We recently compiled a list of the 7 Cheap New Stocks To Invest In Now. In this article, we are going to take a look at where Phinia Inc. (NYSE:PHIN) stands against the other cheap new stocks.

Capital Markets Buzz Amid Fed Rate Cuts

In light of the recent Fed decision, there is growing optimism regarding increased capital markets activity. Analysts have expressed growing confidence in a soft landing for the economy despite ongoing market volatility. This perspective suggests that supportive monetary policies could create favorable conditions to enhance valuations and drive investment, making it an opportune time for firms to pursue IPOs and M&A. As borrowing costs decrease, investor interest in tech startups and growth-oriented companies is likely to rise. This trend is particularly relevant given the recent performance of the S&P 500, which has rebounded from earlier declines, indicating resilience in the market.

As we approach the end of the year, the combination of lower interest rates and positive economic data sets the stage for a potential surge in IPOs and increased market engagement. Investors may look to diversify their portfolios by exploring new opportunities in, let’s say, emerging tech firms, which could lead to heightened activity in capital markets as these companies capitalize on the favorable economic backdrop. As the current landscape presents an encouraging scenario for both established and young companies looking to enter the public market or expand through strategic partnerships, we covered Stephanie Link’s sentiments on this scenario in our article about the 10 Best Young Stocks To Buy Now. Link, Chief Investment Strategist and Portfolio Manager at Hightower, highlighted a contrasting perspective amidst market volatility and uncertainty. Here’s an excerpt from the article:

“…She believes that the Fed is skillfully guiding the economy towards a soft landing, even amidst the expected market fluctuations before the elections.

Just 3 weeks ago, the S&P 500 had dropped by 4%. Still, it rebounded by 4% the following week. It rose another 1% last week, reaching new highs, and expressed optimism about buying opportunities during any market weakness, citing better-than-expected economic growth driven by recent data, including improved retail sales and manufacturing figures, as well as a decline in weekly jobless claims to a 4-month low. This positive economic backdrop supports an estimated growth rate of 2.9%, which is expected to benefit corporate earnings.

…Link noted a broadening market trend over the past couple of months, indicating that while tech has taken the lead, other sectors such as financials, industrials, materials, and discretionary stocks are also showing strength. She advised investors to remain selective in their choices amidst ongoing volatility…”

On October 3, Tiffany McGhee, CEO and CIO at Pivotal Advisors highlighted the convergence of macro events that may spark market volatility, emphasizing the concept of “convergence” as her word of the day. She noted that this week is marked by a convergence of significant events that could lead to increased volatility in the short term. With macroeconomic factors at play, including a potential port strike and major job reports scheduled for release, Tiffany highlighted that these elements are creating what she described as a “perfect storm.”

Tiffany pointed out that the ongoing conflict in the Middle East and the recent vice presidential debate are critical factors influencing market reactions. She observed that bond prices experienced a sell-off earlier in the week but stabilized as investors sought safety amid rising geopolitical tensions. As the election approaches, she anticipates further short-term volatility due to these developments.

In terms of strategy, Tiffany encouraged investors to reassess their portfolios, particularly those with a heavy concentration in equities. With the S&P 500 up 20% year-to-date and sectors like technology and consumer discretionary having performed well, she suggested that now is an opportune time to take some profits off the table and consider reallocating those funds into different areas of the market.

Tiffany also discussed her investment pick, the mutual fund with ticker AISGS, which is currently outperforming small-cap companies. She expressed a preference for focusing on size and style rather than specific sectors at this moment. By investing in small and mid-cap stocks through active management, such as with the Aerial Fund (ARGFX), investors can capitalize on opportunities created by lower analyst coverage in these segments. This lack of information allows skilled managers to identify undervalued stocks and consistently outperform indices.

Tiffany’s insights underscore the importance of strategic asset allocation and proactive portfolio management during periods of heightened market volatility. By recognizing the convergence of macroeconomic events and adjusting investment strategies accordingly, investors can better navigate potential market fluctuations while positioning themselves for future opportunities.

Methodology

We used the Finviz stock screener to compile a list of 20 new stocks that went public recently in the past 2 years and have a forward P/E ratio under 20. We then selected the 7 cheap new 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).

Phinia Inc. (NYSE:PHIN)

Forward Price-to-Earnings Ratio: 9.43

Market Cap as of October 1: $2.01 billion

Number of Hedge Fund Holders: 35

Phinia Inc. (NYSE:PHIN) is a global, market-leading premium solutions and components provider for the automotive and industrial sectors. With over a century of manufacturing expertise and a strong brand portfolio, it offers a range of products, including fuel systems, electrical systems, and aftermarket solutions. Committed to sustainability, it is exploring advanced technologies to reduce carbon emissions and promote sustainable mobility.

The global commercial and light vehicle markets are softening, partially offset by slower growth in EVs. While internal combustion engines will play a crucial role in achieving carbon neutrality, the company is investing in alternative fuel solutions like ethanol, biofuels, e-fuels, and hydrogen. The past year’s performance validates its long-term strategic plan and demonstrates the progress in executing it.

In Q2 2024, the company made $868 million in revenue, which was slightly lower than Street estimates. Adjusted sales for the quarter were $863 million, lower than the previous year. Adjusted EBITDA declined by $13 million to $117 million, with an adjusted EBITDA margin of 13.6%, down 110 basis points due to increased standalone company costs, transactional currency losses, and lower sales.

The aftermarket business demonstrated resilience and consistent performance, particularly in Europe. However, the Fuel Systems segment faced challenges due to weaker-than-expected commercial vehicle sales in Europe and lower light vehicle sales in China.

Margins remained strong in both Aftermarket and Fuel Systems, at 15.1% and 10.1%, respectively. Total segment-adjusted operating margins were 12.2%, 30 basis points lower than the previous year due to retroactive customer recoveries in Q2 2023.

Phinia Inc. (NYSE:PHIN) has demonstrated strong operational performance and financial discipline in its first year as a stand-alone entity, highlighted by over $180 million returned to shareholders through dividends and share repurchases. It’s well-positioned to become an industry leader.

Ariel Focus Fund stated the following regarding PHINIA Inc. (NYSE:PHIN) in its first quarter 2024 investor letter:

“Manufacturer of premium fuel and electrical systems, Phinia Inc. (PHIN) also traded up in the period on solid earnings results and a positive full year 2024 outlook. Healthy consumer pricing, new business wins across all end markets, ongoing weakness in electric vehicles, growth in light vehicle original equipment and strong cost controls, more than offset disappointing commercial vehicle sales in China. Meanwhile, management continues to prioritize capital returns to shareholders via buybacks and dividends. Looking ahead, we expect PHIN to deliver sustainable, profitable growth and significant cash generation as it captures operational efficiencies, exits agreements with its former parent company BorgWarner Inc. and also expands its industrial and aftermarket customer base.”

Overall PHIN ranks 6th on our list of the cheap new stocks to invest in. While we acknowledge the potential of PHIN 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 PHIN 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.