only modest year-over-year growth, they still exceeded expectations.
More importantly, profits significantly surpassed analyst projections, nearly doubling compared to the same quarter in 2023. This shows its ability to improve profitability even in a challenging retail environment.
Interestingly, while online retailing remains JD.com’s (NASDAQ:JD) primary source of revenue, the logistics segment is emerging as a driver of growth, showing the highest increases in both revenue and earnings during the second quarter.
Furthermore, in August, the company announced a substantial $5 billion share repurchase program, set to begin in September 2024 and run for three years. It allows the company to repurchase shares in a flexible manner, and use various strategies such as open market purchases and private negotiations, depending on market conditions. The decision signals confidence in the company’s long-term prospects and commitment to returning value to shareholders.
Ariel Investments stated the following regarding JD.com, Inc. (NASDAQ:JD) in its first quarter 2024 investor letter:
“We initiated a position in China-based technology-driven E-commerce company, JD.com, Inc. (NASDAQ:JD). The brand has long been known across the region as a superior online shopping channel due to its unique first-party model and unparalleled fulfillment service underpinned by JD Logistics. Yet, a challenging macro environment drove shares lower as shoppers began seeking bargains. In response, the company made significant investments in elevating its third-party merchant platform to enhance its variety of product offerings and price competitiveness for consumers. We believe these actions will yield an improved product mix, stronger top-line growth and margin expansion on a go-forward basis.”
5. AT&T Inc. (NYSE:T)
FWD PE Ratio: 10.02
1-Month Stock Price Performance: 10.83%
Number of Hedge Fund Holders: 71
A cheap rising stock to invest in, AT&T Inc. (NYSE:T) is a leading global provider of telecommunications and technology services, operating through two primary segments, Communications and Latin America.
The Communications segment offers a wide range of wireless voice and data services, along with selling devices such as handsets and wireless data cards. The segment also includes offerings like Virtual Private Networks, AT&T Dedicated Internet, and Ethernet services. Moreover, it provides broadband solutions, fiber connections, and more. The various products and services under this segment are marketed using well-known brands such as AT&T, AT&T Business, Cricket, AT&T PREPAID, and AT&T Fiber.
AT&T’s (NYSE:T) Latin America segment extends its reach by offering both postpaid and prepaid wireless services in Mexico through the AT&T and Unefon brands, along with the sale of smartphones via owned stores, agents, and third-party retailers. The geographical diversity allows it to capture a broader customer base and respond to regional demands effectively.
Bloomberg reported recently that its DirecTV has been involved in advanced negotiations to merge with Dish, according to people familiar with the matter. Such a move, if it happens, would create the largest pay-TV provider in the United States, combining nearly 20 million subscribers.
The industry is grappling with challenges, including a decline in traditional pay-TV subscriptions. While previous discussions regarding a DirecTV-Dish merger faced regulatory hurdles, the evolving landscape, marked by a significant shift towards streaming services, may ease these concerns this time around.
Such a merger would improve the competitive position of the combined entity and improve its ability to compete against cable operators and major streaming platforms. Lastly, according to the people familiar with the matter, DirecTV is negotiating to take charge of the merged entity, which will operate as a private company.
4. Western Digital Corporation (NASDAQ:WDC)
FWD PE Ratio: 8.80
1-Month Stock Price Performance: 10.14%
Number of Hedge Fund Holders: 80
Western Digital Corporation (NASDAQ:WDC) has established itself as a leading name in the data storage industry. It specializes in the manufacture and sale of a wide range of storage solutions. It ranks 4th on our list of cheap rising stocks to invest in.
In the second quarter, 80 hedge funds tracked by Insider Monkey held positions in the company and their stakes amounted to nearly $4.06 billion. As of June 30, Millennium Management is the most dominant shareholder in the company and has a position worth $379.707 million.
The company focuses primarily on hard disk drives (HDDs) and solid-state drives (SSDs). Its comprehensive product offerings cater to various needs, including HDDs for personal computers, laptops, and enterprise storage systems marketed under the Western Digital and WD brands.
Additionally, high-performance SSDs are available under the SanDisk brand, known for their speed and reliability, serving both consumer and business markets. The company also develops embedded storage solutions for automotive and industrial applications, along with memory components for smartphones and other electronic devices.
A recent discussion by Rob Soderbery, executive vice president of the Flash Business Unit at Western Digital (NASDAQ:WDC), highlighted the company’s ambitious plans regarding artificial intelligence and machine learning, among other things.
Soderbery said that the company is actively integrating AI into its engineering processes. It is expected to generate around $100 million in productivity gains over the next two years, allowing for reinvestment in growth areas.
Moreover, he mentioned that the company is set to undergo a significant transformation by splitting its business into two publicly traded companies, a move expected in the second half of this year.
One business will concentrate on HDDs, while the other will focus on flash memory products. The separation, described as a “soft-spin,” aims to enhance clarity and focus on each business segment, allowing Western Digital (NASDAQ:WDC) to allocate resources and energy more effectively.
Lastly, the company has projected its revenue for the first quarter of fiscal 2025 to be between $4 billion and $4.2 billion, which signals a positive outlook for the company.
Parnassus Investments stated the following regarding Western Digital Corporation (NASDAQ:WDC) in its Q2 2024 investor letter:
“We re-initiated a position in Western Digital Corporation (NASDAQ:WDC), a manufacturer of memory semiconductor chips and hard disk drives, as we believe earnings expectations are far too low. Semiconductors have been another of our most-alpha-generative industries, thanks to the industry’s secular tailwinds and our in-house expertise. Western Digital stands to benefit from the rapid growth of memory-hungry AI applications. The valuation for Western Digital was low relative to its peers, giving us a way to participate in AI at a reasonable valuation.”
3. PDD Holdings Inc. (NASDAQ:PDD)
FWD PE Ratio: 11.27
1-Month Stock Price Performance: 44.96%
Number of Hedge Fund Holders: 86
PDD Holdings Inc. (NASDAQ:PDD), formerly known as Pinduoduo Inc., has quickly risen to prominence in the global e-commerce landscape. The company operates the Pinduoduo platform, a well-known e-commerce site in China, which is celebrated for its wide array of products and innovative team purchase model.
It improves the shopping experience and motivates consumers to engage in group buying, making it more appealing for those looking for value. Alongside this, the company manages Temu, an international marketplace designed to provide consumers worldwide with high-quality yet affordable products.
Despite being founded just nine years ago, it has become one of China’s largest e-commerce companies, largely by serving lower-income shoppers in less affluent regions, offering more affordable options compared to competitors.
Analysts are bullish on PDD Holdings (NASDAQ:PDD) as it has a consensus Strong Buy rating from 47 analysts. The average price target of $159.34 has a 17.70% upside to the stock’s price on September 27. It ranks among our cheap rising stocks to invest in.
One of the remarkable aspects of the company’s growth is the popularity of the Temu app, which has garnered an impressive 735 million downloads globally, according to a recent article on the site, Chain Store Age.
Additionally, Temu has seen monthly visits soar past 500 million in the first quarter of 2024, which is evidence of strong consumer interest and engagement with the platform. This kind of traction suggests that the company is effectively reaching a broad audience, which is essential for long-term success in the highly competitive e-commerce sector.
Hayden Capital stated the following regarding PDD Holdings Inc. (NASDAQ:PDD) in its Q2 2024 investor letter:
“PDD Holdings Inc. (NASDAQ:PDD): A few weeks ago, Latepost (a leading Chinese technology news outlet) confirmed Pinduoduo’s online grocery initiative is solidly profitable (LINK). According to the article, Duoduo Grocery is able to achieve ~5% net profit margins in competitive markets (where they go up against Meituan Select). In non-competitive markets, they can achieve ~10 – 15% net margins.
The company doesn’t disclose the exact scale of Duoduo Grocery, but our calculations indicate it’s likely around ~RMB 300BN this year, and still growing in the double-digits. At that level, the division is likely contributing ~US $2.5BN in annual profits.
It’s an impressive result, but admittedly, not a huge needle-mover in light of the total $17.6BN net profits the company is expected to make this year (~14% of overall profits)…” (Click here to read the full text)
2. Alibaba Group Holding Limited (NYSE:BABA)
FWD PE Ratio: 12.02
1-Month Stock Price Performance: 32.47%
Number of Hedge Fund Holders: 91
Alibaba Group Holding Limited (NYSE:BABA) is a major Chinese multinational company that excels in various sectors, including e-commerce, retail, internet services, and technology. Its extensive portfolio features popular platforms such as Taobao and Tmall, which are central to its e-commerce operations, alongside Alimama, the company’s in-house monetization service.
It also facilitates online wholesale through sites like 1688.com and Alibaba.com, as well as AliExpress, its international retail marketplace. Additional offerings include Lazada, Trendyol, and Daraz, which expands its reach across Southeast Asia, and Freshippo, a grocery retail platform.
With Tmall Global catering to import needs, the company generates revenue primarily through fees and commissions from merchants using these platforms, it has taken over an impressive 40% share of China’s total e-commerce gross merchandise value (GMV) and has a vast active user base of 930 million as of 2023.
A significant area of growth for the company has been in AI. It has been actively integrating AI into its services, utilizing features like automated replies and chatbots to assist merchants in delivering better customer service.
The AI tools are invaluable, offering 24/7 availability to address common inquiries, which is particularly useful during off-hours. As consumer shopping behavior shifts towards more personalized experiences, Alibaba’s (NYSE:BABA) AI capabilities enable more accurate product recommendations, which can lead to improved sales conversions and enhanced customer engagement.
Its ambition in the AI space extends beyond basic customer service applications. Recently, the company has made strides in developing its own large language models (LLMs), in which it has experienced a remarkable increase in AI-related revenue, which has increased by triple digits.
Recognizing the demand for AI innovation, the company has released over 100 new open-source AI models that cater to diverse applications, including language processing, audio, visual comprehension, and coding. One of the advancements is a new text-to-video model that allows users to convert images into videos simply by typing prompts, which creates new creative possibilities for users.
O’keefe Stevens Advisory stated the following regarding Alibaba Group Holding Limited (NYSE:BABA) in its Q2 2024 investor letter:
“We initiated two new positions during the quarter: Alibaba Group Holding Limited (NYSE:BABA) and Perrigo (PRGO). Both have seen their stocks decline over 70%+ from their all-time highs.
Alibaba is the largest e-commerce player in China, with 40% gross merchandise volume (GMV) market share through its Taobao and T-mall businesses. While the cloud computing business is relatively small, its 37% market share in China positions it well to capitalize on the increasing demand for AI-related products. In the most recent quarter, AI-related cloud revenue recorded triple-digit growth y/y, with the expectation that total cloud revenue will accelerate to double-digit growth in 2H 2025.
It’s rare to find a dominant market share business with significant tailwinds trading for ~10x adj. EPS. After accounting for their ~$60B net cash balance sheet, the stock is trading at 6-7x, which, we believe, is far too cheap. We understand this business would not trade at this price if it were a U.S. business. However, the valuation gap at a high single-digit P/E is pricing in a combination of the following risks – 1. China invading Taiwan. 2. Cash can never leave mainland China (disproven). 3. Increasing competition from Pinduoduo and Shien resulting in market share loss 4. China’s geopolitical tensions worsen. 5. Economic slowdown stemming from the recent housing market downturn. 6. VIE structure creates doubt over the actual ownership of the business. All risks have merit, with cash distribution restrictions at the lower end due to the recently announced dividend and special dividend. Cash returned to shareholders totaled $16.5B in FY24, up from $13.4B in FY23…” (Click here to read the full text)
1. Micron Technology, Inc. (NASDAQ:MU)
FWD PE Ratio: 12.11
1-Month Stock Price Performance: 12.45%
Number of Hedge Fund Holders: 120
Micron Technology, Inc. (NASDAQ:MU) is a leading provider of advanced memory and storage solutions that are essential across various applications, including computers, smartphones, servers, and data centers. It tops our list of cheap rising stocks to invest in.
The company has established itself as a key player in the digital economy through its manufacturing of memory products such as DRAM, NAND flash, and NOR flash. These memory types are important components found in a wide array of technology products, from personal devices to large-scale enterprise systems.
Additionally, the company improves upon its offerings with services that support customers throughout the product lifecycle, including design assistance, comprehensive testing, and effective supply chain management.
120 hedge funds held stakes in Micron (NASDAQ:MU) in the second quarter, with positions worth $5.164 billion, according to Insider Monkey’s database. With nearly 3.68 million shares of the company, valued at $483.96 million, Two Sigma Advisors is the largest shareholder of the company, as of June 30.
The company has provided guidance for the upcoming quarter that suggests revenues of $8.7 billion and adjusted earnings of $1.74 per share, both of which surpass analyst expectations. The promising forecast points to a strong demand for high-bandwidth memory chips, particularly within AI computing platforms.
CEO Sanjay Mehrotra has expressed confidence in the company’s outlook, as the management expects record revenues for the first fiscal quarter and significant profitability growth for fiscal 2025. Recent analyses from firms like Raymond James and Baird signify the market’s optimism regarding the company.
On September 26, Raymond James raised the price target on it to $140 from $125 and reiterated an Outperform rating. The firm noted that both the Q4 results and the Q1 outlook exceeded expectations, which alleviates concerns about the memory cycle’s downturn.
Factors contributing to improved margins include pricing strategies, a favorable high-bandwidth memory mix, and better manufacturing yields, all of which are anticipated to persist throughout the year.
Meanwhile, on September 27, Baird adjusted its price target to $150 from $172 on Micron (NASDAQ:MU) but maintained an Outperform rating. The firm emphasized that its share of high-bandwidth memory is expected to match its overall DRAM market share by 2025.
The aspect is crucial to Baird’s investment thesis, as high-bandwidth memory is projected to yield gross margins in the low 60s and a compound annual growth rate of 60%. This potential remains largely untapped in the current valuation, making the company an attractive investment opportunity.
Parnassus Investments stated the following regarding Micron Technology, Inc. (NASDAQ:MU) in its Q2 2024 investor letter:
“Micron Technology, Inc. (NASDAQ:MU) posted fiscal third-quarter results that met expectations. Micron’s DRAM (dynamic random access memory) and NAND (non-volatile storage technology) segments grew revenue strongly, continuing the company’s recovery from a cyclical downturn last year. We believe Micron is well positioned to capitalize on AI-driven demand for greater memory.”
While we acknowledge the potential of Micron Technology, Inc. (NASDAQ:MU) as an investment, 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 an AI stock that is more promising than MU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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