We recently compiled a list of the 10 Best Long-term Penny Stocks to Buy Now. In this article, we are going to take a look at where Baytex Energy Corp. (NYSE:BTE) stands against the other long-term penny stocks.
Analysis of the Current Market Environment
A market analysis discussion was held on July 8 with a CNBC panel comprising Carson Group chief market strategist, Ryan Detrick, and Wealth Enhancement Group SVP, Nicole Webb. Both panelists believe that we are in a bullish market and the trend is expected to continue. Webb expressed optimism about the market’s potential to churn higher, even during the current overbought environment. She expects continued defensiveness and earnings growth from mega-cap tech companies. Webb is hopeful for a shift towards rate normalization rather than abrupt cuts.
Ryan Detrick shared bullish sentiments, basing his outlook on the improving inflation data. He pointed out that 34% of the core Personal Consumption Expenditures (PCE) components are experiencing deflation, with notable declines in used car prices and grocery store prices. He expects the Fed to cut rates in September and November, and he believes that these cuts will be in response to declining inflation rather than a sign of economic weakness.
When the CNBC interviewer noted the significant gains leading tech companies contributed and questioned the reliance on these firms for sustained market growth, Nicole Webb acknowledged the complexity of these market themes. However, she maintained a positive outlook and expects broader market earnings growth in the second half of the year. She mentioned favorable conditions for rate cuts and ongoing advancements in AI-driven productivity and cost-cutting as supportive factors for the bull market.
Penny Stocks: Opportunities and Risks in the Current Market Environment
The current market conditions as discussed above present a mixed bag for penny stocks. On one hand, the overall bullish sentiment and expected rate cuts could provide a favorable environment. Lower interest rates typically reduce borrowing costs and can lead to increased investment in riskier assets, including penny stocks. Additionally, a strong economy and rising market indices may boost investor confidence, which could potentially drive more speculative investments into lower-priced stocks.
However, there are also significant challenges. The reliance on mega-cap tech companies for market gains suggests that investors are favoring well-established, financially stable firms over riskier, smaller companies. This preference for safety and quality can limit the flow of capital into penny stocks. Furthermore, the high valuations and earnings expectations for larger firms mean that any market corrections or shifts in sentiment could disproportionately impact smaller, more volatile stocks. This would especially be true if we take Morgan Stanley’s Mike Wilson’s comments into account. In a Bloomberg TV interview on July 8, he said that there is a high chance of a 10% correction between now and the US election and added that the third quarter of the current year is going to be “choppy.”
Overall, while some positive macroeconomic trends could benefit penny stocks, investors need to be cautious. The market’s current emphasis on stability and proven performance may not bode well for these highly speculative investments. Thorough research and a clear understanding of the risks should be on top priority for those considering penny stocks in this environment.
Our Methodology
For this article, we identified around 20 fundamentally strong penny stocks (trading below $5 on July 18) from several financial media websites and sources. We only chose the stocks that have been profitable for at least over a year, showed signs of earnings growth, and have significant future growth prospects. We narrowed down our list to 10 stocks most widely held by institutional investors. The stocks are listed in ascending order of their hedge fund sentiment.
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 as of July 18: C$5.04 (C$1 = US$0.73)
Number of Hedge Fund Holders: 14
Baytex Energy Corp. (NYSE:BTE) is a Canada-based company that acquires, develops, and produces crude oil and natural gas in the Western Canadian Sedimentary Basin and in the Eagle Ford, the United States. Additionally, the company holds interest in various lands, including the Eagle Ford property in Texas, Viking and Lloydminster properties in Alberta and Saskatchewan, and Peace River and Duvernay properties in Alberta.
Baytex Energy (NYSE:BTE) is set for robust performance in 2024, as evidenced by its strong production guidance and impressive free cash flow projections. The company expects production levels to range between 150,000 to 156,000 barrels of oil equivalent (BOE) per day for the year. The forecast is supported by the efficiency gains in its exploration and development (E&D) program, combined with higher expected production volumes and improved crude oil realizations across its key operating regions, including Canada and the Eagle Ford in Texas.
In Canada, Baytex Energy (NYSE:BTE) is benefiting significantly from the completion of the Trans Mountain Pipeline expansion, which has improved the company’s oil export capacity from Western Canada. The strategic infrastructure improvement is expected to increase revenue streams as it is expected to refine transportation logistics and reduce operational costs. Similarly, in the Eagle Ford region, the company benefits from its exposure to premium U.S. Gulf Coast pricing for its light oil and condensate production, which has led to margins and overall profitability.
Baytex Energy’s (NYSE:BTE) focus remains on honing its acreage and operational efficiencies. In the first quarter of 2024, the company successfully brought three upper Eagle Ford wells online, with plans for additional well completions throughout the year. Moreover, a refracturing operation in the Medina unit is anticipated to yield attractive returns, which is a sign of the company’s preemptive approach to maximizing production from existing assets. The company has identified further refracturing opportunities that complement its capital expenditure program to better its overall cost management and operational effectiveness.
Baytex Energy (NYSE:BTE) is committed to driving down drilling and completion costs and has targeted an 8% reduction in operated drilling and completion costs per completed lateral foot compared to 2023. The efficiency focus of the company can be seen in the company’s successful execution of its 2024 drilling program in the Pembina Duvernay and Viking regions. The company achieved significant improvements in drilling performance, with a 21% reduction in drilling days and a 10% decrease in drilling costs for its Duvernay operations during the first quarter of the year.
In the first quarter, 14 hedge funds had stakes in Baytex Energy (NYSE:BTE), with total positions worth $94.482 million. As of March 31, Millennium Management is the largest shareholder in the company and has a position worth $34.15 million.
Overall BTE ranks 3rd on our list of the best long-term penny stocks to buy. You can visit 10 Best Long-term Penny Stocks to Buy Now to see the other long-term penny stocks that are on hedge funds’ radar. While we acknowledge the potential of BTE 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 BTE 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.