We recently compiled a list of 10 Stocks Under $10 With High Potential. In this article, we will look at where Sasol Limited (NYSE:SSL) ranks among the best stocks under $10 with high potential.
How Does the Market Look Like in the Current Geopolitical Environment
There has been ongoing geopolitical in the Middle East, which escalated recently when Iran launched a series of missiles toward Israel. These tensions are no longer restricted to just the Middle East but are having impacts globally. On October 1st Reuters reported that the Iraqi armed groups have threatened to attack US bases in Iraq and the region if it joins forces in response to its strike on Israel.
Tom Lee, managing partner and head of research at Fundstrat Global Advisors, appeared on CNBC to discuss what the stock market looks like in the current geopolitically tense environment. Lee has been bullish on small caps for a long time however, he has also remained cautious regarding some bumps in the start before the market for small caps starts to rise. He maintained a bullish stance, projecting a year-end target of 6,000 for the S&P 500, despite acknowledging potential short-term volatility due to upcoming events like the election and geopolitical tensions in the Middle East.
He emphasized that current market conditions are tricky, with headline risks stemming from a potential port strike that could impact the economy. Lee suggested that if a significant dip occurs, it would be a good opportunity to buy, as he believes the long-term outlook remains positive despite temporary setbacks.
Talking about how the market has performed during wars in the past. Lee noted that historically, market reactions to geopolitical conflicts have often been more positive than anticipated. He cited past conflicts where buying during initial downturns proved beneficial, except for the recent Russia-Ukraine war which went otherwise due to concurrent Federal Reserve tightening.
He also discussed the implications of the ongoing longshoremen strike, indicating that each week of disruption could reduce GDP by approximately 0.3%. Lee believes that if this leads to a weakening labor market, the Fed might adopt a more dovish stance, meaning more interest cuts and money supply by the Fed.
China is one of the silver linings in the current market environment, Lee thinks China is currently one of the best-performing markets this year. He believes there is significant room for improvement in the Chinese market due to its historical underperformance when compared to the United States Market.
In one of our recent articles about the 8 Most Active US Stocks To Buy Now, we talked about how the market is expected to remain resilient moving into the elections. Here’s a piece from the article:
Liz Young Thomas, SoFi head of investment strategy, joined ‘Squawk Box’ at CNBC on September 30 and shared her insights regarding the market’s trajectory as it approaches an easing cycle. She acknowledged that while there has been a significant run-up leading to this cycle, much of the substantial gains may have already been realized.
However, she noted that this does not necessarily mean the market will slow down immediately. Historically, after the first rate cut, markets tend to remain flat or slightly up in the following 30 to 60 days. 3 months post-cut, the market evaluates whether these cuts were necessary due to cooling economic conditions or if they were merely opportunistic adjustments.
Young highlighted several positive factors contributing to the current market rally. Despite a slight pullback in technology stocks, she observed that many other stocks are performing well, with 80% of the S&P 500 trading above their 200-day moving averages. This indicates a strong internal market dynamic. Additionally, optimism surrounding potential stimulus measures from China adds further support to market sentiment.
When discussing valuation concerns, Young agreed that while US market multiples are relatively high, hovering around 21 to 22, this is not unprecedented when compared to historical standards. She pointed out that current valuations are above both the 5-year and 10-year averages but not at overbought levels. Young referenced Warren Buffett’s long-term investment philosophy, emphasizing that he does not focus on timing market multiples but rather on fundamental growth.
Young expressed a desire for the market to shift towards trading based on fundamentals rather than multiple expansions. She noted that while earnings stability is crucial, there are signs of strength in sectors outside of technology, particularly in industrial stocks. However, financials have shown mixed signals.
Our Methodology
To compile a list of 10 stocks under $10 with high potential, we used the Finviz stock screener. Using Finviz we screened stocks trading below the share price of $10 with analyst price target above 50%. Once we had an aggregated list we ranked these stocks based on the analyst upside potential sourced from CNN. Please note that the share price is accurate as of October 1st, 2024.
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).
Sasol Limited (NYSE:SSL)
Share Price: $6.67
Analyst Upside Potential: 67.76%
Sasol Limited (NYSE:SSL) is one of the largest chemical and oil producers in the South African region. The company operates through two main segments namely Chemical and Energy. It uses the proprietary Fischer-Tropsch technology to develop fuel from natural gas and coal.
Although the company has been facing some challenges as indicated by its F24 year-end financial results. However, analysts still believe that it will bounce back, 8 analysts have a consensus Buy rating on the stock with their average price target pointing towards a 68% upside from current levels.
When we compare the F23 with the most recent year we see that the company suffered a 3% decrease in Brent Crude Oil production, a 35% decrease in Ethane production, and around 8% less Polyethylene production during the most recent year. As a result, its overall turnover and margins were down 5% and 1%, respectively.
This was just one side of the story. On the bright side, Sasol Limited (NYSE:SSL) improved its mining productivity by 3%, whereas its Mozambique gas production was up 6%. Management has been focused on reducing the capital expenditure; it was able to reduce the capEx by 2% year-over-year. Another important indicator to look at while analyzing a company is Free Cash Flow. Sasol Limited (NYSE:SSL) took a hit in free cash flow generation every year, however, if we compare the H1 and H2 of 2024, we see that the company improved its cash flow by 100%.
Looking ahead, the company remains focused on prudent and disciplined spending. It is one of the best stocks under $10 with high potential on our list.
White Falcon Capital Management made the following comment about Sasol Limited (NYSE:SSL) in its second quarter 2023 investor letter:
“Precious Metals Royalty basket (WPM, Sasol Limited (NYSE:SSL), TFPM): In the current macroeconomic environment, there are many ways to ‘win’ with gold. It is remarkable that even with record positive real yields, gold is flirting with all time highs. Why? Western central banks are increasing interest rates which means that they will have to pay more interest on the record levels of debt that their government’s owe. Where will the money come from to pay the higher interest expense? The answer is simple – more debt and more money printing! We believe the gold knows this! We believe that precious metals will protect real purchasing power and act as a hedge to the portfolio when macroeconomic uncertainty arises. Owning royalty companies at reasonable valuations gives us a high quality exposure to precious metals without project or cost inflation risks inherent in a mining company.”
Overall SSL ranks 8th on our list of best stocks under $10 with high potential. While we acknowledge the potential of SSL 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.
