We recently published a list of 15 Best Penny Stocks to Buy According to Billionaires. In this article, we are going to take a look at where Lumen Technologies, Inc. (NYSE:LUMN) stands against other best penny stocks to buy according to billionaires.
Can Small-Cap Stocks Overtake Large-Caps in 2025?
On February 14, Morningstar released a report on its outlook for small-cap stocks in 2025. The research highlighted the potential for small-cap stocks to outperform in 2025, driven by favorable macroeconomic conditions, valuation discounts, and sector-specific opportunities.
The report noted that small-cap companies are more sensitive to short-term interest rate movements due to their capital structure. When central banks cut rates, debt servicing costs for these firms decrease, improving their financial position and potentially leading to better performance. Historically, interest-rate cuts have been associated with positive returns in the small-cap segment. Quoting an example of Australia, the report highlighted that the Reserve Bank of Australia (RBA) has recently shifted to a dovish stance, with interest-rate cuts expected in 2025. This anticipated reduction of up to 0.75% by year-end could renew investor interest in Australian small caps.
Moreover, currently, small-cap stocks are trading at significant discounts compared to large-cap counterparts. As per the report, such valuation gaps have historically preceded strong price appreciation for small caps, especially when market sentiment improves. If we look internationally the small and mid-cap equities are trading at a Price/Earnings ratio of 16.4x compared to 19.2x for the MSCI World Index. Morningstar believes that If small and mid-cap valuations revert to their historical premium over the broader market, they could trade at a P/E of 20.2x. Therefore, projections indicate that small caps are set to experience higher earnings growth than large caps in 2025, offering robust returns for investors seeking growth opportunities. In addition, the report noted that the global reshoring trend, where multinational corporations bring supply chains back to domestic markets, is also expected to benefit small caps operating locally. This shift could also spur mergers and acquisitions, as larger firms seek smaller businesses to capitalize on reshoring benefits.
Lastly, periods of heightened market concentration have historically led to outperformance by small caps. The current market climate suggests that this trend might continue, rewarding investors who focus on smaller, agile companies.
Our Methodology
To curate the list of 15 best penny stocks to buy according to billionaires we used the Finviz stock screener and Insider Monkey’s Q4 2024 billionaires database. Using the screener we aggregated a list of penny stocks (trading below $5) and sorted the list by market capitalization. Next, we ranked the stocks in ascending order of the number of billionaire investors. Additionally, we have also added the hedge fund sentiment around each stock, as of Q4 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Close-up of a technician’s hands adjusting a communication router.
Lumen Technologies, Inc. (NYSE:LUMN)
Price: $4.87
Number of Hedge Fund Holders: 44
Number of Billionaire Investors: 10
Total Value of Billionaire Holdings: $223,189,499
Lumen Technologies, Inc. (NYSE:LUMN) operates as a facilities-based technology and communications company focused on delivering integrated network, cloud, security, and collaboration solutions. The company maintains a global fiber network and operates one of the world’s most connected internet networks, supporting hybrid networking and edge computing needs.
On February 12, Wells Fargo analyst Eric Luebchow upgraded the stock to Equal Weight from Underweight, with a price target of $5. The analyst noted that the potential sale of Lumen’s Quantum Fiber unit could generate free cash flow accretion and reduce debt, creating a near-term upside catalyst. As a result of this free cash flow generation capability, Luebchow found it challenging to maintain an Underweight rating on the stock.
Moreover, Lumen Technologies, Inc. (NYSE:LUMN) bounced back in the fiscal fourth quarter of 2024. It reported a net income of $85 million, which is a stark improvement from a $1.995 billion net loss in Q4 2023. In addition, the company has secured $8.5 billion in PCF deals in 2024, including partnerships with Microsoft, Amazon, Google Cloud, and Meta to support AI-driven data demands. The stock was held by 10 billionaire investors in Q4 2024, making it one of the best penny stocks to buy according to billionaires.
ClearBridge Small Cap Strategy stated the following regarding Lumen Technologies, Inc. (NYSE:LUMN) in its Q3 2024 investor letter:
“Stock selection in the communication services sector was a significant detractor during the period, largely due to not owning Lumen Technologies, Inc. (NYSE:LUMN), which provides products and services including dark fiber, edge cloud services and internet protocol, among others. The company, which began the quarter with a $1.1 billion market cap, skyrocketed after it signed agreements with Microsoft and Corning to use its network and technologies to support their AI data center buildouts, resulting in a nearly 350% return and ending the quarter with a $7.2 billion market cap. However, despite this meteoric rise, we believe that the company remains a highly risky asset with a significantly leveraged balance sheet, and one not suitable for our focus on high-quality, long-term compounders.”
Overall, LUMN ranks 2nd on our list of best penny stocks to buy according to billionaires. While we acknowledge the potential of LUMN 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 time frame. If you are looking for an AI stock that is more promising than LUMN but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires
Disclosure: None. This article is originally published at Insider Monkey.
