We recently published a list of 8 Stocks Under $20 To Invest In Now. In this article, we are going to take a look at where The AES Corporation (NYSE:AES) stands against other under $20 stocks to invest in now.
Will We Have a Soft Landing?
There has been a lot of discussion happening lately regarding the economy and the markets. While the economy was doing great with the Federal Reserve cutting interest rates and analysts expecting the markets to continue the bullish outlook, the recent geopolitical circumstances have again created doubt among investors.
We recently covered an article about 10 Stocks Under $10 With High Potential, where we talked about how the market is expected to perform if the geopolitical situation escalates. Tom Lee, managing partner and head of research at Fundstrat Global Advisors, mentioned that he would be buying the dip if the market goes there and also presented his bullish thesis regarding how the market tends to perform well after such tensions. Here’s an excerpt from the article:
“Tom Lee, managing partner and head of research at Fundstrat Global Advisors, appeared on CNBC to discuss what the stock market looks like in the current geopolitically tense environment. Lee has been bullish on small caps for a long time however, he has also remained cautious regarding some bumps in the start before the market for small caps starts to rise. He maintained a bullish stance, projecting a year-end target of 6,000 for the S&P 500, despite acknowledging potential short-term volatility due to upcoming events like the election and geopolitical tensions in the Middle East.
He emphasized that current market conditions are tricky, with headline risks stemming from a potential port strike that could impact the economy. Lee suggested that if a significant dip occurs, it would be a good opportunity to buy, as he believes the long-term outlook remains positive despite temporary setbacks.
Talking about how the market has performed during wars in the past. Lee noted that historically, market reactions to geopolitical conflicts have often been more positive than anticipated. He cited past conflicts where buying during initial downturns proved beneficial, except for the recent Russia-Ukraine war which went otherwise due to concurrent Federal Reserve tightening.”
Building upon how the market is progressing, Larry Adam, chief investment officer at Raymond James, says that the current market is exactly what a soft landing looks like. Adam recently appeared in an interview on CNBC to talk about how the lower interest rates will benefit the small caps in particular the Russell 2000. He believes that the bull market will continue while the economy inches towards a soft landing.
When it comes to small-cap stocks they get around 56% of their financing from the short end of the curve. The short end of the curve refers to the short-term interest rate on the yield curve, which typically represents the yields on bonds with shorter maturities, such as 2-year or 5-year Treasury notes. Whereas the large-cap companies get only 26% financing from these short ends of the curve. Therefore, Adam believes that as the Fed continue to lower interest rates it will help small caps meet financing needs.
He further pointed out that it is expected that the Fed will cut twice this year and another four times the next year. Another reason why he likes small caps is because the economy going towards a soft landing. Adam emphasized that we have already seen that the rate cuts helped small caps outperform the large caps. Historically speaking whenever the economy has a soft landing it typically helps the small caps greater than the rest of the market.
Moreover, while mentioning his favorite sectors, Adam likes technology, healthcare, and industrials in both the small caps and large caps categories. While reasoning his interests in these sectors, he mentioned earnings in these sectors to be one of the prominent likable factors. Technology has been the only sector in the large caps category that has seen upward revisions. Moreover, the cash flow that these sectors are generating is being utilized in buybacks, paying dividends, and future growth expansions.
Our Methodology
To curate the list of 8 stocks under $20 to invest in now, we used the Finviz stock screener and Insider Monkey’s database for Institutional Investors. Using the screener we shortlisted stocks trading under the price tag of $20 (recorded on October 4th). Once we had the list of stocks under $20, we ranked them according to the number of hedge fund holders as of Q2 2024. The list is ranked in ascending order based on the number of hedge funds.
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).
An executive in a power plant control booth overseeing the efficient energy production.
The AES Corporation (NYSE:AES)
Share Price: $19.13
Number of Hedge Fund Holders: 46
Data Centers and artificial intelligence require a huge amount of energy to function, if these industries rely on traditional energy sources the risk for adverse climate effects increases. The solution to this problem is energy generation through renewable energy sources.
If you are looking to invest in a company that is making this happen and has the potential to grow with the high growth of AI and Data Centers, you might want to consider looking into The AES Corporation (NYSE:AES).
It is an energy company that focuses on generating electricity mainly from renewable sources of energy. As per the company’s second quarter 2024 factsheet, it generated 35,632 Gross MW in operation, out of which around 56% of the electricity came from renewable technologies. The company also operates Utilities that provide electricity to customers in strategically critical areas including Indiana, Ohio, and El Salvador.
There have been significant developments during the second quarter for The AES Corporation (NYSE:AES). The company expanded its partnership with Google, signing a 727 MW of hybrid wind and solar Power Purchase Agreements (PPAs). This will allow the company to expand into Texas as well as meet the electricity demand for Google’s data centers. Moreover, it also signed a 310 MW retail supply agreement with Google again for its data centers in Ohio.
While these nascent contracts with Google are impressive however, what’s more interesting is its overall growing backlog of long-term contracts which now stands at 12.6 gigawatts.
This topped with the fact that the stock was held by 46 institutional holders in the second quarter makes it one of the best stocks under $20 to invest in now.
Massif Capital made the following comment about The AES Corporation (NYSE:AES) in its Q3 2023 investor letter:
“Given interest rates’ elevated state, it is perhaps unsurprising that our utility exposure has fared poorly for us this year. We should have hedged the exposure sooner with a Utility ETF short, but we did not do that until the third quarter, after much of the damage was already done. As noted above, our Utility exposure is second only to our materials exposure in terms of negative impact on the portfolio across both the third quarter and the YTD periods. This is primarily driven by our investment in The AES Corporation (NYSE:AES), which was down roughly 26% in the third quarter and 47% YTD. Our other utility exposure is up for the year, including our short position, which, as noted, was put on in the third quarter, and it is probably something we should have had on the books for the entire year.
We attribute, for right or wrong, the entirety of the sell-off in AES to the interest rate environment. Chart overlays are always tricky, so one should not read too much into them, but as a quick sense check of the claim, if one inverts the move-in rates for a generic 10-year US government bond and overlay it with AES stock price YTD, you get the following:..” (Click here to read the full text)
Overall, AES ranks 6th on our list of 8 Stocks Under $20 To Invest In Now. While we acknowledge the potential of AES to grow, 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 a promising AI stock 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.
