We recently published a list of 11 Best NYSE Penny Stocks to Buy Right Now. In this article, we are going to take a look at where Transocean Ltd. (NYSE:RIG) stands against other best NYSE penny stocks to buy right now.
Small and medium-sized companies are the most affected by the direction of the economy and interest rates. With the US Federal Reserve cutting interest rates and the economy steering into a soft landing, the focus is slowly shifting towards penny stocks that remain well-positioned to be supercharged by improving macroeconomics.
It’s time to go all in into the small-cap rotation play after years of market domination by large-cap stocks. That’s the sentiment echoed by Citi U.S. equity strategist Scott Chronert, who believes small-cap stocks offer an affordable way of investing in value and are well-poised to generate long-term value.
READ ALSO: 10 Worst-Performing Growth Stocks in 2024 and 8 Best Micro Cap Stocks to Buy According to Analysts.
“Combined, investors could be paying a much lower multiple for a similar growth profile going forward,” he wrote. “Given post-pandemic peculiarities, the lack of a real cycle, and secular trends that support leaders, we still want to be owners of some Large Cap winners, but increasingly view Small/Mid Cap as an attractive alternative to the other 493. Said differently, we are more comfortable dipping down cap in search of fundamental winners and thematic expressions.”
Although small and mid-cap stocks have delivered above-average, double-digit gains over the past year, they look increasingly attractive amid a monetary policy change. The US Federal Reserve, commencing its monetary easing cycle, is making it easier for such companies to borrow money to expand their businesses. With their long-term prospects looking positive, investors are slowly taking note of their depressed valuation.
Similarly, the Russell 2000 ETF, which consists mainly of small and medium-cap companies, is up by 13% compared to a 22% gain for the S&P 500, affirming the massive room for gains among penny stocks.
“We continue to believe that these stocks have been unfairly punished (or ignored) given what we have viewed as a mismatch between the fundamental underpinnings and the group’s relative performance, and nothing has changed in that regard. It is only a matter of time before the fortunes of this group take a turn for the better” now that central bankers are cutting rates. Wrote BMO analysts’ research notes to investors.
Likewise, there is an influx of investments into small-cap exchange-traded funds amid growing optimism that the companies are fairly valued with tremendous upside potential. According to ETF journalist Dave Nadig in an interview on CNBC, money inflow into penny stocks might not necessarily be a rotation from winning growth trades. Instead, it is a diversification play as the focus shifts to getting broader exposure heading into year-end. The diversification strategy is part of a broader strategy of absorbing volatility
″ [Investors] are now, for the first time in ages, buying value, buying some of these defensive sectors, buying small caps. But they haven’t stopped buying the other things as well,” Nadig said in an interview on CNBC ETF Edge. “I think this is money coming in from that giant bucket of money markets that we know is sitting out there.”
Given that large-cap stocks continue to outperform the overall market, the focus on penny stocks is mostly on companies that are profitable. Given that 40% of the small-cap companies in the S&P 500 are unprofitable, investors are turning their attention to ETFs that exclude unprofitable companies as they optimize their return amid the current Bull Run.
The focus on penny stocks of profitable companies stems from the historical thesis that small caps often outperform large caps whenever the economy is expanding amid solid macroeconomics. Consequently, small-cap companies with exposure to emerging technologies such as artificial intelligence are becoming some of the most sought-after owing to their tremendous upside potential.
The best NYSE penny stocks to buy right now also stand out owing to their attractive valuations and the fact that they have a narrow expected earnings growth gap compared to large-cap companies. The fact that investors have to pay a much lower multiple for the penny stocks also makes them stand out on the risk-reward front.
Our Methodology
We used the Finviz screener to find stocks lists on the New York Stock Exchange that are trading below $5, as of October 31. We then selected stocks that analysts are bullish on and expect to generate significant long-term value due to their solid underlying fundamentals. Finally, we ranked the stocks in ascending order based on the number of hedge funds that hold stakes in them, as of Q2 2024.
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).
An aerial view of an oil rig with drillers in hard hats working on the platform.
Transocean Ltd. (NYSE:RIG)
Price as of October 31: $3.98
Number of Hedge Fund Holders: 42
Transocean Ltd. (NYSE:RIG) is one of the best NYSE penny stocks to buy right now to diversify an investment portfolio in the energy sector. The company provides offshore contract drilling services for oil and gas wells worldwide. It contracts mobile offshore drilling rigs, related equipment, and work crews to drill oil and gas wells.
While the overall energy sector has come under pressure owing to oil prices plunging below the $70 a barrel level, Transocean Ltd. (NYSE:RIG) continues to record booming business for its services. The company’s drilling fleet is committed mainly through 2025, with a potential contract extension to 2026, affirming its revenue base.
Additionally, it maintains a positive outlook for its offshore drilling market as it anticipates strong growth driven by increased global oil consumption. Transocean Ltd. (NYSE:RIG) keeps landing big contracts, like a $123 million deal with Reliance Industries Limited to drill six wells offshore India and a $232 million deal with BP for U.S. Gulf of Mexico operations.
In addition, Transocean Ltd. (NYSE:RIG) is in talks to merge with Seadrill Limited as they look to capitalize on a rebound in oil and gas exploration in the future. The merger will strengthen Transocean’s competitive edge and enhance its operational efficiency at the top of the competitive oil-field services market.
Overall, RIG ranks 1st on our list of best NYSE penny stocks to buy right now. While we acknowledge the potential of RIG 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 RIG 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.