We recently compiled a list of 13 Best Growth Stocks Under $10 to Buy. In this article we will look at where Yext, Inc. (NYSE:YEXT) ranks among the best growth stocks under $10 to buy.
After a summer dip, stocks recovered in Q3 2024, setting new records after the quarter. More than 60% of the 500 largest companies’ components outperformed the overall index that covers these stocks in the quarter. The index that tracks the 500 largest companies traded in the US is up more than 20% year-to-date, at record-high levels. Bonds also fared well, helped by declining inflation and the Federal Reserve’s aggressive half-percentage-point drop, which indicated a move away from combating inflation and toward promoting growth. Fed rate reductions boost small-cap companies, industries, and regional banks.
Value and small-cap companies overtook large tech in the major rotation that occurred during the general stock market rally. Subsequently, expensive large-cap growth names lost investor attention, while previously underperforming markets saw strong gains. The consolidation of technology is a positive development, according to King Lip, chief strategist at BakerAvenue Wealth Management. He states that ” “We’re not in a bear market for tech by any means. But you’ve definitely seen some evidence of rotation.”
Nonetheless, in Q3 2024, eight of the 500 largest companies’ eleven sectors outperformed the broader index of these 500 companies. According to Tajinder Dhillon, senior research analyst at LSEG, the Magnificent Seven companies are predicted to raise earnings by almost 20% in the third quarter of 2024, compared with a profit rise of 2.5% for the rest of the 500 largest companies. That disparity is predicted to diminish in 2025, with the remainder of the index expected to raise earnings by 14% for the full year against a 19% rise for the mega-cap group.
The Magnificent Seven “should not have to carry the profit rebound alone,” according to Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, in recent research, providing a soft landing scenario. ” “For the soft landing, we are in the ‘show me’ stage.”
Moreover, soft employment figures helped allay concerns about a recession and modest inflation. Even though the unemployment rate has increased, the overall economic trend points to strong, albeit sluggish, growth. The market is now even more optimistic due to the Fed’s aggressive rate decrease and the likelihood of future rate reductions.
It is anticipated by Morningstar analysts that the “great rotation” away from large-cap tech stocks would continue as Q4 approaches, presenting opportunities in undervalued industries. The financial services, real estate, energy, and healthcare industries are expected to grow as per Morningstar analysts, particularly with the current decline in interest rates.
According to Morningstar analysts, going ahead, the possibility of additional rate cuts and higher government expenditure in this election year should boost markets, but prudence is still advised because lower-income people are still being negatively impacted by continued inflationary pressures. Value stocks and industries with strong prospects for future recovery should be the main focus of investors.
Methodology:
We sifted through holdings of iShares Morningstar Small-Cap Growth ETF to form an initial list of 20 highest-weighted Growth Stocks Under $10 in the ETF. Then we selected the 13 stocks that were the most popular among hedge funds as of Q2, 2024. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024. We have used the stocks’ current market cap as a tie-breaker in case two or more stocks have the same number of hedge funds invested.
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)
Yext, Inc. (NYSE:YEXT)
Number of Hedge Fund Investors: 19
Yext, Inc. (NYSE:YEXT) is a knowledge engine platform that enables companies to manage their digital knowledge on the cloud and sync it with over 200 services, such as Yelp, Apple Maps, Bing, Cortana, Facebook, Google, Instagram, and Google Maps. The structured information that a company wishes to make available to the general public is known as digital knowledge. Additionally, the company contributes to the intelligence of search by helping to deliver exact, accurate, and up-to-date responses to location-based queries made using voice and artificial intelligence (AI) engines, as well as mobile applications and the web. Subscription services are where the majority of the company’s income comes from. In terms of location, North America accounts for the lion’s share of the company’s revenue, with international markets providing the remaining portion.
The company’s notable margin expansion was shown by its Q2 fiscal 2025 figures. This resulted from its emphasis on operational effectiveness, which set up the company for future expansion and financial success. It is still working on its long-term strategic measures to fortify the business.
It is anticipated that Yext’s AI-powered digital presence management combined with Hearsay’s text, social media, and speech features would maximize consumer engagement and performance across channels.
Ryan MacDonald, an analyst at Needham, raised his price target for Yext, Inc. (NYSE:YEXT) from Hold to Buy, citing $8. The analyst informs investors in a research note that the company’s Q2 results offered more clarity on the underlying trajectory of the business in the wake of the recent Hearsay acquisition. The firm claims Yext management has created a “strong and consistent” track record of generating incremental leverage in the business model. Despite integrating an asset that initially dilutes, Needham sees “plenty of room for material” additional margin expansion over the following 12-18 months. It also thinks that Yext’s revised projection for the second half of 2025 is “appropriately conservative.” Needham argues that investors are attracted to the risk/reward ratio at the moment.
Mitchell Green’s Lead Edge Capital is the largest stakeholder in the company from among the funds in Insider Monkey’s database. It owns 11,474,281 shares worth $61.38 million as of Q2.
Overall YEXT ranks 12th on our list of Best Growth Stocks Under $10 to Buy. While we acknowledge the potential of YEXT 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 an AI stock that is more promising than YEXT 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 on Insider Monkey.
