We recently compiled a list of 8 High Growth Penny Stocks That Are Profitable in 2024. In this article, we will look at where Ring Energy, Inc. (NYSE:REI) ranks among high-growth penny stocks that are profitable in 2024.
Do Small Cap Stocks Offer More Value?
Many investors and analysts are concerned regarding the valuations of large-cap stocks and there is a growing concern that maybe the turn is coming for small and mid-cap stocks.
Brent Schutte, Chief Investment Officer of Northwestern Mutual Wealth Management Company joined CNBC to discuss how small caps offer more value. Schutte mentioned the 1999 and 2000 markets which were very similar to the current market. During that time the market became very narrow, he thinks that the current market is barely holding up. To explain his point he mentioned the manufacturing market and the lower and middle income consumers have been harmed by the interest rate hike over the past years. Schutte does not see the Fed being able to alleviate the suffering market and what consumers have been through and believes that how the economy will perform in the future remains an unanswered question.
For investors who are more interested in returns over a 3 to 5-year period, small-cap stocks regardless of a soft landing or not, offer value as these stocks are priced for recessions. On days when interest rates rise, large cap stocks, particularly those in the S&P 500, tend to perform better while small-cap stocks often decline. However, Schutte argued that there is a debate about how much of the current economic situation is already reflected in stock prices. He thinks optimism is a contrarian indicator, meaning when many believe stocks will rise, it could signal a downturn. He suggests that as investors the strategy of investment should be towards undervalued stocks where optimism is low, suggesting that this approach may yield better returns as conditions change and currently small caps are undervalued indicating better returns.
On the other hand, Tom Lee, managing partner and head of research at Fundstrat Global Advisors, who has been backing up the small-cap bull case thesis, thinks that there is a lot of firepower supporting stocks post-elections.
He recently joined CNBC in another interview expressing his caution before the election period but optimism as soon as the new president takes charge. He noted that many investors are sitting on the sidelines until they have clarity on the presidential outcome and mentioned that he advises his clients to buy the dip as he expects potential market recovery post-election.
Lee believes that once the election is behind us, there is significant “firepower” supporting stocks. He expects a decent rally, with a target for the S&P 500 around 6,000. He thinks this because of a dovish Federal Reserve and a healthy economy. Unlike Schutte, Lee does not foresee a recession in the near term. He however does acknowledge concerns about stock valuations being stretched, particularly with the S&P 500 trading above its historical average. He argued that this is misleading due to the higher multiples of top-performing stocks.
Lee has been bullish on small-cap stocks, we have covered his bullish sentiment in 8 Most Undervalued Penny Stocks To Buy According To Analysts. Here’s a piece from the article:
“To talk about what the stock market looks like today and in the near future. Tom Lee, co-founder of Fundstrat Global Advisors joined CNBC in a recent interview. He has been one of the strong proponents and supporters of small-cap stocks. Lee says that we are in a volatile environment currently, due to a few reasons, one being the elections in less than 30 days, the second being the Middle Eastern crisis which is scaring investors, and lastly the port strike that has the potential to cripple the economy. However, he still expressed his optimism that the year-end has a lot of tailwinds and investors shouldn’t be afraid to buy the dip. Moreover, Lee also highlighted that these current events are all short-term headwinds in a buying cycle and are expected to die down quickly.
Lee thinks that bottoms are tough and processed, and small caps are in the process of what could be a multi-year bottom. Therefore the conviction is that some people might want to buy the big names on NASDAQ and the AI market, however, with small caps trading at lower multiples of P/E less than 10, the risk and reward lie in small caps. Lee further mentioned that interest rate cuts and better earnings growth make the path for small-cap growth more visible.
Tom Lee has also reaffirmed his belief that the S&P 500 could close above 5,700 by year-end, supported by strong economic fundamentals and a dovish Federal Reserve beginning to cut interest rates. He noted that significant cash reserves are available for investment, which could drive stock prices higher in the next three to twelve months.”
Our Methodology
To get the list of 8 high growth penny stocks that are profitable in 2024 we relied on the Finviz stock screener, Yahoo Finance, and Seeking Alpha. Using the screener we got a consolidated list of stocks which are trading below the share price of $5 with positive forward P/E, and more than 8% sales growth during the past 5 years. For this aggregated list we sourced the 5-year net income growth and revenue growth rates from Seeking Alpha and the GAAP trailing twelve-month net income from Yahoo Finance. Lastly, we ranked our stocks based on the number of hedge fund holders as per Insider Monkey’s Q2 2024 database. Please note that the share prices were recorded on October 12 and that the list is ranked in ascending order of the number of hedge fund holders.
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).
Ring Energy, Inc. (NYSE:REI)
Share Price: $1.65
5-Year Net Income Growth: 38.04%
5-Year Revenue Growth: 20.39%
TTM Net Income: $71.29 Million
Number of Hedge Fund Holders: 11
Ring Energy, Inc. (NYSE:REI) plays a vital role in bringing energy resources to market through exploration and production in some of the oil richest areas of the United States. The company controls around 96,127 acres of land in the Permian Basin and has interests in approximately 1,043 producing wells. The reserves they hold are mainly oil-based with around 63% of reserves having oil. The company has around 129.8 million barrels of oil equivalent in proved reserves making them a significant energy contributor in the country.
Since 2018, Ring Energy, Inc. (NYSE:REI) has grown its production at a compound annual growth rate of 22%. Moreover, management has been successfully acquiring new wells thereby adding more cash flow streams to its portfolio. During the second quarter of 2024, it produced and sold 13,623 Bo/d which was up from 11,86 Bo/d in Q2 2023. Overall, sales of natural gas and oil were also up from 17,271 Boe/d in Q2 2023 to 19,786 Boe/d in the most recent quarter. Oil comprised around 69% of the total sales.
Management has been successful in reducing the operating cost over the year from $22.61 per Boe to $22.09 per Boe, thereby adding more adjusted free cash flow to its books. The adjusted free cash flow for the quarter came in at $21.4 million up more than 70% year-over-year.
Ring Energy, Inc. (NYSE:REI) was held by 11 hedge funds in Q2 2024 and has maintained a healthy net income growth rate of 38% over the past 5 years making it one of the high-growth penny stocks that are profitable in 2024.
Overall REI ranks 3rd on our list of high-growth penny stocks that are profitable in 2024. While we acknowledge the potential of REI 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 a promising AI stock 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.
