We recently published a list of 10 Best US Stocks to Buy Under $5. In this article, we are going to take a look at where Kosmos Energy Ltd. (NYSE:KOS) stands against the other stocks to buy under $5.
Investors are becoming increasingly nervous amid a slowing U.S. economy. Signs of weakness in consumer spending and manufacturing points to an economy that is overheating amid the high interest rate environment
In August, nonfarm payrolls grew by 142,000, an increase from 89,000 in July but short of the 161,000 forecast. The unemployment rate decreased to 4.2%, while the “real” unemployment rate climbed to 7.9%, the highest since October 2021.
According to Dan North, an economist at Allianz Trade, the recent string of economic data has been disappointing, signaling something is wrong. A slowing economy always takes a significant toll on investors sentiments in the equity market.
The slowdown comes when the stock market is at a pivotal level heading into the year-end. The leading market indices are hovering close to all-time highs amid a slowing economy that needs the U.S. Federal Reserve to tweak its monetary policy.
The earnings season has also added another caveat seen by increased volatility. After months of blockbuster gains, significant stock sell-offs linked to artificial intelligence and semiconductors have come into play. Geopolitical worries, the forthcoming presidential race, and shifts in Federal Reserve strategy usher in uncertainty.
Valuations have gotten out of hand as most stocks are trading way above their historical highs. Given that the stock market experiences about four deep pullbacks of more than 5% every year, there is growing concern that one could be on the way heading into the year-end.
Appearing in an interview on CNBC, George Lagarias, the head economist at Forvis Mazars, stated that although it’s impossible to predict the magnitude of the Federal Reserve’s upcoming rate adjustment, he is in favor of a 25-basis point reduction. Analysts do not see the need for a 50 basis point or more reduction as it could confuse the markets and the economy, portraying a sense of urgency.
A more profound interest rate cut would take a significant toll on stocks trading at premium valuations as they would be the hardest hit with heightened volatility. On the other hand, emerging stocks that haven’t caught the Street’s attention yet could offer some good buying opportunities.
Currently, the market appears favorable for the growth of penny stocks and small-cap companies. Chris Retzler, portfolio manager at Needham Small Cap Growth Fund, suggests that while smaller companies are volatile, their long-term outlook is positive. He anticipates a market broadening in the second half of 2024, which could benefit smaller companies that have recently underperformed.
Retzler highlights the liquidity of smaller companies as a key growth factor. As funds shift from larger to smaller companies, many small-cap stocks may see significant price increases. Additionally, the expectation of lower interest rates over the next year is favorable for penny stocks, which require less capital to see price and valuation growth.
Investing in penny stocks or small-cap companies can be risky due to their volatility and limited historical data. However, these high-risk investments can also offer substantial rewards for those with a higher risk tolerance. While many of these companies face significant issues, some are hidden gems.
Our Methodology
We screened for US-listed companies that are trading under $5 and picked the 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.
At Insider Monkey we are obsessed with 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 drilling platform in the middle of the ocean, showing the oil and gas exploration process.
Kosmos Energy Ltd. (NYSE:KOS)
Number of Hedge Fund Holders: 25
Current Share Price: $4.37
Kosmos Energy Ltd. (NYSE:KOS) is one of the oil and gas companies under $5 offering exposure in the energy sector. It engages in the exploration, development, and production of oil and gas. Its primary assets include production projects located in offshore Ghana, Equatorial Guinea, and the U.S. Gulf of Mexico.
It is one of the companies well-positioned to benefit from higher oil and gas prices as the global economy bounces back from a period of slow growth. The company’s revenue growth has been strong, showing a 16.34% rise over the past year ending in Q2 2024 and an impressive 64.99% growth in revenues per quarter during the same period. These statistics indicate that although the stock value has encountered downward trends, the core operations of the company are undergoing substantial development.
Kosmos Energy Ltd. (NYSE:KOS) has made considerable progress towards achieving its objective of a 50% increase in production, with its output currently standing at 62,000 barrels of oil equivalent daily, representing a 7% rise compared to the previous year. Even with delays in projects and reduced output from the Jubilee field in Ghana, the company is determined to reach its goal of producing 90,000 barrels of oil daily by the end of the year.
Additionally, Kosmos Energy Ltd. (NYSE:KOS) has outlined its plan to generate substantial free cash flow, estimated to range from $100 million to $150 million each quarter. This cash will be used to pay off debt and to fund future expansion, adhering to a strict capital strategy.
Kosmos Energy Ltd. (NYSE:KOS) has reached a major milestone in production with the start of operations at Winterfell, located in the Green Canyon region of the U.S. Gulf of Mexico. This project, which Beacon Offshore Energy manages, sees Kosmos Energy owning a 25.04% interest in the operation.
The beginning of oil extraction at Winterfell represents a major accomplishment for the company. This move is anticipated to help the company meet its annual growth goals. With a low P/E ratio of 4.36, the company appears to be trading at a discount, after accounting for its near-term earnings growth.
With 25 hedge funds holding Kosmos Energy Ltd. (NYSE:KOS)’s stocks out of 933 in Insider Monkey’s database, it is considered as one of the best American stocks to buy now. Patient Capital Management, spearheaded by Samantha Mclemore, holds the largest stake in the company, possessing 9 million shares valued at approximately $50.33 million.
Overall KOS ranks 9th on our list of best US stocks to buy under $5. While we acknowledge the potential of KOS 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 KOS 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.
