We recently compiled a list of the 7 Cheap Hot Stocks To Invest In Now. In this article, we are going to take a look at where Enova International Inc. (NYSE:ENVA) stands against the other cheap hot stocks.
Value Opportunities
Small-cap stocks seem to be set for growth, driven by anticipated rate cuts and strategic stock-picking opportunities. Analysts have noted that these stocks still remain undervalued compared to larger counterparts, and continued rate cuts and confidence in a soft landing for the economy could enhance their performance. In easier words, the outlook for small-cap stocks remains bullish amid changing economic conditions and anticipated monetary policy shifts. Investors are encouraged to focus on strategic stock selection to capitalize on potential earnings growth in this sector as market dynamics evolve. Nancy Prial, Co-CEO & Senior Portfolio Manager at Essex Investment Management, talked about this earlier in an interview on CNBC, expressing that she expects small-cap stocks to grow further. We covered this discussion in our article on the 8 Most Undervalued Small-Cap Stocks To Buy According To Analysts, here’s an excerpt from it:
“Prial noted that small caps have been outperforming in the third quarter, largely driven by expectations of rate cuts, with a 50 basis point reduction being more significant than previously anticipated. She expressed optimism that small caps have substantial room to grow, emphasizing that this could mark the beginning of a multi-year cycle for these stocks. Currently, small-cap stocks are underrepresented in the market, comprising just under 5% of the total equity market, which is at record lows. This low ownership level presents an attractive opportunity for investors.
She pointed out that small-cap stocks remain significantly undervalued compared to their larger counterparts… Prial acknowledged that while the S&P 500 is projected to see earnings growth of 13% in the fourth quarter and 15% in 2025, she believes small caps could exceed these figures. Despite a slight slowdown in economic growth, she maintained that small-cap stocks could achieve earnings growth rates between 15% and 20% next year. She cautioned, however, that overall indices might not reflect this growth as estimates often start high before being revised downward.”
But small-caps aren’t the only undervalued sector right now, as GLOBALT Investments senior portfolio manager, Keith Buchanan, mentioned on Wealth! at Yahoo Finance, on October 7. In a recent market update, stocks were slipping as traders digested a hotter-than-expected Consumer Price Index report. With over 90 minutes into the trading day, investors were looking for the next big catalyst, which many believe will come from the upcoming earnings season. To discuss these themes, Keith Buchanon noted that while the excitement around AI seems to be waning, there are still significant opportunities in other sectors.
Buchanon pointed out that earnings expectations have shifted from mid-single digits to mid-double digits for the upcoming year. He emphasized that the fourth quarter is expected to mark a transition from lower healthy growth to more robust growth. This change is not solely due to AI but also reflects broader revenue growth across various sectors, including industrials and energy. He expressed enthusiasm about the potential for earnings growth to stabilize as it expands beyond traditional sectors like technology and consumer services.
When asked about specific sectors to watch as 2024 approaches, Buchanon indicated a shift in focus from AI-centric stocks to more traditional value spaces. He mentioned financials as one sector already benefiting from increased investor interest. Additionally, he highlighted industrials and consumer discretionary sectors as areas that have been overlooked and offer attractive valuations compared to the broader S&P 500.
Buchanon also reflected on the broader market context, noting that the S&P 500 had gained 34.4% over the past 12 months ending in September 2024. Despite various geopolitical tensions, including elections and conflicts around the world, he emphasized that these events are factored into their investment strategies. He drew parallels between current geopolitical risks and those seen in 2021 when inflation became a pressing concern following Russia’s invasion of Ukraine.
He acknowledged that while they do not make trades based solely on election outcomes, they consider all incoming information that could impact economic consensus when advising clients. Buchanon’s approach emphasizes a long-term perspective in navigating current market volatility and positioning portfolios for future growth.
Buchanon’s opinion helps investors prepare for earnings season and consider opportunities beyond the AI narrative that has dominated discussions over the past couple of years. With a focus on value sectors and a broadening investment strategy, he is positioning for potential growth as we head into 2025.
Methodology
We used Finviz to compile an initial list of the top stocks with a year-to-date performance of over 30%. Then we narrowed down to 25 stocks that had a forward price-to-earnings ratio under 15. We then selected the 7 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
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).
An executive in a corporate boardroom discussing the future of financial services.
Enova International Inc. (NYSE:ENVA)
Year-to-Date Performance as of October 11: 51.90%
Forward Price-to-Earnings Ratio: 8.33
Number of Hedge Fund Holders: 31
Enova International Inc. (NYSE:ENVA) is a financial services company that offers loans and financing services through analytics and machine learning algorithms with online lending that serves small businesses and consumers who are underserved by traditional banks, using advanced technology and data analytics to assess creditworthiness and make lending decisions.
The company’s revenue was up 25.83% in the second quarter of 2024, generating a total of $628.44 million while earning $2.21 per share. Originations in this quarter grew 27% year-over-year, led by strong demand in both small business and consumer lending, combined with solid credit performance.
As a result, combined loan and finance receivables increased 25% year-over-year. Small business products accounted for 64% of the portfolio, while consumer products represented 36%. Small business revenue increased 32% year-over-year and consumer revenue increased 22%. Diversified product offerings and efficient marketing continue to drive growth. The deep experience, diversified portfolio, and disciplined approach to risk management have been key to the company’s success.
The company can deliver sustainable and profitable long-term growth, driven by its effective strategy, products, machine learning capabilities, and strong balance sheet. While it remains mindful of potential macroeconomic changes, the balanced approach to growth and risk management positions Enova International Inc. (NYSE:ENVA) to navigate challenges and continue its success.
Blue Tower Asset Management made the following comment about Enova International, Inc. (NYSE:ENVA) in its Q3 2023 investor letter:
“The moat of these tech companies then is not their code but their proprietary data built up over decades, the scale and infrastructure investment of their data centers, and their distribution ability for any resulting AI products or services. This dynamic means that the main winners of the new generative AI boom will be the incumbent tech giants.
Other potential winners will be companies with large propriety datasets that are unique within their industry. For example, I do not believe that there are any companies in the US with as large of a dataset of the borrowing behavior of short-term, subprime borrowers as Enova International, Inc. (NYSE:ENVA), a portfolio holding of our firm. Companies that fail to take advantage of newly developing AI tools will be at a great disadvantage to their competitors who do.”
Overall ENVA ranks 6th on our list of the cheap hot stocks to invest in now. While we acknowledge the potential of ENVA as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ENVA 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.
