We recently published a list of 15 Worst 52-Week Low Stocks to Buy Now According to Short Sellers. In this article, we are going to take a look at where Valaris Limited (NYSE:VAL) stands against the other worst 52-week low stocks to buy now according to short sellers.
The U.S. Federal Reserve conducting a 50 basis point interest rate cut was the catalyst that stocks needed to bounce back from a period of stagnation. After weeks and months of uncertainty about what the Fed would do, certainty is slowly creeping into the market, helping bolster investor sentiments.
With the S&P 500 back to record highs, it’s the Nasdaq 100 that appears to be making the most significant moves, having gained more than 3% in the aftermath of the 50 basis point interest rate cut. The spike in the tech-heavy U.S. index is a clear indicator that tech stocks are well poised to edge higher after weeks of stagnation.
The interest rate cut is expected to positively impact short-term bank borrowing costs, making it easy for people and businesses to access cheap capital to fuel economic activity that has been slowing in recent months. Additionally, it should positively impact various consumer products like mortgages, auto loans, and credit cards.
While there were concerns that the U.S. economy was slowing due to disappointing employment data and a slowdown in the manufacturing sector, Fed Chair Jerome Powell reiterated that the 50 basis point cut was all about ‘recalibrating’ the economy.
Initially, there were concerns that the FED coming through with a 50 basis point would fuel fears about the health of the U.S. economy and consequently rattle stocks. However, that was not the case as stocks rallied, signaling that investors were optimistic about the economy and long-term outlook in the market.
Tom Porcelli, top U.S. economist at PGIM Fixed Income Policy, thinks the Fed policy was set up to handle much more inflation. Now that inflation is getting close to the target, the Fed can start to ease off on the tight money they’ve been applying. Consequently, the aggressive interest rate cut is not because we’re heading into a recession but because we want to keep the economic growth going.
While the focus will be on stocks that have been edging higher for the year, the focus is slowly shifting to stocks that have bottomed and that market participants are bearish on. Stocks that have been battered to 52-week lows are increasingly turning out to be bargains, especially on the monetary policy improving after months of uncertainty. Nevertheless, it is unclear whether stocks with high short interest rates will bounce back after coming under immense pressure over the past nine months.
With the Fed cutting interest rates with a bang, CNBC commentator and Fast Money host Jim Cramer believes investors should start paying attention to stocks well poised to benefit from a low interest rate environment. Some stocks to consider are companies providing products and services that depend on consumers’ purchasing power.
Our Methodology
We used the Finviz screener to find stocks that were trading near their 52-week lows and that had high short interest (at least 5%). We then picked the stocks with the highest short interest and ranked them in ascending order of this metric. We have also added the hedge fund sentiment for these stocks.
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 closeup of an offshore oil rig in the international oil and gas industry in the Gulf of Mexico.
Valaris Limited (NYSE:VAL)
52 Week Range: $53.06 – $84.20
Current Share Price: $55.31
Short% of Shares Outstanding: 12.17%
Number of Hedge Fund Investors in Q2 2024: 39
Valaris Limited (NYSE:VAL) is an energy company that provides offshore drilling services in the Gulf of Mexico. It owns an offshore drilling rig fleet, which includes drill ships, dynamically positioned semi submersible rigs, moored semi submersible rigs, and jack-up rigs.
The broader energy sector has been under pressure after growing concerns about the global economy amid the high interest rates. Growth in the US economy showing signs of slowing down has rattled sentiments in the oil industry.
Worldwide oil demand is slowing down, reflecting challenges in the global economic environment, particularly due to China’s slowing economic growth. Consequently, oil prices plunging from above $80 a barrel to lows of $71 a barrel has only spelled doom for Valaris.
Lower oil prices make it hard for oil producers to increase spending on exploration and drilling activities. Reduced spending essentially translates to reduced demand for the Valaris Limited (NYSE:VAL) drilling rig fleet, making it challenging to enjoy higher revenue and earnings growth rates.
Valaris Limited (NYSE:VAL) delivered solid second-quarter results, with net income increasing to $151 million from $26 million in the first quarter as revenue increased 16% to $610 million from $525 million in the first quarter. Investors have been skeptical about the company’s prospects heading into year-end, with oil prices plunging to lows of $71 a barrel amid the slowing global economy.
39 out of 912 hedge funds tracked by Insider Monkey held stakes in Valaris Limited (NYSE:VAL) as of the end of Q2 2024. William B. Gray’s Orbis Investment Management is the leading shareholder of the company with 5.82 million shares worth $433.39 million.
Here is what Praetorian Capital said about Valaris Limited (NYSE:VAL) in its Q2 2024 investor letter:
“Valaris Limited (NYSE:VAL) has been range bound for over two years now, awaiting the signing of new contracts at current market rates, that will replace expiring contracts that are frequently less than half of current prevailing rates. There have been some questions as to why the company has been slow to sign new contracts. However, I believe that management is trying to trade a slightly reduced price for increased duration of contract tenure, and that’s the reason for a lack of commentary on new contracts. Should the company announce new contracts at anywhere near current market rates, I believe that the shares will respond in a rather dramatic way—especially as Valaris is by far the cheapest of the large drilling companies (based on the enterprise value per rig metric), despite having one of the best fleets and strongest balance sheets. Between our common and warrant position, Valaris was our 2nd largest position at the end of June.”
Overall VAL ranks 7th on our list of worst 52-week low stocks to buy now according to short sellers. While we acknowledge the potential of VAL as an investment, our conviction lies in the belief that some 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 VAL, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
