We recently compiled a list of the 10 Best Value Penny Stocks to Invest in Now. In this article, we are going to take a look at where Nordic American Tankers Limited (NYSE:NAT) stands against the other value penny stocks.
The US market has been resilient over the past years despite higher interest rates, however, recent reports showed a sharp decline in the growth of the U.S. job market. According to reports from the Labor Department, the economy added just 114,000 jobs in July compared to 179,000 in June. This marks a sharp drop in employment generation from 482,000 in January 2023, raising the unemployment rate to 4.3% in July 2024, the highest level in nearly 3 years. The significant slowdown in hiring can potentially make the economy vulnerable to recession and therefore leads to an ease in monetary policy guaranteeing an interest rate cut in September. Economists are calling for a 50 basis point reduction in borrowing costs.
With the current uncertainty in the market and delay in rate cuts, investors are worried about a possible recession. The question is should investors pick penny stocks to diversify their portfolios? Penny stocks, though cheap, are without any doubt risky investments with a high rate of volatility and are even more sensitive to monetary policy changes. A higher interest rate negatively affects stocks’ earnings performance because these stocks are mostly running on debt and, therefore, can benefit from a possible rate cut in September 2024.
Moreover, these stocks are prone to speculative trading and scams, and therefore, are suitable for investors that can do diligent research and have a high tolerance for risk. However, not all stocks are the same and investors may yet benefit from long-term investments in high quality penny stocks with strong fundamentals. Value investing is an investment strategy focused on finding stocks that are being traded for less than their intrinsic or true value. In other words, value stocks are undervalued by the market and can be rewarding long-term investments once the market realizes their true value.
Investing in small-cap penny stocks is no doubt risky owing to their high volatility and low liquidity, however, using the value investing strategy one can generate long-term profits from investing in these stocks.
Investing in Small-cap Stocks in 2024
Most penny stocks have small market caps. Large-cap stocks generally dominate the market outperforming small-caps, and last year was no different as the large-cap stocks beat small-cap stocks by an average of 9.6 percentage points. Moreover, in 9 out of the last 10 years, large caps outperformed penny stocks, however, small caps showed competitiveness back in the days of the internet boom, when the dot-com bubble was breaking in the period 1999 to 2004.
There is hope for a small-cap rebound in 2024, and that is because the historical trends tell us that after nearly a decade of underperformance, the tables turn and small-caps, which include many penny stocks, can rebound. Moreover, in the fourth quarter of 2023, penny stocks showed a recovery in growth and this could set the stage for a renaissance for the small-caps in 2024.
In a recent interview with CNBC, Fundstrat’s head of research, Tom Lee expressed optimism about the potential rise of small-cap stocks in 2024 owing to the softening of inflation in June. Tom Lee further discussed the performance of the small-cap stocks that rose 30% in 8 weeks from October to December 2023. Lee believes that the current rally can be even more substantial compared to last year as it’s driven by factors like larger institutional short positions, small-cap even more oversold, and valuations like median P/E at 10 times 2025 earnings. In addition, June’s Consumer Price Index has declined to its lowest level in the last 3 years, this can lead to the feds cutting the interest rate expected in September 2024. According to the estimates of Tom Lee, in case the interest rate is cut down, the small caps can gain as much as 50% in 2024.
Secondly, presidential elections have been historically in favor of these stocks, research shows that seven out of eleven election times, the small-cap outperformed by an average of 2.68 percentage points.
The recent consumer price index data released in June 2024, suggests a deceleration in inflation, the prices are getting stabilized particularly in core consumer segments such as shelter and food. According to the latest Inflation report, the Personal Consumption Expenditure index (PCE) rose by 0.1% from April matching the Wall Street expectations. Furthermore, the report shows a growth of 0.5% in personal income in the U.S. which is up by $114.1 billion. This potential relief to consumers can stabilize the US market and might influence the Federal Reserve’s Monetary policy decisions in favor of small-cap by cutting interest rates as expected by the end of 2024.
Methodology:
To compile this list of the 10 best-value penny stocks to invest in, we used a screener to narrow down penny stocks trading under $5 on the basis of relatively lower forward p/e ratios compared to their respective industry averages. We further screened these stocks by using metrics like institutional ownership of greater than 40% and ensured that the companies had positive upsides based on analysts’ consensus.
After shortlisting the stocks based on the above-mentioned value metrics, we ranked those stocks based on hedge fund sentiment towards each stock. To rank the penny stocks, we assessed Insider Monkey’s database of hedge fund sentiment of 920 elite hedge funds and their holdings tracked at the end of the first quarter of 2024.
Why are we interested in 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 top-down view of a crane loading or unloading oil barrels from a Suezmax crude oil tanker.
Nordic American Tankers Limited (NYSE:NAT)
Number of Hedge Fund Holders: 18
Nordic American Tankers Ltd (NYSE:NAT) is a leading tanker company in the marine shipping industry. The company acquires and charters double-hull Suezmax oil tankers and operates in Bermuda and internationally. The company was founded in Bermuda in 1995 and ever since has grown to be a leader in shipping oil to long-haul trade routes operating its fleet of 20 Suezmax Crude oil tankers.
NAT has one of the largest fleets of Suezmax tankers in the world with a cargo lifting capacity of 1 million barrels of oil each. The company is putting extra effort into maintaining the highest standard of care for the safety of crew, cargo, and environment. In a capital-intensive industry like marine shipping, the careful maintenance of ships and a timely financial expansion are key factors in maintaining financial stability.
In the first quarter of 2024, the company reported a net Voyage revenue of $60.57 million down 30.4% compared to $87.09 million last year. The net voyage revenue represents the voyage revenue minus the expenses incurred such as bunker fuel, port charges, canal tolls, and brokerage commissions. Furthermore, the company had a net income of $15.1 million, down 14% quarter-over-quarter. Although the earnings were positive, the company reported EPS of $0.07 missed the analyst’s expectations by $0.04.
The decrease in net voyage revenue and net income is driven by the decrease in demand for vessels. For instance, the average Time Charter Equivalent (TCE) for spot vessels during Q1 2024 was $34,320 per day per ship down from $51,902 per day per ship in Q1 2023, and the daily operating cost of running a ship was $9000. TCE is a measure of the profitability of running a vessel per day, it’s calculated by the shipping firms by dividing the net voyage revenue by the round-trip voyage duration in days.
Nordic American Tankers Ltd (NYSE:NAT) one of the leading companies in the marine shipping industry is facing challenges due to shipping traffic disruptions caused by the ongoing Israel-Palestine conflict’s effect on international waters. Over the past few months, international trade has faced setbacks, repeated attacks on the Red Sea trade route have reduced shipping traffic through the Suez Canal, a key regional hub for shipping oil and connecting Asia with Europe.
According to a report, 50% of the trade through the Suez Canal has dropped over the first two months of 2024 compared to a year ago while trade through the Panama Canal has dropped 32% YoY. A severe drought broke out last year at the Panama Canal that led the authorities to impose restrictions and limit the daily crossings since October 2023. These challenges in the two key shipping routes have diverted the shipping traffic to the Cape of Good Hope, this route adds thousands of nautical miles to the journey increasing the expenses and delaying the cargo deliveries. With the fluctuations in fuel prices, shipping companies are struggling to manage their operating expenses.
Though Nordic American Tankers Ltd (NYSE:NAT) underperformed and missed expectations on the revenue front, it still managed to keep up strong positive earnings for the quarter amid trade route challenges. Moreover, the company managed to lower its net debt from $232 million in Q4 2023 to $228 million in the first quarter of 2024. Interestingly, the company had an annual dividend yield growth of 13.9% and has recently doubled its quarterly dividend to $0.12 per share from $0.06/share making it an attractive choice for investors looking for dividend growth.
Wall Street analysts expect an earnings growth of 6% this year keeping in view the strong quarterly revenue earnings of the past, the analysts gave a consensus “Buy” rating with a price upside of 36% from current levels.
Looking forward, Nordic American Tankers Ltd (NYSE:NAT) is optimistic for growth despite the macroeconomic challenges, the company sees a high demand for oil, a fragmented trade owing to logistical insufficiencies, and a shortage of ships. The company is looking to benefit from a tight supply of Suezmax tankers that is poised to remain low for at least the next two years. The World’s Suezmax tanker fleet counted as of March 2024 was 588, with only 6 new Suezmax tankers to enter the market by the end of 2024. When the ship numbers are low in a region the rates go up and vice versa, therefore the supply/demand dynamics look favorable for the growth of the company.
According to Insider Monkey’s database, 18 hedge funds held stakes in the Nordic American Tankers Ltd (NYSE:NAT). Two Sigma Advisors fund held the largest stake of 2.18 million shares valued at $8.57 million.
Overall NAT ranks 1st on our list of the best value penny stocks to buy. While we acknowledge the potential of NAT 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 NAT 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.