We recently published a list of 7 Cheapest Penny Stocks to Buy Now. In this article, we are going to take a look at where Baytex Energy Corp. (NYSE:BTE) stands against other cheapest penny stocks.
What Does the Jobs Report Mean for the Stock Market
The Federal Reserve rate cut continues to be a hot topic for analysts especially with the new development that came in on October 4th with the Bureau of Labor Statistics releasing the job market report. One of the reasons why the Fed cut rates by 50 basis points was attributed to a weak labor market. It seems that the rate cut has worked but it also means that there might not be any urgency for the Fed to cut rates by another 50 basis points.
On October 4th Reuters reported the job market displayed significant resilience in September, with a notable increase of 254,000 non-farm payrolls and a drop in the unemployment rate to 4.1%. The United States Job gains increased the most in September when compared to the past six months. Moreover, on top of a higher than expected increase in non-farm jobs, wages also increased at a solid pace last month.
Fed Chairman Jerome Powell had already pointed out that the urgency to cut interest rates is not what the market demands at the moment. He mentioned that the committee does not feel the hurry to cut rates quickly.
These recent developments have paved the way for smooth 25 basis point cuts and also brightened the path for a soft landing scenario. In one of our recent articles on 8 Stocks Under $20 To Invest In Now, we discussed the soft landing scenario in detail and what it will mean for the stock market. Here’s an excerpt from the article:
“Larry Adam, chief investment officer at Raymond James, says that the current market is exactly what a soft landing looks like. Adam recently appeared in an interview on CNBC to talk about how the lower interest rates will benefit the small caps in particular the Russell 2000. He believes that the bull market will continue while the economy inches towards a soft landing.
When it comes to small-cap stocks they get around 56% of their financing from the short end of the curve. The short end of the curve refers to the short-term interest rate on the yield curve, which typically represents the yields on bonds with shorter maturities, such as 2-year or 5-year Treasury notes. Whereas the large-cap companies get only 26% financing from these short ends of the curve. Therefore, Adam believes that as the Fed continues to lower interest rates it will help small caps meet financing needs.
He further pointed out that it is expected that the Fed will cut twice this year and another four times the next year. Another reason why he likes small caps is because the economy is going towards a soft landing. Adam emphasized that we have already seen that the rate cuts helped small caps outperform the large caps. Historically speaking whenever the economy has a soft landing it typically helps the small caps greater than the rest of the market.”
To talk about how the market will look like after this report, Jeremy Siegel, Wharton School professor of finance joined CNBC. He pointed out an interesting fact from the jobs report. Siegel mentioned that although 550,000 new jobs were added in the third quarter, hours worked were virtually flat.
Siegel expects third-quarter GDP to be around 2.5% to 3%. Moreover, the good news for the stocks is that the current job market figures are not inflationary but rather pointing toward productivity. Professor Siegel emphasized that he never thought the second cut would be 50 basis points and vouched for a series of 25 basis points cuts each quarter. This all points towards the soft landing scenario becoming more likely.
Is There More Room for Small Caps to Rally?
Now that we know that the economy is moving towards a soft landing rather than a recession, let’s see how the small caps are expected to perform under current circumstances. To talk about the expected performance of small caps in a slowing economy, Nancy Prial, Co-CEO & Senior Portfolio Manager at Essex Investment Management recently joined CNBC for an inverview. Prial thinks that this is the beginning of a multi-year bull cycle for small cap stocks. There are few basic underlying factors behind this claim including small caps being significantly under owned, in fact they are at record lows as a percentage of the total equity market. Moreover, the valuations of small caps are incredibly attractive and well below their large cap counterparts in the S&P 500.
Prial thinks what we really needed to turn the situation around was the Federal Reserve interest rate cuts and the confidence that the economy is moving towards a soft landing. Another significant factor that was needed is the relative earnings growth for small cap stocks. Prial quoted that the earnings growth for these stocks are expanding and expects that by the end of the year small caps will be growing faster than the large caps.
If we look at the S&P 500 EPS growth rate estimates, the market is expected to grow more than 13% year-over-year during the fourth quarter and more than 15% next year. As Nancy Prial mentioned that small caps are expected to outperform the large caps in growth, she further clarified that the overall indices might not be able to perform above 15%. However, to capitalize on the earnings growth trend, investors have to be good stock pickers as she believes there are going to be a lot of small cap stocks that will post more than 15% to 20% growth next year. Within the small cap category, Prial likes the energy sector as she thinks it will be a main player in the data center and AI industry for the years to come.
Our Methodology
To compile the list of 7 cheapest penny stocks to buy now we used the Finviz stock screener. Using the screener we got a consolidated list of stocks trading under $5, with a forward price-to-earnings ratio under 24.35 (the market’s P/E ratio as per Wall Street Journal), and with earnings expected to grow this year. Once we had an aggregated list of stocks that fit our criteria we then ranked them based on the number of hedge fund holders in Q2 2024, sourced from Insider Monkey’s database. The list is ranked in ascending order of the number of hedge funds. Please note that the share prices mentioned in the article were recorded on October 7, 2024.
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).
An oil platform in the sea, illuminated by a sunset, showing the companies power.
Baytex Energy Corp. (NYSE:BTE)
Share Price: $3.31
Forward P/E Ratio: 9.38
Earnings Growth This Year: 216.70%
Number of Hedge Fund Holders: 17
Baytex Energy Corp. (NYSE:BTE) is a Canadian energy company that operates in both the United States and Canada. It produces light and heavy crude oil, around 84% of its production comes from these products. The other 16% comes from natural gas and natural gas liquids. It is one of the cheapest penny stocks to buy now.
Last year, the company acquired Ranger Oil allowing it access to Eagle Ford in Texas, which now produces more than 60% of the company’s products. This site is said to be the differentiating factor for the company and it is expected that the production from Eagle Ford will grow by 1% to 4% each year for the next 3 years.
To acquire Ranger Oil, Baytex Energy Corp. (NYSE:BTE) had to take additional debt of around $1.9 billion in 2023. However, it does not seem to be a big challenge for the company. Management expects to generate around $388 million in free cash flow during the fiscal 2024 and plans to utilize half of it for debt reduction.
Moreover, it also continues to deliver robust growth. During the second quarter of 2024, the company reported increasing its production per share by 23% year-over-year and reached 154,000 barrels of oil per day. Therefore if you are a value investor looking for cheap oil stocks you might want to look at Baytex Energy Corp. (NYSE:BTE).
Overall, BTE ranks 5th on our list of cheapest penny stocks to buy now. While we acknowledge the potential of BTE to grow, 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 a promising AI stock 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.