We recently compiled a list of 13 Best Growth Stocks Under $10 to Buy. In this article we will look at where Alight, Inc. (NYSE:ALIT) ranks among the best growth stocks under $10 to buy.
After a summer dip, stocks recovered in Q3 2024, setting new records after the quarter. More than 60% of the 500 largest companies’ components outperformed the overall index that covers these stocks in the quarter. The index that tracks the 500 largest companies traded in the US is up more than 20% year-to-date, at record-high levels. Bonds also fared well, helped by declining inflation and the Federal Reserve’s aggressive half-percentage-point drop, which indicated a move away from combating inflation and toward promoting growth. Fed rate reductions boost small-cap companies, industries, and regional banks.
Value and small-cap companies overtook large tech in the major rotation that occurred during the general stock market rally. Subsequently, expensive large-cap growth names lost investor attention, while previously underperforming markets saw strong gains. The consolidation of technology is a positive development, according to King Lip, chief strategist at BakerAvenue Wealth Management. He states that ” “We’re not in a bear market for tech by any means. But you’ve definitely seen some evidence of rotation.”
Nonetheless, in Q3 2024, eight of the 500 largest companies’ eleven sectors outperformed the broader index of these 500 companies. According to Tajinder Dhillon, senior research analyst at LSEG, the Magnificent Seven companies are predicted to raise earnings by almost 20% in the third quarter of 2024, compared with a profit rise of 2.5% for the rest of the 500 largest companies. That disparity is predicted to diminish in 2025, with the remainder of the index expected to raise earnings by 14% for the full year against a 19% rise for the mega-cap group.
The Magnificent Seven “should not have to carry the profit rebound alone,” according to Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, in recent research, providing a soft landing scenario. ” “For the soft landing, we are in the ‘show me’ stage.”
Moreover, soft employment figures helped allay concerns about a recession and modest inflation. Even though the unemployment rate has increased, the overall economic trend points to strong, albeit sluggish, growth. The market is now even more optimistic due to the Fed’s aggressive rate decrease and the likelihood of future rate reductions.
It is anticipated by Morningstar analysts that the “great rotation” away from large-cap tech stocks would continue as Q4 approaches, presenting opportunities in undervalued industries. The financial services, real estate, energy, and healthcare industries are expected to grow as per Morningstar analysts, particularly with the current decline in interest rates.
According to Morningstar analysts, going ahead, the possibility of additional rate cuts and higher government expenditure in this election year should boost markets, but prudence is still advised because lower-income people are still being negatively impacted by continued inflationary pressures. Value stocks and industries with strong prospects for future recovery should be the main focus of investors.
Methodology:
We sifted through holdings of iShares Morningstar Small-Cap Growth ETF to form an initial list of 20 highest-weighted Growth Stocks Under $10 in the ETF. Then we selected the 13 stocks that were the most popular among hedge funds as of Q2, 2024. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024. We have used the stocks’ current market cap as a tie-breaker in case two or more stocks have the same number of hedge funds invested.
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)
Alight, Inc. (NYSE:ALIT)
Number of Hedge Fund Holders: 42
Alight, Inc. (NYSE:ALIT) provides integrated, cloud-based human capital solutions that enable clients and workers to manage their health, financial, and HR needs. Geographically, the US is where the company makes the most of its revenue.
Alight’s financial profile has improved as a result of the sale of its professional services and payroll operations. Gross margins have increased by 350 basis points to over 40%, and adjusted EBITDA margins have increased from 21.7% to 25%. Additionally, the firm finished its two-year cloud migration initiative, which is anticipated to save $75 million in run-rate costs annually and increase margins.
Due to the completion of its cloud conversion and a 350 basis point increase in margin from its divestment, ALT announced impressive financial achievements for the second quarter of 2024. Due to a $740 million debt reduction and a $155 million share repurchase announcement, net leverage dropped to 2.8x. ARR (annual recurring revenue) bookings increased by 9% year over year, and sales were $550 million with adjusted EBITDA of $128 million.
Alight, Inc. (NYSE:ALIT), whose long-term contracts account for more than 90% of total revenue, projects steady revenue growth of 4% to 6% each year. It is one of the best growth stocks under $10 to take into consideration because of the company’s excellent revenue model, strong margins, and cost efficiencies.
For Alight, Inc., Kyle Peterson, an analyst, continues to retain a Buy rating because of the company’s return to core competencies, cost-cutting measures, and improved financial condition after the divestiture. According to them, the company is fairly valued and offers GARP investors a good risk-reward profile.
Jeffrey Smith’s Starboard Value LP is the largest stakeholder in the company from among the funds in Insider Monkey’s database. It owns 43,395,000 shares worth $320.26 million as of Q2.
Overall ALIT ranks 2nd on our list of Best Growth Stocks Under $10 to Buy. While we acknowledge the potential of ALIT 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 ALIT 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 on Insider Monkey.