We recently compiled a list of the 10 Best Long-term Penny Stocks to Buy Now. In this article, we are going to take a look at where Custom Truck One Source, Inc. (NYSE:CTOS) stands against the other long-term penny stocks.

Analysis of the Current Market Environment

A market analysis discussion was held on July 8 with a CNBC panel comprising Carson Group chief market strategist, Ryan Detrick, and Wealth Enhancement Group SVP, Nicole Webb. Both panelists believe that we are in a bullish market and the trend is expected to continue. Webb expressed optimism about the market’s potential to churn higher, even during the current overbought environment. She expects continued defensiveness and earnings growth from mega-cap tech companies. Webb is hopeful for a shift towards rate normalization rather than abrupt cuts.

Ryan Detrick shared bullish sentiments, basing his outlook on the improving inflation data. He pointed out that 34% of the core Personal Consumption Expenditures (PCE) components are experiencing deflation, with notable declines in used car prices and grocery store prices. He expects the Fed to cut rates in September and November, and he believes that these cuts will be in response to declining inflation rather than a sign of economic weakness.

When the CNBC interviewer noted the significant gains leading tech companies contributed and questioned the reliance on these firms for sustained market growth, Nicole Webb acknowledged the complexity of these market themes. However, she maintained a positive outlook and expects broader market earnings growth in the second half of the year. She mentioned favorable conditions for rate cuts and ongoing advancements in AI-driven productivity and cost-cutting as supportive factors for the bull market.

Penny Stocks: Opportunities and Risks in the Current Market Environment

The current market conditions as discussed above present a mixed bag for penny stocks. On one hand, the overall bullish sentiment and expected rate cuts could provide a favorable environment. Lower interest rates typically reduce borrowing costs and can lead to increased investment in riskier assets, including penny stocks. Additionally, a strong economy and rising market indices may boost investor confidence, which could potentially drive more speculative investments into lower-priced stocks.

However, there are also significant challenges. The reliance on mega-cap tech companies for market gains suggests that investors are favoring well-established, financially stable firms over riskier, smaller companies. This preference for safety and quality can limit the flow of capital into penny stocks. Furthermore, the high valuations and earnings expectations for larger firms mean that any market corrections or shifts in sentiment could disproportionately impact smaller, more volatile stocks. This would especially be true if we take Morgan Stanley’s Mike Wilson’s comments into account. In a Bloomberg TV interview on July 8, he said that there is a high chance of a 10% correction between now and the US election and added that the third quarter of the current year is going to be “choppy.”

Overall, while some positive macroeconomic trends could benefit penny stocks, investors need to be cautious. The market’s current emphasis on stability and proven performance may not bode well for these highly speculative investments. Thorough research and a clear understanding of the risks should be on top priority for those considering penny stocks in this environment.

Our Methodology

For this article, we identified around 20 fundamentally strong penny stocks (trading below $5 on July 18) from several financial media websites and sources. We only chose the stocks that have been profitable for at least over a year, showed signs of earnings growth, and have significant future growth prospects. We narrowed down our list to 10 stocks most widely held by institutional investors. The stocks are listed in ascending order of their hedge fund sentiment.

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).

Custom Truck One Source, Inc. (NYSE:CTOS)

Share Price as of July 18: $4.80

Number of Hedge Fund Holders: 13

Custom Truck One Source, Inc. (NYSE:CTOS) is a Missouri-based provider of specialty equipment and services for infrastructure-focused end markets. It runs through three segments, Equipment Rental Solutions (ERS), Truck and Equipment Sales (TES), and Aftermarket Parts and Services (APS). The company provides a range of services, including sales, rentals, customization, remanufacturing, maintenance, and disposal of commercial trucks and heavy equipment.

The company offers trucks, whether new or pre-owned, that are customized to meet clients’ precise needs. It also offers flexible financing solutions, making it possible for businesses of various sizes to acquire necessary equipment without substantial initial expenses. Furthermore, Custom Truck One Source (NYSE:CTOS) provides ongoing support throughout the equipment’s lifespan, including maintenance and repair services. The company has a strong focus on transmission and construction projects and offers its services and products to utility, telecom, and construction companies working on transmission line projects, grid modernization, and other infrastructure initiatives.

Custom Truck One Source (NYSE:CTOS) has made strategic advancements over the past year to meet the robust demand in the equipment rental and sales sector. The company’s proactive approach includes a substantial investment in inventory, which is responsible for the fulfillment of customer orders and rental needs across a wide range of products. In Q1 2024, the company’s TES segment saw revenue rise by 14.7% to $239.9 million from $209.2 million in Q1 2023.

The growth was mainly due to improved inventory management following supply chain enhancements in 2023. High backlog levels also boosted production and delivery capabilities during Q1 2024. By strategically building inventory throughout 2023 and into 2024, the company is well-positioned to meet its production, fleet expansion, and sales goals for 2024 and the future.

Additionally, the company has expanded its presence in key geographic markets with recent branch openings in Casa Grande, Arizona, Sacramento, California, and Salt Lake City, Utah. This expansion is aimed at enhancing service accessibility and market penetration in previously underserved regions. By bolstering its footprint, the company not only strengthens its market position but also enhances its ability to deliver tailored solutions and rapid support to regional customers.

In Q1, 13 hedge funds held stakes in Custom Truck One Source (NYSE:CTOS), with positions worth $26 million.

Overall CTOS ranks 6th on our list of the best long-term penny stocks to buy. You can visit 10 Best Long-term Penny Stocks to Buy Now to see the other long-term penny stocks that are on hedge funds’ radar. While we acknowledge the potential of CTOS 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 CTOS 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.