We recently published a list of 10 Best US Stocks to Buy Under $5. In this article, we are going to take a look at where Sirius XM Holdings Inc. (NASDAQ:SIRI) stands against the other stocks to buy under $5.
Investors are becoming increasingly nervous amid a slowing U.S. economy. Signs of weakness in consumer spending and manufacturing points to an economy that is overheating amid the high interest rate environment
In August, nonfarm payrolls grew by 142,000, an increase from 89,000 in July but short of the 161,000 forecast. The unemployment rate decreased to 4.2%, while the “real” unemployment rate climbed to 7.9%, the highest since October 2021.
According to Dan North, an economist at Allianz Trade, the recent string of economic data has been disappointing, signaling something is wrong. A slowing economy always takes a significant toll on investors sentiments in the equity market.
The slowdown comes when the stock market is at a pivotal level heading into the year-end. The leading market indices are hovering close to all-time highs amid a slowing economy that needs the U.S. Federal Reserve to tweak its monetary policy.
The earnings season has also added another caveat seen by increased volatility. After months of blockbuster gains, significant stock sell-offs linked to artificial intelligence and semiconductors have come into play. Geopolitical worries, the forthcoming presidential race, and shifts in Federal Reserve strategy usher in uncertainty.
Valuations have gotten out of hand as most stocks are trading way above their historical highs. Given that the stock market experiences about four deep pullbacks of more than 5% every year, there is growing concern that one could be on the way heading into the year-end.
Appearing in an interview on CNBC, George Lagarias, the head economist at Forvis Mazars, stated that although it’s impossible to predict the magnitude of the Federal Reserve’s upcoming rate adjustment, he is in favor of a 25-basis point reduction. Analysts do not see the need for a 50 basis point or more reduction as it could confuse the markets and the economy, portraying a sense of urgency.
A more profound interest rate cut would take a significant toll on stocks trading at premium valuations as they would be the hardest hit with heightened volatility. On the other hand, emerging stocks that haven’t caught the Street’s attention yet could offer some good buying opportunities.
Currently, the market appears favorable for the growth of penny stocks and small-cap companies. Chris Retzler, portfolio manager at Needham Small Cap Growth Fund, suggests that while smaller companies are volatile, their long-term outlook is positive. He anticipates a market broadening in the second half of 2024, which could benefit smaller companies that have recently underperformed.
Retzler highlights the liquidity of smaller companies as a key growth factor. As funds shift from larger to smaller companies, many small-cap stocks may see significant price increases. Additionally, the expectation of lower interest rates over the next year is favorable for penny stocks, which require less capital to see price and valuation growth.
Investing in penny stocks or small-cap companies can be risky due to their volatility and limited historical data. However, these high-risk investments can also offer substantial rewards for those with a higher risk tolerance. While many of these companies face significant issues, some are hidden gems.
Our Methodology
We screened for US-listed companies that are trading under $5 and picked the 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.
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).
A close-up of a hand, counting the money from the subscription fees of the Entertainment Communication Services company.
Sirius XM Holdings Inc. (NASDAQ:SIRI)
Number of Hedge Fund Holders: 33
Current Share Price: $2.91
Sirius XM Holdings Inc. (NASDAQ:SIRI) is a communication services company that operates as an audio entertainment company. Its Sirius XM segment provides music, sports, entertainment, comedy, talk, news, traffic and weather channels, and other content. It also distributes satellite radios through automakers, retailers, and its website.
It is one of the stocks worth paying attention to as it moves to merge with Liberty Media Corporation , creating a new public entity operating under the Sirius XM brand. This restructuring aims to simplify the company’s organizational framework and establish an independent entity that will persist in providing a varied selection of live, instant, and selected audio entertainment and services to a North American market.
While Sirius XM Holdings Inc. (NASDAQ:SIRI) has taken a significant beating over the past few years, it remains a firm favorite for billionaire investor Warren Buffett, who has been ramping up stakes through his investment firm Berkshire Hathaway. The investment comes from Sirius, which has posted double-digit revenue growth since 2014 and has returned significant value to shareholders through dividend payments.
Sirius XM Holdings Inc. (NASDAQ:SIRI) stands out as a good choice for investors looking for steady income due to its strong track record of dividend increases. For seven straight years, the company has been raising its dividends, positioning itself as one of the top dividend picks below $5. At present, it pays a quarterly dividend of $0.0266 per share, boasting a dividend yield of 3.42% as of August 23.
The solid track record in dividend payments comes from SiriusXM X.M. generating 10-figure free cash flow over the last few years. In an era where traditional media outlets are battling to remain viable, Sirius XM Holdings Inc. (NASDAQ:SIRI) offers a bargain by allocating funds toward online projects. It’s currently valued at less than ten times its trailing earnings. This earnings ratio is still considered fair when considering Sirius XM’s inflated market value.
During the second quarter of 2024, Sirius XM Holdings Inc. (NASDAQ:SIRI) saw a significant increase in interest from top-tier money managers. According to Insider Monkey’s database, the number of hedge fund positions in the company rose from 17 to 33. These investments are collectively valued at approximately $530 million.
Overall SIRI ranks 5th on our list of best US stocks to buy under $5. While we acknowledge the potential of SIRI 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 SIRI 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.
