We recently compiled a list of the 10 Best One-Dollar Stocks To Buy Now. In this article, we are going to take a look at where Oatly Group AB (NASDAQ:OTLY) stands against the other one-dollar stocks.
The upward trend in the stock market has resumed, supported by strong first-quarter and second-quarter results that have relieved investor concerns about inflation. The US economy had a very strong year in 2023. Economic activity increased steadily, job creation was high, unemployment was low, real earnings rose, and inflation declined. Furthermore, the Federal Reserve maintained high interest rates throughout this time in an attempt to control inflation. June recorded a market increase of more than 10%. The large-cap market of the 500 biggest companies has already surged over 17% so far this year as analysts look forward to reduced interest rates in the second half of 2024, along with higher earnings growth and lower inflation.
Historically, since 1928, July has been the strongest month of the year for stocks in terms of performance. The market rose by 1.7% in July. Given that the market posted gains in May and June despite notable economic uncertainty, investors remain bullish that the market can sustain its positive trend.
In a May speech to the Foreign Bankers’ Association, Federal Reserve Chair Jerome Powell recognized the difficulty of bringing inflation down to the desired level. Powell stated that it could be essential to keep interest rates at their present levels for a longer period of time. Interest rates have been fluctuating between 5.25% and 5.5% since July 2023.
Amid concerns over an impending recession brought on by higher interest rates, the US labor market still remains stable. According to the Labor Department, the US economy created 175,000 new jobs in April, although this was less than the 240,000 jobs that economists had predicted. The US labor market maintains a low unemployment rate of 3.9%, while US wages have risen 3.9% YoY. Nonetheless, recession fears are maintained by the historical recession predictor, the inverted U.S. Treasury yield curve, and the New York Fed’s model, which projects a 50% chance of a recession within the next 12 months.
The second quarter of 2024 saw a gain of more than 3% in the US stock market. Under the hood, tech companies continued to lead the artificial intelligence trade, which showed no signs of slowing down throughout the quarter. One striking trend in the stock market this year has been the outperformance of the biggest companies. The large-cap market of the 500 biggest companies gained 4.4% in Q2, bringing its 2024 return to more than 15%. By comparison, the small-cap market had a decline of 3.3%, resulting in a reduced 2024 return of 1.6%.
With over half of 2024 already gone, the US stock market is expected to see significant increases for the second year in a row.
According to DataTrek Research co-founder Nicholas Colas, the 2024 stock market surge is about more than just this year; it also includes the outlook for 2025 and 2026. Colas stated:
“Markets are convinced that U.S. large cap companies will see many years (not just one) of improving earnings. Earnings for 2024 only have to come through slightly better than last year, and nothing occurs on the macro side (economic growth, geopolitics) to derail further earnings growth in 2025 and 2026.”
Investor confidence is supported by historical trends and recent earnings performance. The stock market does well in election years, according to historical statistics, especially when the president is serving his first term, as is the case with Joe Biden.
Methodology:
In this article, we first used a stock screener, Finviz, to list down all stocks trading under $1.5 and above $0.85 (as of the writing of this article) with over 40% institutional ownership. From the resultant dataset, we chose 10 stocks with the highest number of hedge fund investors, using Insider Monkey’s database of 920 hedge funds in Q1 2024 to gauge hedge fund sentiment for stocks. We have used the stock’s Revenue Growth Rate (year-over-year) as a tie-breaker in case two or more stocks have the same number of hedge funds invested. We only considered stocks that received “buy” or “strong buy” recommendations from analysts.
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)
A farmer standing in front of a large field of oat plants.
Oatly Group AB (NASDAQ:OTLY)
Number of Hedge Fund Investors: 13
OTLY is the world’s first and one of the largest oat beverage companies. Its only focus for more than 25 years has been on gaining knowledge about oats, a crop of great worldwide importance with natural qualities that are beneficial to both human health and the environment. The company’s focus on oats has led to technological improvements that have expanded its dairy offering, including alternatives to milk, ice cream, yogurt, cooking creams, and spreads. Globally, its Oatly brand is accessible in over 20 countries, with its headquarters being in Malmo, Sweden.
The 7 Wall Street analysts with 12-month forecasts for OTLY stock have an average price target of $2.11, maintaining a “Buy” rating. This average price target predicts an upside potential of 91.82% from the current stock price of $1.10. At the end of Q1 of 2024, Oatly Group AB (NASDAQ:OTLY) was held by 13 hedge funds, with Jeffrey Tannenbaum’s Fir Tree holding the largest stake of 4,736,083 shares valued at a total of $3.53 million.
Oatly’s (NASDAQ:OTLY) present market capitalization of $635.73 million is based on steady GAAP net loss quarters and operating cash burn as compared to a balance sheet with decreasing liquidity. The oat milk company has created plant-based products that are actually in demand. During the first quarter of fiscal 2024, revenue of $199.16 million was generated, 1.8% higher than the same quarter in the previous year and $1.49 million beating the consensus estimate. Both the Europe & International and North America sectors had strong growth in Q1, which contributed to the rise in revenue. The company projects that its revenue will grow by 5% to 10% on a constant currency basis for the entire fiscal year 2024. This would indicate that for the entire year 2024, revenue would be at least $822 million.
Oatly’s North American and European & International operations rose by 4.6% and 7.7%, respectively, in the first quarter of 2024 from the same quarter last year on a constant currency basis. As a result of SKU reductions to increase manufacturing efficiency, sales in Greater China fell by 26.8% in the same quarter. Oatly’s cash burn from operations decreased to $39.1 million from $71.2 million in the first quarter of last year, while the company’s net loss for the first quarter was $45.8 million, down from $75.6 million. Including capital expenditures, the company’s cash runway is less than six quarters, since it completed the quarter with $209 million in cash and $453.8 million in total debt.
Considering that Oatly’s financial runway, including capital expenditures, is less than five quarters, the company’s primary risk is rapid cash burn. Though the projection for negative adjusted EBITDA of $35 million to $60 million in 2024 suggests persistent difficulty, the company is still aiming for profitable growth. Oatly faces competition from other oat companies, such as Alpro and supermarket generics, despite solid expansion in the plant-based sector.
Although Oatly has made significant strides toward reducing losses, the business must act quickly to turn a profit before depleting its cash reserves. Oatly’s significant capital burn and constrained liquidity continue to be concerns, even as the market as a whole continues to trend toward plant-based goods. Nonetheless, given the company’s global reach and standing as a pioneer in oat beverages, investors continue to have high hopes for its development potential.
Overall OTLY ranks 9th on our list of the best one-dollar stocks to buy. You can visit 10 Best One-Dollar Stocks To Buy Now to see the other one-dollar stocks that are on hedge funds’ radar. While we acknowledge the potential of OTLY as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than OTLY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
Disclosure: None. This article is originally published at Insider Monkey.