We recently compiled a list of the 18 Best 52-Week Low Stocks to Buy Now According to Short Sellers. In this article, we are going to take a look at where NetEase Inc (NASDAQ:NTES) stands against the other 52-week low stocks.
Buying low and selling high is a popular investment strategy that value investors inspired by Warren Buffett have perfected over the years. The legendary investor has consistently emphasized the importance of identifying stocks of undervalued companies with significant growth prospects and holding onto these investments for an extended period.
Some of the most undervalued stocks to buy are those trading near their 52-week lows, backed by solid underlying fundamentals. A lot of these companies have durable competitive advantages but have fallen due to an overreaction by pessimists to short-term headwinds. The companies should boost strong brands in their respective fields with high barriers to entry.
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Value investing means paying attention to more than just the stock price but by focusing on valuation. A pullback often creates buying opportunities where quality companies become available at low price-to-earnings multiples or low price-to-sales ratios relative to their industries.
Over the past 20 years, 95% of investment firms have failed to beat the S&P 500. In contrast, Buffett has averaged an annual return of 20%, nearly double the S&P 500 over the same period.
With the S&P 500 up by about 20% for the year, most stocks are trading at premium valuations above their 52-week highs. The impressive gains have come amid unfavorable market conditions, with interest rates near all-time highs of between 5.25% and 5.50%.
On the other hand, some stocks have pulled back significantly and are currently trading close to the 52-week lows, their core business hurt by the high interest rate environment. Additionally, some of the stocks have underperformed due to deteriorating macroeconomics. Concerns that the U.S. economy could plunge into recession have always hurt some of the stock’s sentiments. The U.S. Federal Reserve is expected to cut interest rates in September and these stocks might not be near their lows for long.
According to Stuart Keiser, Citi head of equity trading strategy, the high interest rate environment has left the market in a very unstable situation amid a “ tricky environment.” Likewise many investors are on edge as to whether there will be a soft or hard landing. Keiser said, in an interview on CNBC’s Fast Money:
“Basically you had a 12 to 18 month period of positive economic surprise of what I would call higher for longer growth strong rate cuts getting pushed out. Markets were able to deal with that because growth was really positive. Since late June economic data surprised negative, economic data momentum negative. The market is now trading instead of higher for longer trading, a bit of growth slowdown. That’s why you are getting this schizophrenia because as growth decelerates you get into a borderline at which the risk becomes really big that you could go hard landing instead of soft landing. So our view is that the risk reward is not what it was a couple of months back”
Amid the market outlook uncertainty, focusing on stocks near the 52-week lows is a sure way of balancing the risk reward amid the premium valuation in play. While the focus has been on artificial intelligence investment plays, stocks in various sectors are trading at discounted valuations and are sure to offer significant returns.
Our Methodology
To compile the list of the best 52-week low stocks to buy now, according to short sellers, we first screened for stocks that were trading near their 52-week lows (0-10% range) using the Finviz stock screener. Next, we looked at their short interest and picked the stocks with the lowest short interest that were the most popular among elite hedge funds. The stocks are ranked in descending order of their short interest.
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).
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NetEase Inc (NASDAQ:NTES)
52 Week Range: $80.63 – $118.90
Current Share Price: $83.53
Number of Hedge Fund Holders: 35
Short interest rate: 0.76%
Headquartered in Hangzhou, China, NetEase, Inc. (NASDAQ:NTES) is one of the best 52-week low stocks to buy now, according to short sellers, for gaining exposure in China’s Communication service sector. The company distributes online games, music streaming, online intelligent learning services, and internet content services businesses.
Over the past year, NetEase, Inc. (NASDAQ:NTES) has underperformed, given that it is only up by about 2% from its 52-week lows. Amid the underperformance, the company delivered solid Q2 2024 results with net revenues totaling $3.5 billion, up 6.7% per year. The company attributed the increase to the success of its games, including Once Human and Maraca: Bladepoint Mobile, and their continued expansion across various genres and platforms.
Likewise, A.I. integration in game development has led to a 200% year-over-year growth in AI-driven subscription services. NetEase, Inc. (NASDAQ:NTES) is positioned for continued growth amid increased investment in A.I. technology and a diverse gaming portfolio. Its strategic partnership with Blizzard and the development of new titles are anticipated to contribute to future successes.
NetEase’s price-to-earnings (P/E) ratio multiple of 11 and its even more enticing adjusted P/E ratio for the past year, as of the first quarter of 2024, at 12.5, shows it is trading at a discount compared to its expected earnings growth. This makes NetEase an appealing investment choice considering its future growth potential.
NetEase, Inc. (NASDAQ:NTES) ‘s dedication to rewarding its shareholders is clear, with a history of increasing its dividend for three years and keeping dividend payments for 12 years straight. This affirms why it is one of the best stocks trading at 52-week lows. As of 2024, the dividend yield is 3.05%, demonstrating the company’s commitment to delivering steady returns to its investors. The percentage of shares short as of the end of July stood at 0.76%
The number of hedge funds tracked by Insider Monkey owning stakes in NetEase, inc. (NASDAQ:NTES) fell from 41 to 35 during the second quarter of 2024. Orbis Investment Management held the largest position in NetEase, Inc. (NASDAQ:NTES), owning 1.91 million shares valued at $182.28 million.
Polen Emerging Markets Growth Strategy stated the following regarding Net Ease, Inc. (NASDAQ: NTES) in its first quarter 2024 investor letter:
“NetEase, Inc. (NASDAQ:NTES) is one of the top players in China’s video game industry and saw decent revenue growth in 2023, particularly in its games division, with profit growth close to 20%. The stock also continues to recover after gaming restrictions announced last quarter in China were not nearly as bad as first feared.”
Overall NTES ranks 5th on our list of the 52-week low stocks to buy now according to short sellers. While we acknowledge the potential of NTES 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 NTES, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.