We recently compiled a list of the 10 Best US Stocks to Buy Under $10. In this article, we are going to take a look at where Peloton Interactive Inc. (NASDAQ:PTON) stands against the other US stocks.
Value in Small-Caps
As the market continues progressing, there is a cautiously optimistic sentiment surrounding small-cap stocks. While many investors are comfortable with economic fundamentals, concerns about high valuations persist. Although the overall market may seem expensive, this is primarily due to the largest market-cap stocks, leaving room for growth in smaller companies.
As global markets improve amid a broader easing cycle, these stocks could play an essential role in portfolio diversification. The focus should be on identifying value beyond mega-cap stocks to uncover opportunities in various sectors and regions. This strategic positioning was highlighted by Sebastien Page of T. Rowe Price on CNBC just a few days ago. We covered his opinions regarding small caps in our article on the 10 Most Promising Penny Stocks According to Hedge Funds. Here’s an excerpt from that:
“Page highlighted that their current strategy includes a slight overweight of half a percent in stocks compared to bonds, which marks an increase in risk appetite compared to previous conversations over the last 18 months. He acknowledged that while the overall market multiple may appear expensive, it is skewed by the largest market-cap stocks. This suggests that there are still opportunities beyond mega-cap names, which have become too consensus-driven and costly.
Addressing concerns about valuations, Page pointed out that while the price-to-earnings ratio appears high, it is essential to consider the context. He mentioned that if one adjusts for return on equity, current valuations may fall below historical medians. Additionally, he noted that the average stock globally trades at a P/E of about 13, which aligns with its long-term average. This indicates that while some segments may seem overvalued, many stocks are positioned reasonably relative to their historical performance.”
On October 11, CNBC’s Mike Santoli and Northwestern Mutuals’ Brent Schutte, joined ‘Power Lunch’ on CNBC to discuss the CPI report numbers and the market reaction. Brent Schutte believes that small and mid-cap stocks offer value regardless of the Fed’s landing.
He expressed concerns about the potential for a wage-price spiral, particularly in light of significant wage increases expected for major employers. He highlighted that these wage hikes could contribute to continued inflation, especially as the economy is already in a late-cycle with fewer available workers. Although unemployment has slightly increased, he emphasized that if demand picks up, it would be challenging to keep inflation in check. He pointed out that rising wages represent a critical factor for the Fed as it navigates monetary policy.
Schutte noted that historically, the Fed has struggled with balancing inflation and employment signals, often reacting too late to emerging trends. He indicated that while there are signs of weakening in the labor market, the current inflationary pressures are still significant. He referred to recent data showing that median CPI rose by 0.4%, which suggests that the path forward may be more complicated than investors currently anticipate.
Mike Santoli added to the conversation by discussing what will dominate market focus in the coming weeks. He mentioned earnings reports as a key factor, alongside economic data and potential impacts from the upcoming elections, acknowledging that while stickier inflation could eventually pose challenges for the Fed, he doesn’t believe this will happen immediately given current interest rates between 4.57% and 5%. He suggested that the stock market might not react negatively to less Fed accommodation if it coincides with a stronger economy.
Discussing large-cap stocks and their performance in this late-cycle phase of the economy, Santoli expressed concern about whether small-cap stocks would eventually take over as leaders in the market. He drew parallels to past market conditions where narrow leadership was evident during economic slowdowns. He noted that small and mid-cap stocks have been priced for recession, and their performance on days when rates rise indicates they are under pressure compared to larger stocks.
Schutte then talked about the implications of persistent inflation on small-cap earnings, highlighting that Russell 2000 earnings had been flat for 3 years amid rising rates. He questioned how much of this scenario is already priced into the market and pointed out that many investors have gravitated towards mega-cap stocks due to their perceived stability amidst economic uncertainty.
Schutte emphasized the importance of monitoring economic indicators to make decisions on small-caps among other stocks, but to ease up the search for you, we’re here with a list of the 10 best US stocks to buy under $10.
Methodology
We used the Finviz screener to compile a list of 30 large US stocks that were trading below $10. We then selected the 10 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 900 elite money managers.
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 group of people in a fitness class with connected fitness products in a studio or gym.
Peloton Interactive Inc. (NASDAQ:PTON)
Share Price as of October 16: $5.21
Number of Hedge Fund Holders: 38
Peloton Interactive Inc. (NASDAQ:PTON) is a fitness company that offers interactive fitness equipment and subscription-based fitness classes. Products include stationary bikes, treadmills, and rowing machines, which are equipped with screens that allow users to stream live and on-demand fitness classes. It also offers a subscription service that gives members access to a wide variety of fitness classes, including yoga, Pilates, cycling, and running.
It launched a half-marathon training program in June and recently partnered with Truemed to allow customers to use HSA/FSA dollars for equipment purchases. This partnership makes fitness more affordable by providing tax-free payment options. Truemed is devoted to educating consumers about the importance of preventative health. The company is also making progress on key strategic priorities, including improving profitability, investing in innovation, and exploring capital allocation strategies. It aims to deliver stronger bottom-line results to support its investments in software, hardware, and content.
Peloton Interactive Inc. (NASDAQ:PTON) reported better-than-expected FQ4 2024 results. Revenue increased 0.23% year-over-year to $643.60 million, driven by a 2.3% increase in the subscription area. Per-share loss narrowed to $0.08. The improvements came as it reduced total sales and marketing expenses by 19%. The secondary market delivered a 16% increase in paid connected fitness subscribers in FQ4. Connected Fitness revenue from the treadmill portfolio grew 42%. Its strategic focus on improving profitability and investing in innovation positions it for long-term growth and success.
Patient Capital Opportunity Equity Strategy stated the following regarding Peloton Interactive, Inc. (NASDAQ:PTON) in its first quarter 2024 investor letter:
“Peloton Interactive, Inc. (NASDAQ:PTON) declined in the first quarter, hitting its lowest per share valuation in late March since becoming a public company. The company has taken drastic action to right-size the extremely bloated cost structure, expand sales channels (Amazon, Dick’s Sporting Goods), and test other ways to reinvigorate growth. The company is hyper focused on reaching positive free cash flow generation, but the path was pushed out. We continue to believe the value of the business lives in the high-margin, sticky subscription piece of the business. We think at current valuation, the company will either successfully turn things around or be a take-out target.”
Overall PTON ranks 4th on our list of the best US stocks to buy under $10. While we acknowledge the growth potential of PTON as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than PTON 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.