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 Safe Bulkers, Inc. (NYSE:SB) 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).
A fleet of vessels sailing in tandem, illuminated by the setting sun.
Safe Bulkers, Inc. (NYSE:SB)
Stock Price as of September 3: $4.86
Number of Hedge Fund Holders: 15
Safe Bulkers, Inc. (NYSE:SB) is a global company that offers marine dry-bulk transportation services, specializing in the shipment of commodities such as grain, coal, and iron ore across the world. The company has 46 vessels with 4.6 million deadweight tonnage (total weight-carrying capacity).
At its latest earnings call, Loukas Barmparis, President of Safe Bulkers (NYSE:SB) mentioned the company’s competitive edge in the industry. He mentioned that 25% of the global fleet is over 15 years old and increasingly uncompetitive due to environmental regulations.
On the other hand, the company has modernized its fleet, with 10 Phase 3 vessels delivered since 2022 and 22 vessels undergoing environmental upgrades. With 85% of its fleet built in Japan and an average fleet age of 9.9 years, it is well-positioned to remain competitive.
The company is benefiting because fewer new dry bulk ships are being built right now. Since fewer ships will be available, there will be less competition, which should help keep shipping rates high or even increase them in the near future. This could lead to better profits for the company.
In the second quarter, Safe Bulkers (NYSE:SB) reported an EPS of $0.17 and a revenue of $78.5 million, which was up 11.2% year-over-year. Moreover, analysts expect a nearly 38% year-over-year increase in its earnings per share in 2024. The company is trading at a forward price-to-earnings ratio of 5.8x as of September 3, compared to its industry median of 19.13.
In the second quarter, 15 hedge funds held positions in Safe Bulkers (NYSE:SB), at a combined value of $28.133 million. Renaissance Technologies is the company’s largest shareholder with 3.31 million shares worth over $19.267 million. It is the 4th best quality penny stock to buy on our list.
Overall SB ranks 4th on our list of quality penny stocks to buy. While we acknowledge the potential of SB 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 SB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure. This article is originally published at Insider Monkey.