We recently compiled a list of the 10 Best Quality Penny Stocks To Buy. In this article, we are going to take a look at where Ring Energy (NYSE:REI) stands against the other quality penny stocks.
Penny stocks are shares of small companies that usually trade for less than $5 per share. They are often found in smaller or newer businesses and tend to be more volatile and risky because they can rise or fall in value quickly.
Many penny stocks trade on smaller exchanges or over-the-counter (OTC) markets rather than major stock exchanges. While they can offer big rewards if a company grows, they also come with higher risks, as these companies may have unstable finances or less information available to investors.
Most penny stocks usually fall under the small-cap stocks category. However, that is not always the case. Some large companies with high market caps have low share prices due to several factors, even though they are well-established and stable. The most common reason is share dilution.
When a company issues a large number of shares, its share price can be low, even if the company is worth billions overall. We have some companies on our list that fall into the category. This does not necessarily mean the company is struggling or risky like typical penny stocks but the low share price is due to the way its shares are distributed rather than poor performance or instability.
Sustainable Growth Expected in Small Caps Amidst Market Shifts
On July 26, Nathan Moser, Managing Director and Senior Portfolio Manager at Impax Asset Management joined Schwab Network and discussed some long-term possibilities around small-cap stocks. He discussed the recent changes in small-cap stocks and highlighted the positive shift.
He noted that after years of struggles, the recent rise in small caps seems more sustainable, which is driven by strong inflows into ETFs and passive investment vehicles. Moser believes the market’s current move could last for years, despite some short-term volatility, and encouraged buying on any market dips.
Moser pointed out that sectors like regional banks, real estate, and housing have performed well, most likely because investors believe that the Federal Reserve may delay or avoid a recession. He said that the recent rise is just the beginning and compared it to the early stages of a baseball game, with more room for growth in the small-cap sector.
He said, “We’re in the first inning of this move, in my opinion.” However, he advised to keep focus on high-quality, profitable companies due to the risks associated with lower-quality stocks in small caps.
Our Methodology
For this article, we identified 30 quality penny stocks trading under $5, as of September 3. The stocks we identified are profitable, have real sales, and are expected to remain profitable in the future as well. We narrowed down the list to 10 stocks most widely held by institutional investors. We listed the stocks in ascending order of their hedge fund sentiment.
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).
An oil rig under construction in the middle of a lake, its lights reflecting on the surrounding water.
Ring Energy, Inc. (NYSE:REI)
Stock Price as of September 3: $1.72
Number of Hedge Fund Holders: 11
Ring Energy, Inc. (NYSE:REI) is an independent exploration and production company with a strong focus on oil and natural gas activities, primarily in the Permian Basin. This region, known for its significant oil output, contributes nearly half of the U.S. daily production, making it a key area for energy development. It takes the 8th spot on our list of the best quality penny stocks to buy.
The U.S. Energy Information Administration (EIA) forecasts that crude oil output in the Permian Basin will average approximately 6.3 million barrels per day in 2024, representing an almost 8% rise compared to 2023. The company targets high-value formations in the Northwest Shelf and Central Basin Platform of West Texas, areas renowned for their oil and liquid-rich reserves.
In the second quarter, the company reported net income of $22.4 million, which is equal to to $0.11 per diluted share, while adjusted net income came in at $23.4 million, or $0.12 per diluted share. The company’s total sales volumes reached 19,786 barrels of oil equivalent per day (BOEPD), marking a 4% increase from the previous quarter and surpassing its guidance. The performance is a clear-cut sign of the company’s ability to exceed production expectations and manage its operations efficiently.
The growth in sales volumes was driven by oil production, which averaged 13,623 barrels per day, a 2% rise from the first quarter. The achievement was 3% above the midpoint of guidance and 2% higher than the high end of expectations.
Ring Energy’s (NYSE:REI) strong production figures have translated into substantial financial benefits. In the first half of 2024, the company generated $37 million in adjusted free cash flow, despite facing lower realized prices for its non-oil production.
This marked a 60% increase in free cash flow compared to the previous year, largely driven by the acquisition of Founders, which closed in August 2023. Furthermore, during the second quarter, the company successfully drilled and completed 11 wells, meeting its guidance and demonstrating its operational capability.
At a stake value of $11.084 million, 11 hedge funds held positions in Ring Energy (NYSE:REI) in Q2. As of June 30, AQR Capital Management is the top shareholder in the company and has a position worth $6.04 million.
Overall REI ranks 8th on our list of quality penny stocks to buy. While we acknowledge the potential of REI 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 REI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure. This article is originally published at Insider Monkey.
