We recently compiled a list of the 10 Best Fundamentally Strong Penny Stocks to Invest In. In this article, we are going to take a look at where BRF S.A. (NYSE:BRFS) stands against the other fundamentally strong penny stocks.
As per Royce Investment Partners, small caps saw a rebound in Q3, exhibiting a strong advance on both an absolute and relative basis. As per the investment management firm, the Russell 2000 Index saw an increase of ~9.3% in Q3 2024, surpassing the large-cap Russell 1000 Index (which rose ~6.1%) and the mega-cap Russell Top 50 Index (which increased ~4.2%). The investment firm believes that small caps see a long road back to the top, with large caps holding a commanding lead through the initial 9 months of 2024.
On a YTD basis, the Russell 2000 saw an increase of ~11.2% compared to the respective gains of ~21.2% and ~27.3% for the Russell 1000 and Russell Top 50, in the third quarter of 2024. The investment firm said a confluence of factors might support small-caps in sustaining market leadership. The still-growing US economy, together with a more typical interest rate environment, might support small-cap leadership.
Investment Themes in the US
As per Russell Investments, the US equity-market leadership reversed during Q3 2024, with small-cap stocks surpassing the returns delivered by their large-cap counterparts. Also, the value factor outperformed the growth factor. This means there was a significant pivot from the first 2 quarters of 2024, during which market returns were dominated by the US large-cap growth stocks— the Magnificent 7, to be precise.
Russell Investments highlighted that, from Q2 2024 to Q3 2024, there was a moderate change in the US average daily turnover, with $578.8 billion in Q3 2024 as compared to $581.5 billion in Q2 2024. Q3 2024 saw a shift in investor focus from high-flying tech stocks to more traditional sectors. Small-cap and value stocks surpassed the performance of large-cap and growth stocks, thanks to the broader market rotation. Moreover, utility stocks saw significant traction due to higher investments in energy infrastructure in a bid to support the elevated demand from AI and data centers.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
Expectations for 2025
Wall Street experts believe that the shifts in monetary policy, sectoral innovation and developments, a favorable interest rate environment, and supportive regulatory environment are expected to fuel growth in small and emerging stocks over the next year.
As per Francis Gannon, Co-Chief Investment Officer, and Managing Director of Royce Investment Partners, earnings form the foundation for long-term performance. This means that earnings tend to support the broader market over the long term. He noted that the Russell 2000 saw a near-record number of companies having no earnings, with a total of ~44.6% (as of September end). Despite this, the earnings growth for the small-cap companies that have them has been estimated to be higher than large-cap ones in 2025.
Chuck Royce, Founder and Senior Advisor at Royce Investment Partners, believes that the lower rates are expected to help the M&A activity. The potential buyers have been waiting for the US Fed to act before they go ahead with acquisitions. He believes that many small-caps want to get merged. Therefore, there are expectations of more strategic buyouts moving forward.
Our Methodology
To list the 10 Best Fundamentally Strong Penny Stocks to Invest In, we used Finviz and Yahoo screeners to extract stocks trading under $5. Next, we selected the companies that have reliable 3-year revenue and 3-year net income growth rates. Finally, the stocks were arranged in ascending order of their hedge fund holdings, 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).
A bird’s-eye view of a poultry farm, its white and black feathered chickens sprawled across the farm.
BRF S.A. (NYSE:BRFS)
Stock Price as of 4 November: $4.52
3-Year Revenue Growth: ~9.01%
3-Year Net Income Growth: ~27.03%
Average Upside Potential: ~3%
Number of Hedge Fund Holders: 10
BRF S.A. (NYSE:BRFS) is a food processor having a portfolio that includes established brands in Brazil and abroad.
Wall Street analysts are optimistic about BRF S.A. (NYSE:BRFS)’s BRF+ program. With a focus on enhancing efficiency and strengthening its product portfolio, the program should continue to aid profitability in the near term. This can fuel its bottom line, even where sales underperform expectations. The company’s BRF+ program focuses on delivering efficiency gains and portfolio optimization. If the company can maintain the momentum of the BRF+ initiative, it can result in sustained improvements in margins and overall financial health.
Moving forward, the successful implementation of the BRF+ program and expectations of strong performance in Brazilian and international markets should act as tailwinds. BRF S.A. (NYSE:BRFS) targets to obtain 40 new permits by year-end in a bid to continue its expansion, with a strong emphasis on the Middle East and North Africa (MENA) region. Furthermore, it remains optimistic about maintaining sales volumes and exploring potential investments to address the market demand.
Wall Street believes that the company’s strong brand presence and premium pricing strategy should fuel its profitability. BRF S.A. (NYSE:BRFS)’s capital allocation strategy can include dividends, share repurchases, and both organic and inorganic growth.
Its expansion into new markets, mainly in the Middle East, demonstrates its commitment to diversification and capitalizing on growth opportunities. The company’s operational efficiency and strategic focus on premium products and brands place it well for continued success in the global market.
As per Wall Street analysts, the shares of BRF S.A. (NYSE:BRFS) have an average price target of $5.00.
Overall BRFS ranks 3rd on our list of the best fundamentally strong penny stocks to invest in. While we acknowledge the potential of BRFS as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than BRFS 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.
