We recently compiled a list of the 10 Best Technology Penny Stocks to Invest in Now. In this article, we are going to take a look at where Conduent Incorporated (NASDAQ:CNDT) stands against the other technology penny stocks.
According to the U.S. Securities and Exchange Commission (SEC), a penny stock trades for less than $5 per share. Penny stocks are often associated with growing companies with smaller market caps, limited cash flow, and restricted resources. However, it allows the investors to reap benefits from the long-term growth of the company, though these stocks are cheap to invest in they carry a greater risk of loss to the investors.
A higher level of volatility and lower liquidity sets them apart from regular stocks. In other words, higher volatility suggests that investors should expect a drastic change in prices in a given period, resulting in a potential gain or loss. Penny stocks may confuse an investor due to speculations and an inherent uncertainty in gauging its price fluctuation and therefore, these securities are suitable for investors that have a high tolerance for risk.
In addition, a low level of liquidity indicates that these stocks are difficult to sell because there may not be enough potential buyers available. However, not all penny stocks are the same, a diligent investor needs to find stocks that may be undervalued by the market but have the upside potential of growth in the future.
Similarly, there are plenty of good quality penny stocks in the technology sector that are suitable picks for investors looking to invest for long-term growth returns. Before discussing the list, let’s first explore the growth of the technology industry over the past years:
The year 2021 was a memorable one for the tech industry as COVID-19 accelerated digital transformation across enterprises and the demand for remote-work-related hardware and software increased considerably. Moreover, the shortage of semiconductors made headlines as chip manufacturers could not keep up with the surge in demand. The global IT spending grew nearly 10% compared to the previous year.
The technology sector faced challenges in the past two years due to high interest rates, elevated inflation, and considerable macroeconomic and global uncertainties like supply-chain disruptions amid Russia’s invasion of Ukraine. These events contributed to softening of the consumer spending, lowering demand, and reduction in the workforce in 2022. The headwinds continued in 2023 with the downsizing of the labor force and a slight weakening of consumer spending.
Looking forward, economists have assessed a lower risk of recession and tech analysts are optimistic that the tech industry can make a comeback with modest growths in 2024.
Role of Gen-AI in the uplift of the Technology Industry:
Generative AI is a form of machine learning that uses patterns in training data to generate new text, video, images, code, or music that can potentially be indistinguishable from what humans can create. Improvement in transformer-based neural networks in language models has enabled an AI boom in the industry, one such example is Chatgpt.
Companies are integrating AI into their day-to-day operations, and executives across the globe are recognizing the importance of AI in organizing data. According to a forecast by Bloomberg Intelligence, the generative AI market is projected to grow at a CAGR of 42% by 2032 and reach a market size of $1.3 trillion in 2032 from $40 billion in 2022.
Historically, the demand for semiconductors has been largely driven by mobile computing and its use for manufacturing processor chips. However, at present, we witness a novel source in the form of Gen-AI that is accelerating the demand for semiconductors. According to research, the demand for powerful semiconductors could boost the sales of the semiconductor chip industry to $1 trillion by 2030 from $500 billion today.
In addition, the software development service industry is a formidable market with high growth potential for small companies. According to a report by Cognitive Market Research, the global software development service market size was $409.2 billion in 2022 and is projected to grow at a compound annual growth rate of 10.5% from year 2024 to 2031.
Our Methodology:
To compile this list of the 10 best technology penny stocks to invest in, we analyzed Insider Monkey’s database of hedge fund sentiment of 920 elite hedge funds and their holdings tracked at the end of the first quarter of 2024. To draft this list we filtered tech stocks trading under $5 with a price-target upside of over 30%, and 50 – 70% of shares owned by institutions. We ranked those stocks based on the number of hedge fund holders and then arranged the list based on the ascending order of hedge fund sentiment towards each stock.
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).
A graph with complex data points showing the company’s technological advancements in electronic tolling.
Conduent Incorporated (NASDAQ:CNDT)
Number of Hedge Fund Holders: 16
Conduent Inc. (NASDAQ:CNDT) is an Information technology firm that provides online business solutions. The company specializes in automation, analytics, and transaction-intensive processing. Conduent provides services to the public, commercial, and healthcare sectors.
Conduent Inc. (NASDAQ:CNDT) is a New Jersey-based company that provides services like digital payments, finance, and accounting, legal and compliance solutions, and health care solutions such as appointment scheduling, patient management, etc.
In Q1 2024, Conduent Inc. (NASDAQ:CNDT) reported a revenue of $921 million, which was up from the expected revenue of $895.5 million. Moreover, the company’s EPS of -$0.09 beat analysts’ expectations of -$0.15.
This quarter witnessed a solid turnaround in pre-tax income of $128 million as compared to the $8 million in loss in the same quarter in 2023. This turnaround was primarily associated with the transfer of its Benefitwallet Health Savings Account portfolio to HealthEquity, Inc. (NASDAQ:HQY) for $425 million an aggregate sale price of three transfers.
In a recent development, Conduent Inc., (NASDAQ:CNDT) partnered with Microsoft in an attempt to deliver innovation using Microsoft’s Azure Open AI services. This partnership begins to explore generative AI for healthcare claim management, fraud detection, and enhancing customer service.
Moreover, the company partnered with Oracle to streamline transaction processing by migrating the on-premises Oracle Exadata environment to the cloud with Oracle Database@Azure.
Over the past year, the company’s share price increased by 14% due to significant growth demand in the AI market and year-over-year operational improvement.
Conduent Inc, (NASDAQ:CNDT) is set to streamline the firm’s operations by selling off the non-core divisions and working on its debt reduction initiatives to further strengthen its financial position. For instance, the company added $240 million to its debt-repayment plan by a recent sell-off of its causality claims solutions to MedRisk.
By the end of the first quarter, the company had already allocated $300 million to gain its target of $1 billion for debt reduction and a share buyback program. Aligned with this goal, the company recently completed a share repurchase of $132 million from affiliates of Carl Icahn at a share price of $3.47 per share. In addition, the recent partnership with Microsoft and Oracle is said to derive revenue and reduce costs, all these developments speak to the bull case for the company.
The company had a debt of $1.29 billion a year ago that was reduced to $1.09 billion by the end of March 2024. However, it has $415 million in cash, leading to a net debt of $678 million. The company is making efforts to streamline cash flow and reduce debt but it will take time and therefore may affect the share price in the next quarters.
There was a marginal improvement in sales in Q1 that didn’t meet expectations primarily due to the timings of new business ARR( Annual Recurring Revenue). In the Earnings call transcript of May 1, 2024, the Company’s CFO stated:
“The net ARR activity metric, our combined measure of wins, losses, pricing effects, and other contractual changes, was positive this quarter, but substantially lower at $17 million. There’s going to be a rollercoaster effect emerging in this metric as we go through this year that is worth spending a few minutes explaining. Based on the above full year sales outcome, we expect the metric to stand at around $100 million by the end of 2024. However, there was pronounced asymmetry in our notified losses last year, with them being far more weighted towards the back half of the year, and additionally the effect of the Australia transit deal, which yielded around $48 million of ARR in the second quarter of last year. What you’re going to see is this net ARR activity metric going negative in the second quarter, and then recovering strongly in the third and fourth quarters.”
According to Insider Monkey’s Hedgefund database, 16 hedge funds held stakes in Conduent Inc. (NASDAQ:CNDT). Icahn Capital LP is the largest stakeholder with close to 38.15 million shares worth $128.94 million.
Overall CNDT ranks 9th on our list of the best technology penny stocks to buy. While we acknowledge the potential of CNDT 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 CNDT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
