We recently compiled a list of the 10 Best Debt-Free Penny Stocks to Buy Now. In this article, we are going to take a look at where Agilon Health Inc. (NYSE:AGL) stands against the other debt-free penny stocks to buy.
Inflation in the U.S. has dropped to the lowest level since 2021, setting the stage for the Federal Reserve to cut interest rates. With inflation down to 2.5%, close to the recommended 2%, the prospects of the U.S. Federal Reserve conducting more than one interest rate cut heading into year-end is more than guaranteed.
Investors tend to be excessively hopeful regarding the extent and timing of Federal Reserve rate reductions. The markets are fond of reduced rates as they can boost economic growth by reducing the cost of borrowing for U.S. businesses and individuals.
READ ALSO: 10 Undervalued Cyclical Stocks to Buy According to Analysts and 10 Best US Stocks to Buy Under $5.
The prospect of an interest rate cut of more than 50 basis points before year-end makes the case for being bullish in the equity markets. Penny stocks could be an ideal play on the risk-reward front, given that valuations in the overall market have gotten out of hand.
With the S&P 500 up by more than 17% for the year, large-cap stocks are trading at premium valuations after blockbuster gains over the past year. The artificial intelligence frenzy has catalyzed the blockbuster move to the upside. Nevertheless, debt-free penny stocks are still trading at discounted valuations with tremendous upside potential.
While inflation levels have eased significantly over the past year, it does not mean that prices of things have dropped significantly. According to Lisa Sturtevant, chief economist at Bright MLS, consumers are paying more than 20% more for goods and services than before the pandemic. However, the prospects of lower interest rates should be a boon for companies.
Access to cheap capital should be much easier with the benchmark rate coming down. Penny stocks, mostly made up of low market cap companies, should be the biggest beneficiaries as they could access capital to ramp up operations and fund growth.
Nevertheless, concerns are growing on Wall Street that interest rate reduction might come too late, as numerous American consumers are already struggling to cope with the burden of elevated costs and limited capacity to increase their spending. A wave of disappointing economic data, especially in the labor market, sends jitters that the economy might be slowing.
Jamie Dimon has already reiterated that there is a 30% to 40% chance of the economy plunging into recession. According to Dimon, the long-running high interest rate environment put more pressure on the economy in the run-up to pull inflation down to 2%.
With recession fears gathering steam in recent months, a wave of caution has gripped the equity market as investors remain wary of the elevated valuation. Amid these concerns, the Best Debt Free Penny Stocks to Buy Now offer a way out of the debacle as such companies are well poised to benefit from inflation and interest rates dropping.
American companies continue to have dangerously high debt levels on their financial statements. A report from S&P Global Ratings reveals that the number of corporate debt defaults spiked last year and could see a resurgence in 2024, as companies with limited liquidity face the burden of high interest rates.
In 2023, 153 companies could not fulfill their debt payment commitments, a notable jump from 85 in the prior year, indicating an 80% increase. This represents the highest default rate in seven years, excluding the sharp increase during the COVID-19 pandemic in 2020.
While many U.S. companies boast robust balance sheets, a considerable amount of defaults originate from companies with negative cash flows and high debt levels. Experts label these companies heavily in debt as “zombies,” as they fight to stay afloat, barely able to cover the interest on their debts, and frequently teetering on the brink of collapse. Penny stocks with solid balance sheets and low debt levels offer one of the best ways of diversifying an investment portfolio at highly discounted valuations.
Our Methodology
To make our list of the 10 Best Debt Free Penny Stocks to Buy Now, we used the Yahoo Finance and Finviz stock screeners to find penny stocks with a market cap of over $500 million. Next, we shortlisted the stocks whose enterprise value was less than the market cap and had a debt of less than $50 million. Finally, we ranked these cash-rich stocks in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
At Insider Monkey, we are obsessed with 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).
A doctor in scrubs interacting with a Medicare Advantage member in her home.
Agilon Health Inc. (NYSE:AGL)
Market Cap as of September 13: $1.36 Billion
Enterprise Value: $1.01 Billion
Hedge Funds Holding Stakes as of Q2 2024: 17
Agilon Health Inc. (NYSE:AGL) is a healthcare company that delivers medical services to senior citizens by working with family doctors across the United States. It offers a service that oversees all patients’ medical requirements by charging a fee similar to a subscription-based on the number of members and the monthly cost.
The company delivered solid second-quarter results that affirm underlying growth amid a challenging economic environment. Revenue in the quarter was up 39% to $1.5 billion as Medicare Advantage membership grew by 385 to 513,000. The company ended the quarter with a net loss of $31 million and a debt holding of $36 million.
The second quarter’s results aligned with the guidance, as Agilon Health Inc. (NYSE:AGL) maintained a medical margin and adjusted EBITDA guidance for the full year. Additionally, Agilon is progressing in implementing its performance action plan, which should accelerate profitability while strengthening the value proposition to physicians and payers.
Despite struggling to profit, Agilon Health Inc. (NYSE:AGL) has demonstrated remarkable growth figures. The firm’s 3-year Revenue Growth Rate per Share is at 49.40%, far exceeding the average of 92.57% among its rivals, which underlines why it is one of the best debt-free penny stocks to buy now.
As of June 30, 17 hedge funds held long positions in the company, with Rock Springs Capital Management holding the largest stake valued at $58.21 million.
Here is what Artisan Mid Cap Fund said about Agilon Health, inc. (NYSE:AGL) in its fourth quarter 2023 investor letter:
“We ended our investment campaigns in Agilon Health, inc. (NYSE:AGL) and BioNTech during the quarter. We initiated a GardenSM position in Agilon in early 2023 with a view that the company’s health care delivery model had the potential to provide both higher quality and lower cost care to seniors, which is a growing market due to an aging population. The company’s ability to scale while expanding margins was our biggest point of uncertainty, and it came to fruition as membership growth has tracked well but medical margins have struggled. After concluding that our probability of success has decreased, we decided to move on in favor of higher conviction ideas.”
Overall AGL ranks 4th on our list of the best debt-free penny stocks to buy. While we acknowledge the potential of AGL 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 AGL, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.