We recently compiled a list of the 10 Oversold Penny Stocks To Invest In Now. In this article, we are going to take a look at where Ferroglobe PLC (NASDAQ:GSM) stands against the other Oversold Penny Stock To Invest In Now.
Penny stocks offer some of the best investment opportunities for risk-tolerant investors. While most double up as high-risk, high-reward investment plays, they offer a way of diversifying an investment portfolio at highly discounted valuations.
Since penny stocks are primarily of smaller companies in the early stages of growth, they can be highly speculative and volatile. Likewise, they offer a way of gaining exposure to emerging technologies, products, and services likely to shape the world.
READ ALSO: 10 Worst Performing Blue Chip Stocks in 2024 and 10 Worst Performing NASDAQ Stocks in 2024.
While the overall stock market has been bullish, depicted by the S&P 500 flirting with record highs after a 21% gain year to date, some penny stocks have been under immense pressure. Some have shed more than 30% in market value on investors reacting to their deteriorating fundamentals owing to a challenging macroenvironment.
The challenging macro environment that has seen the global economy come under pressure, depicted by China initiating stimulus measures and the US embarking on interest rate cuts, has forced some investors to question some penny stocks’ long-term prospects. The uncertainty over the upcoming US election has also fuelled volatility, resulting in a significant selloff.
High interest rates were intended to cool inflation by containing a heating U.S. economy. So far, it has worked: According to the annual rate of the consumer price index, inflation has decreased from a peak of 9.1% in June 2022 to 2.4% in September 2024.
“We’ve raised rates a lot, and the US economy has basically absorbed them and still continues to perform quite well,” Minneapolis Federal Reserve President Neel Kashkari said on October 21, 2024. That indicates “the neutral rate seems to be higher” at this point, Kashkari added.
Billionaire hedge fund manager Paul Tudor Jones’s warning of the current government fiscal deficit and increased spending by both presidential candidates also adds to a wave of uncertainty in the market.
“We’re going to be broke really quickly unless we get serious about dealing with our spending issues,” Jones told CNBC’s Andrew Ross Sorkin on October 10, 2024
According to Tudor, increased government spending could trigger a selloff in the bond market, resulting in a significant spike in interest rates. Higher interest rates don’t bode well with penny stock companies, as most are always looking for ways to access cheap capital to accelerate their growth plans.
The International Monetary Fund has shared similar sentiments, which have warned that the global economy faces the risk of plunging into recessions on rising geopolitical risks and weaker long-term growth fuelled by the high interest rate environment.
“The global battle against inflation is almost won,” the IMF report says while pushing for a policy triple pivot” to address interest rates, government spending and reforms and investment to boost productivity.
“Despite the good news on inflation, downside risks are increasing and now dominate the outlook,” said IMF chief economist Pierre-Olivier Gourinchas.
Amid the growth concerns, the US economy is projected to grow much faster owing to robust artificial intelligence-related investments. The US Federal Reserve cutting interest rate by 50 basis points is already impacting steering the economy into a soft landing, which should be accommodative for penny stocks.
That said, now would be the best time to take a look at the best-oversold penny stocks to invest in now as solid underlying fundamentals back most. The stocks promise to generate significant returns down the road as macroeconomics improve.
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Our Methodology
To compile our list of the Oversold Penny Stocks To Invest In Now, we started by gathering stocks trading below $5, down by more than 30% for the year and with a forward price-to-earnings multiple of less than 15. We then filtered these stocks based on their share price drops as of October 25, creating a list of 10 companies. Finally, we ranked these companies in ascending order according to the number of hedge funds that hold stakes.
At Insider Monkey, we are obsessed with 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).
Ferroglobe PLC (NASDAQ:GSM)
Year to Date Gain as of October 25: -33.49%
Forward Price to Earnings Ratio: 9.22
Number of Hedge Fund Holders: 30
Ferroglobe PLC (NASDAQ:GSM) is a basic materials company that produces and sells silicon metal and manganese-based ferroalloys. While the stock is down by about 33.49% year to date, it remains one of the oversold stocks to invest in now as it delivers solid financial results.
In the second quarter, Ferroglobe PLC (NASDAQ:GSM) delivered a 15% increase in revenue that totaled $451 million as adjusted EBITDA more than doubled to $57.7 million. Likewise, the company bounced back to profitability with a net income of $34.9 million, up from a net loss in Q1. The impressive financial results stem from Ferroglobe restarting its French operations, which helped drive silicon metal and manganese-based specialty alloy volumes.
Ferroglobe PLC (NASDAQ:GSM)’s long-term prospects have also received a significant boost after the US Department of Commerce imposed anti-dumping and countervailing duties of 283% and 748%, respectively, on all Russian ferrosilicon imports. The new tariffs should significantly benefit the company’s ferrosilicon business starting early next year.
Ferroglobe PLC (NASDAQ:GSM) is one of the oversold penny stocks to invest in now, as testing using Coreshell nanocoating technology with silicon-rich anode has yielded excellent results. This means that nanocoating technology could play a significant role in the future use of electric batteries, opening a robust market for the company.
In the second quarter, 30 hedge funds held positions in Ferroglobe PLC (NASDAQ:GSM), with total stakes amounting to $164.59 million. As of June 30, Hosking Partners emerged as the largest shareholder, holding a position valued at $48.8 million.
Ave Maria Focused Fund stated the following regarding Ferroglobe PLC (NASDAQ:GSM) in its fourth quarter 2023 investor letter:
“Ferroglobe PLC (NASDAQ:GSM) was added to the portfolio in the fourth quarter. Ferroglobe is a leading manufacturer of silicon metal, which is a critical input for hundreds of industrial and consumer applications. It was formed via a merger of two companies, but the integration initially went poorly, causing a decline in the company’s stock price. New management was brought in to rectify the situation. The new team successfully completed the integration, which lowered the ongoing costs of the operations and eliminated the company’s debt. Going forward, regulations in the United States and Europe should dramatically increase the production of solar panels. Silicon metal is an irreplaceable input for solar panels, and this new demand for silicon metal will make Ferroglobe’s revenue less cyclical. Now that Ferroglobe has a fortress balance sheet, management has room to enact a large share repurchase initiative. At the time of the initial investment, the Fund was able to purchase Ferroglobe for almost half the replacement cost of its assets. The Fund exited positions in Nvidia, Tyler Technologies, and Valvoline, in part, to fund the Ferroglobe purchase and increase the position sizes of some existing holdings.”
Overall, GSM ranks 1st on our list of 10 Oversold Penny Stocks To Invest In Now. While we acknowledge the potential of GSM 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 GSM, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.