We recently compiled a list of the 10 Best Penny Stocks To Buy According to the Media. In this article, we are going to take a look at where Talkspace, Inc. (NYSE:TALK) stands against the other penny stocks.
Penny stocks are those that trade below the price of $5. These stocks represent companies with smaller market capitalization, high risk, and high volatility. Risk-tolerant investors find potential for above-average returns in penny stocks, however, investing in these stocks requires caution and care.
Expected Trends for Small Cap Stocks
On July 17, Chris Retzler, Needham’s small-cap growth portfolio manager, appeared on CNBC where he expressed optimism for the small-cap companies and suggested that we are in a cycle that will prove to be good for many small-cap companies. The Russell 2000 index jumped 3.5% higher on the July 16, hitting the highest levels since January 2022, and was up more than 10% in the previous week. This was one of the biggest rallies investors have seen in the past 4 years.
Retzler believes that small cap stocks have been waiting for a drop in inflation and interest rate cuts. With inflation easing, interest rates are expected to go down as well. He also sees the market broadening, with small companies that have underperformed benefiting from a drop in inflation.
Retzler agrees with Fundstrat’s Tom Lee’s, who sees the Russell 2000 gaining 40% by the end of summer. He believes that the liquidity of small cap companies gives them an edge as it does not take a lot of money to push the stock prices higher, and some expansions by these companies followed by lower interest rates can prove to be good for Russell 2000 companies. We have discussed Tom Lee’s views on how favorable current market conditions are for small-cap companies in 10 Best NASDAQ Penny Stocks To Invest In.
Moreover, Ryan Detrick, who is the Chief Market Strategist at Carson Group also presented his bullish thesis for small and mid-cap companies. He believes that small and mid-cap are going to lead the market in the second half of the year. While addressing the earnings capability of these companies, Detrick said small-cap companies will outperform large-cap companies in 2025 and 2026. As per estimates, S&P 600’s earnings were 4.1% in 2024, whereas S&P 500 earnings were 12.7%. However, moving forward analysts expect S&P 600’s earnings to be at 17.7% in 2025, surpassing estimates of 14.2% for the S&P 500. Detrick believes small-cap stocks now look cheap, economic conditions are favorable, and any interest rate cuts that come along the way will further benefit them.
Now that we’ve discussed what experts think about small caps, let’s now look at the 10 best penny stocks to buy according to financial media.
Our Methodology
To compile our list of the best penny stocks to buy according to media, we aggregated 50 plus penny stocks from financial media websites on the internet. We then selected the top 10 penny stocks that were the most widely held by hedge funds, as of Q1 2024. The list is in ascending order of the number of hedge funds holders in each stock.
Why do we care about what hedge funds do? 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 psychotherapist conducting an assessment in a virtual video session.
Talkspace, Inc. (NYSE:TALK)
Number of Hedge Fund Holders: 27
Talkspace Inc. (NYSE:TALK) is a behavioral healthcare company that provides affordable and accessible mental healthcare services through its online platform across the United States. The company connects psychiatrists and psychologists with individuals and enterprises, through text, audio, and video-based psychotherapy.
Talkspace, Inc. operates through three segments, namely the payer segment, DTE (Direct to Enterprise) segment, and the individual subscriber (consumer) segment. Within the payer segment, the company partners with major US health insurance providers such as Aetna, Cigna, and Optum to provide services to insured members of these insurance plans. Under the DTE segment, the company contracts directly with organizations such as enterprises, education organizations, and government entities to provide online mental health services to members of these organizations. Some of the major clients in the DTE segment include Google, the University of Kentucky, and the New York City Department of Health and Mental Hygiene. Lastly, the consumer segment of the company includes individual subscribers from various socioeconomic backgrounds, genders, and races, who pay out-of-pocket to get mental health services.
Talkspace Inc. (NYSE:TALK) was held by 27 hedge funds at the end of Q1 2024, up from 19 hedge funds during the previous quarter, with stakes worth of $106.06 million. The company posted a successful first quarter this year, with revenue increasing 36% year over year to $45.4 million. Revenue growth was mainly driven by a 92% increase in the payer category and a 14% increase in DTE revenue. The company reported an adjusted EBITDA of $0.8 million, making Q1 2024, the first quarter of adjusted EBITDA profitability in the 13-year history of Talkspace Inc. (NYSE:TALK).
Talkspace is capitalizing on the growing need for affordable mental health services through its strategic partnerships and is expanding its provider network. The company has launched its health collective marketplace, a growing suite of whole health digital providers and services, and has already partnered with healthcare providers and wearable technology companies including Aura, Evernow, Conceive and Fit On.
While strategic partnerships are lucrative, what’s more noteworthy is the company’s effort to jump into new verticals. With substantial growth in the payer segment, the company is now aiming to expand its covered lives thereby increasing its capture rate and utilization. Talkspace Inc. expects to expand its network with Medicare, a segment with an opportunity of more than 65 million lives. The company will go live in multiple states within the next few months adding more than 10 million lives to its coverage at launch and will further expand its network to all 50 states later this year.
Is Talkspace Inc. (NYSE:TALK) a good investment, given that its consumer segment took a hit?
Yes, the consumer segment revenue of the company took a hit and the revenue declined by 29% year over year during the quarter. However, it was all in line with the company’s strategic focus of increasing its covered lives. It is important to elaborate on what the covered lives mean for the company. For Talkspace, “covered lives” means individuals who are eligible to receive mental health services through their insurance plans, i.e. Employee Assistance Programs (EAPs), or other benefit programs. So, the decrease in consumer revenue stemmed from the increase in lives covered during the previous quarter making more members qualify for the coverage, thus reducing the need for them to pay out of pocket.
For risk-tolerant investors, Talkspace Inc. presents an attractive opportunity. The company has vast coverage with over 131 million Americans having access to its services The company’s full-year guidance is promising, with revenue expected to be between $185 million and $195 million and adjusted EBITDA projected between $4 million and $8 million. Analysts hold a consensus Buy opinion on the stock and their 1-year median price target of $4 represents an upside of 74% from current levels.
Overall TALK ranks 3rd on our list of the best penny stocks to buy according to the media. You can visit 10 Best Penny Stocks To Buy According to the Media to see the other penny stocks that are on hedge funds’ radar. While we acknowledge the potential of TALK 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 TALK 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.
