We recently published a list of 10 Most Promising Penny Stocks According to Hedge Funds. In this article, we are going to take a look at where Marqeta Inc. (NASDAQ:MQ) stands against other most promising penny stocks.

Value in Small-Caps

With the current resilience of the bull market, there is optimism surrounding the potential for the S&P 500 to close at 5,700 or higher by year-end, as pointed out by some experts. This positive outlook is driven by expectations of the Fed cutting interest rates and stimulus measures being implemented in key global markets. The interaction between monetary policy, geopolitical factors, and market sentiment will be crucial in shaping market dynamics in the coming months. Investors are encouraged to stay informed as they navigate this evolving landscape. Tom Lee, Fundstrat co-founder, appeared on CNBC a few days back to discuss the staying power of the current bull market. His overall market outlook was discussed in one of our other articles, 8 Most Profitable Penny Stocks To Invest In, here’s an excerpt from it:

“…He attributed this potential growth to a dovish Fed beginning to cut rates and the stimulus measures being implemented in China, which he believes will positively impact the market. With significant cash still on the sidelines, Lee sees a favorable environment for stocks over the next 3 to 12 months.

Despite Lee’s bullish outlook, he acknowledged that small-cap stocks have exhibited weakness since the Fed began raising rates. He noted that while small caps are within a few percentage points of their all-time highs, they have not performed as well as expected. The market’s current risk appetite is mixed, and with the upcoming election and elevated oil prices contributing to uncertainty, investors may be hesitant to take on new risks.”

However, on October 11, Sebastien Page of T. Rowe Price joined ‘Closing Bell’ on CNBC to discuss the bullish case for international small caps. Sebastien Page expressed a cautiously optimistic outlook for the stock market as the year progresses, particularly in light of a hotter-than-expected Consumer Price Index report. Page indicated that he is looking for opportunities to add risk heading into year-end, aligning with the sentiment that while many investors are comfortable with economic fundamentals, they remain uneasy about high valuations. He noted that the investment committee at T. Rowe Price shares this perspective, emphasizing a balanced approach where they are more likely to add to risk assets rather than reduce exposure in the coming months.

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.

When discussing international small-cap stocks, Page explained that despite macroeconomic challenges outside the US, international small-caps offer compelling fundamentals. He highlighted that these stocks have a return on equity that is twice as high as their US counterparts, presenting an opportunity for contrarian investment. Page believes that as global markets begin to perform better amid a broader easing cycle, international small caps could play a significant role in portfolio diversification.

His insights reflect a strategic positioning for potential market broadening and highlight the importance of looking beyond mega-cap stocks to identify value in various sectors and regions. His approach suggests optimism about the market’s ability to navigate current challenges while capitalizing on emerging opportunities as we approach year-end.

Methodology

We sifted through Finviz to compile an initial list of the top penny stocks, with a share price under $5. From that list, we narrowed our choices to 10 penny 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.

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).

Marqeta Inc. (NASDAQ:MQ)

Share Price as of October 11: $4.98

Number of Hedge Fund Holders: 35

Marqeta Inc. (NASDAQ:MQ) is a card-issuing platform that provides infrastructure and tools to help companies build and manage payment programs. It provides the technology and infrastructure for businesses to issue their own branded cards, such as debit, credit, and prepaid cards. Its platform offers flexibility, scalability, and a range of features, making it a popular choice for companies in various industries, including fintech, ride-sharing, and e-commerce.

It recently partnered with Varo Bank, which selected it to process its card transactions, with migration scheduled to take place in 2025 under a 5-year contract. Zoho chose it for its expertise in launching card solutions for expense management. Despite such expansions, the company’s revenue fell by 45.80% year-over-year due to a change in how the company reports revenue from Cash App. Its suite of risk solutions, including 3DS and risk control, were up 61%.

In August, Payhawk partnered with the company to implement advanced card controls for fraud prevention and compliance. In late September, Marqeta Inc. (NASDAQ:MQ) and Found came together to offer streamlined expense management solutions for small businesses. Around the same time, Rippling and this company launched corporate credit cards in Canada to address the growing demand for better financial services for small businesses.

The popularity of digital banking among younger demographics presents a significant opportunity for Marqeta Inc. (NASDAQ:MQ). According to a survey, one-third of consumers now exclusively use digital banks, and 63% of 18-to-34-year-olds are open to non-traditional financial services, increasing the market share of modern banks. Its platform has demonstrated strong growth in financial services transactions. With a proven track record of serving large businesses, the company is well-positioned to capitalize on the expanding digital banking market and achieve future growth.

Overall, MQ ranks 5th on our list of most promising penny stocks according to hedge funds. While we acknowledge the potential of MQ 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 MQ 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.