We recently compiled a list of the 10 Best Value Penny Stocks to Invest in Now. In this article, we are going to take a look at where Gilat Satellite Network Limited (NASDAQ:GILT) stands against the other value penny stocks.
The US market has been resilient over the past years despite higher interest rates, however, recent reports showed a sharp decline in the growth of the U.S. job market. According to reports from the Labor Department, the economy added just 114,000 jobs in July compared to 179,000 in June. This marks a sharp drop in employment generation from 482,000 in January 2023, raising the unemployment rate to 4.3% in July 2024, the highest level in nearly 3 years. The significant slowdown in hiring can potentially make the economy vulnerable to recession and therefore leads to an ease in monetary policy guaranteeing an interest rate cut in September. Economists are calling for a 50 basis point reduction in borrowing costs.
With the current uncertainty in the market and delay in rate cuts, investors are worried about a possible recession. The question is should investors pick penny stocks to diversify their portfolios? Penny stocks, though cheap, are without any doubt risky investments with a high rate of volatility and are even more sensitive to monetary policy changes. A higher interest rate negatively affects stocks’ earnings performance because these stocks are mostly running on debt and, therefore, can benefit from a possible rate cut in September 2024.
Moreover, these stocks are prone to speculative trading and scams, and therefore, are suitable for investors that can do diligent research and have a high tolerance for risk. However, not all stocks are the same and investors may yet benefit from long-term investments in high quality penny stocks with strong fundamentals. Value investing is an investment strategy focused on finding stocks that are being traded for less than their intrinsic or true value. In other words, value stocks are undervalued by the market and can be rewarding long-term investments once the market realizes their true value.
Investing in small-cap penny stocks is no doubt risky owing to their high volatility and low liquidity, however, using the value investing strategy one can generate long-term profits from investing in these stocks.
Investing in Small-cap Stocks in 2024
Most penny stocks have small market caps. Large-cap stocks generally dominate the market outperforming small-caps, and last year was no different as the large-cap stocks beat small-cap stocks by an average of 9.6 percentage points. Moreover, in 9 out of the last 10 years, large caps outperformed penny stocks, however, small caps showed competitiveness back in the days of the internet boom, when the dot-com bubble was breaking in the period 1999 to 2004.
There is hope for a small-cap rebound in 2024, and that is because the historical trends tell us that after nearly a decade of underperformance, the tables turn and small-caps, which include many penny stocks, can rebound. Moreover, in the fourth quarter of 2023, penny stocks showed a recovery in growth and this could set the stage for a renaissance for the small-caps in 2024.
In a recent interview with CNBC, Fundstrat’s head of research, Tom Lee expressed optimism about the potential rise of small-cap stocks in 2024 owing to the softening of inflation in June. Tom Lee further discussed the performance of the small-cap stocks that rose 30% in 8 weeks from October to December 2023. Lee believes that the current rally can be even more substantial compared to last year as it’s driven by factors like larger institutional short positions, small-cap even more oversold, and valuations like median P/E at 10 times 2025 earnings. In addition, June’s Consumer Price Index has declined to its lowest level in the last 3 years, this can lead to the feds cutting the interest rate expected in September 2024. According to the estimates of Tom Lee, in case the interest rate is cut down, the small caps can gain as much as 50% in 2024.
Secondly, presidential elections have been historically in favor of these stocks, research shows that seven out of eleven election times, the small-cap outperformed by an average of 2.68 percentage points.
The recent consumer price index data released in June 2024, suggests a deceleration in inflation, the prices are getting stabilized particularly in core consumer segments such as shelter and food. According to the latest Inflation report, the Personal Consumption Expenditure index (PCE) rose by 0.1% from April matching the Wall Street expectations. Furthermore, the report shows a growth of 0.5% in personal income in the U.S. which is up by $114.1 billion. This potential relief to consumers can stabilize the US market and might influence the Federal Reserve’s Monetary policy decisions in favor of small-cap by cutting interest rates as expected by the end of 2024.
Methodology:
To compile this list of the 10 best-value penny stocks to invest in, we used a screener to narrow down penny stocks trading under $5 on the basis of relatively lower forward p/e ratios compared to their respective industry averages. We further screened these stocks by using metrics like institutional ownership of greater than 40% and ensured that the companies had positive upsides based on analysts’ consensus.
After shortlisting the stocks based on the above-mentioned value metrics, we ranked those stocks based on hedge fund sentiment towards each stock. To rank the penny stocks, we assessed Insider Monkey’s database of hedge fund sentiment of 920 elite hedge funds and their holdings tracked at the end of the first quarter of 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).
A broadband satellite hovering in the sky, highlighting the company’s satellite-based broadband communication solutions.
Gilat Satellite Network Limited (NASDAQ:GILT)
Number of Hedge Fund Holders: 7
Gilat Satellite Network Ltd. (NASDAQ:GILT) is a technology company based in Israel that provides satellite-based broadband communication solutions globally. The company through its expertise in telecommunication technology manufacturers and market satellite systems for global communication. Gilat operates in three core segments: Network Infrastructure and services, Satellite Networks, and Integrated Solutions.
The company’s portfolio includes a diverse set of platforms to deliver high-value solutions for multiple orbit constellations with very high throughput satellites (VHTS) and software-defined satellites (SDS).
Moreover, the company offers a cloud-based platform and high-performance satellite terminals; high-performance Satellite On-the-Move (SOTM) antennas; highly efficient, high-power Solid State Power Amplifiers (SSPA) and Block Upconverters (BUC). In addition, it includes integrated ground systems for commercial and defense, field services, network management software, and cybersecurity services.
Gilat Satellite Network Ltd. (NASDAQ:GILT) in its Q1 2024 financial highlights, reported a revenue of $76.1 million up by 29% YoY compared to $59 million in Q1 2023. Moreover, the company’s Non-GAAP net income of $6 million and EPS of $0.11 had a significant growth compared to $3.8 million net income and EPS of $0.07 in the same quarter the previous year.
The revenue growth was driven by a solid sales growth of two key segments; Satellite Networks and the Network Infrastructure and Services segment. In addition, the company acquired a defense communication business called Datapath Inc. in November last year. The company’s acquisition of Datapath has contributed to the quarter’s revenue growth by opening up orders from the defense sector.
Gilat is a good value stock to invest in and has a trailing P/E of 11.02 compared to the communication equipment sector’s average P/E of 36.16. That said, Gilat has struggled with various challenges over the past years that affected its share price. In 2015 and 2018, the company signed contracts with PRONATEL, a part of Peru’s Ministry of Transport and Communications to establish a regional communication network in Peru, the sum contractual value was $549 million. However, the COVID-19 outbreak considerably affected the company’s operations due to travel restrictions and supply-chain disruptions, and according to estimates, the project was delayed by 14 to 16 years.
The company received $53.6 million in settlement from a merger dispute with Comtech in the year 2020. By the end of the year 2020, the company generated a net profit of $35.1 million, however, excluding the amount received from Comtech, the company would have incurred a net loss of $18.5 million. Gilat gradually recovered from the effects of the pandemic in 2021.
In 2022, Gilat launched the Sky Edge IV a high-power and high-capacity satellite, a multi-orbit and multi-service platform that aided in a 12% growth in revenue compared to the previous year.
Moreover, in 2023 the company launched Endurance, a new line of high-availability solid-state power amplifier solutions. In addition, the acquisition of Datapath, an American company that provided satellite communication solutions to the U.S. Department of Defense proved to be a cornerstone and opened new avenues of growth derived from the defense sector. In fiscal year 2023, the company reported a revenue of $266.1 million, up 11% compared to $239.8 million in 2022.
In a recent development, Gillat secured $14 million worth of orders related to its IFC segment (In-flight connectivity products and solutions). These orders demonstrate the company’s strong position in the growing IFC market for commercial and business aviation.
As of the first quarter of 2024, the company has a total asset value of $426.07 million and total liabilities of 145.25 million. According to Insider Monkey’s database, 7 hedge funds held stakes in the Gilat Satellite Network Ltd. (NASDAQ: GILT). ARK Investment Management is the largest stakeholder with 358,750 shares worth approximately $1.94 million.
Overall GILT ranks 9th on our list of the best value penny stocks to buy. While we acknowledge the potential of GILT 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 GILT 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.