We recently compiled a list of the 10 Best Penny Stocks To Buy According to the Media. In this article, we are going to take a look at where AXT, Inc. (NASDAQ:AXTI) stands against the other penny stocks.
Penny stocks are those that trade below the price of $5. These stocks represent companies with smaller market capitalization, high risk, and high volatility. Risk-tolerant investors find potential for above-average returns in penny stocks, however, investing in these stocks requires caution and care.
Expected Trends for Small Cap Stocks
On July 17, Chris Retzler, Needham’s small-cap growth portfolio manager, appeared on CNBC where he expressed optimism for the small-cap companies and suggested that we are in a cycle that will prove to be good for many small-cap companies. The Russell 2000 index jumped 3.5% higher on the July 16, hitting the highest levels since January 2022, and was up more than 10% in the previous week. This was one of the biggest rallies investors have seen in the past 4 years.
Retzler believes that small cap stocks have been waiting for a drop in inflation and interest rate cuts. With inflation easing, interest rates are expected to go down as well. He also sees the market broadening, with small companies that have underperformed benefiting from a drop in inflation.
Retzler agrees with Fundstrat’s Tom Lee’s, who sees the Russell 2000 gaining 40% by the end of summer. He believes that the liquidity of small cap companies gives them an edge as it does not take a lot of money to push the stock prices higher, and some expansions by these companies followed by lower interest rates can prove to be good for Russell 2000 companies. We have discussed Tom Lee’s views on how favorable current market conditions are for small-cap companies in 10 Best NASDAQ Penny Stocks To Invest In.
Moreover, Ryan Detrick, who is the Chief Market Strategist at Carson Group also presented his bullish thesis for small and mid-cap companies. He believes that small and mid-cap are going to lead the market in the second half of the year. While addressing the earnings capability of these companies, Detrick said small-cap companies will outperform large-cap companies in 2025 and 2026. As per estimates, S&P 600’s earnings were 4.1% in 2024, whereas S&P 500 earnings were 12.7%. However, moving forward analysts expect S&P 600’s earnings to be at 17.7% in 2025, surpassing estimates of 14.2% for the S&P 500. Detrick believes small-cap stocks now look cheap, economic conditions are favorable, and any interest rate cuts that come along the way will further benefit them.
Now that we’ve discussed what experts think about small caps, let’s now look at the 10 best penny stocks to buy according to financial media.
Our Methodology
To compile our list of the best penny stocks to buy according to media, we aggregated 50 plus penny stocks from financial media websites on the internet. We then selected the top 10 penny stocks that were the most widely held by hedge funds, as of Q1 2024. The list is in ascending order of the number of hedge funds holders in each stock.
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).
A close-up of a technician’s hands working on an advanced semiconductor substrate.
AXT, Inc. (NASDAQ:AXTI)
Number of Hedge Fund Holders: 19
AXT, Inc. (NASDAQ:AXTI) is a leading technology company that specializes in producing backend materials used in manufacturing semiconductor devices. The company designs and creates substrate materials for many high-demand electronic components including indium phosphide, gallium arsenide, and germanium substrates. These substrates are used in chip making which are then used to print circuits in the final products. The substrates manufactured by AXT, Inc. are used for improving internet speed, increasing connectivity in data centers, and enabling 5G communications, among many other use cases. In simpler terms, the company manufactures raw materials for modern-day technology and gadgets.
In Q1 2024, AXT, Inc.’s (NASDAQ:AXTI) grew by 17% year over year on the back of strong performance across the board. The Indium phosphide revenue increased to $8.1 million during the quarter driven by a 50% increase in sales from AI and data center-related demand. The company has also been able to improve its gross margins from 26.3% in the first quarter of last year to 27.3% during the current year. Management sees higher production volumes and benefits from its recycling program driving margin improvement and expects to get back to the mid-30% range.
The ability of AXT, Inc. to generate revenue from its global operations, which comprises 79% from Asia Pacific, 16% from Europe, and 5% from North America gives the company a competitive edge over its competitors. The stock was held by 19 hedge funds during the first quarter of 2024, up from 13 hedge funds in the previous quarter, with total stakes worth $24.513 million.
Should you invest in the AXTI?
AXT, Inc. (NASDAQ:AXTI) plays an integral role in the AI and semiconductors markets, both of which are forecasted to grow meaningfully in the future. As long as management remains focused on operational efficiencies and a return to profitability, the company will thrive with the growth of its end markets. Wall Street is also bullish on AXTI. Five analysts hold a Strong Buy rating on the stock and their 1-year median price target of $5.50 implies an upside of 64.18% from current levels.
Overall AXTI ranks 7th on our list of the best penny stocks to buy according to the media. You can visit 10 Best Penny Stocks To Buy According to the Media to see the other penny stocks that are on hedge funds’ radar. While we acknowledge the potential of AXTI 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 AXTI 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.