In this piece, we will take a look at the 11 cheapest stocks with the biggest upside. If you want to skip our introduction to stock valuation and recent market news, then take a look at 5 Cheapest Stocks With Biggest Upside.
Identifying the right stocks to invest in is a science that involves evaluating several variables to reach a correct conclusion and make a potential profit. There are several ways through which an ordinary investor without the high tech and expensive tools that are available to hedge funds can make money on the stock market. Some of these include trading options and waiting for shares to appreciate over the long term.
The longer term investment horizon often yields significant dividends in the form of principal appreciation which can be attractive particularly when interest rates are low and provide little opportunity cost. For instance, consider some of the biggest companies in the world right now such as Apple Inc. (NASDAQ:AAPL), NVIDIA Corporation (NASDAQ:NVDA), Meta Platforms, Inc. (NASDAQ:META), and Amazon.com, Inc. (NASDAQ:AMZN). Over the past five years, their shares are up by 325%, 1,069%, 140%, and 73%, respectively. So, if you had bought $100 worth of shares in any of these, your money would nearly be doubled in the worst case scenario i.e. buying Amazon's shares, and be more than ten times higher had you bought NVIDIA and then forgotten about your investment. On the flip side, a potential bank account that grew your money in line with inflation would have seen $100 in 2018 be worth $121 in 2023.
This makes it clear that if one were to select the right stocks and then hold them patiently, then it is possible for the investment to grow provided the stocks are revolutionary companies like Apple or NVIDIA. The next question to ask then is, how does one pick out such stocks? After all, there are thousands of shares that are traded on stock indexes such as the NASDAQ and NYSE each day, and any one of these could be the next NVIDIA.
Well, one approach that can help is identifying the stocks with the highest analyst share price upside. Analysts are finance professionals who dig through publicly available data and then analyze a firm's broader economic environment, its business operations, management, product portfolio, and other areas to try to mathematically wager a guess about the share price. This 'guess' is an analyst's price target which is often upgraded yearly to reflect the latest earnings reports or other details. A price target is an estimate of what might happen in the future, and it is one of the ways through which the stock market becomes an approximation of what might happen in the future instead of what happened in the past.
Another approach to potentially capture stocks with the biggest share price appreciation potential is to check out the price to earnings ratio (P/E) ratio. A rather simple calculation that uses earnings per share and the market share price, a P/E ratio evaluates the premium that the stock market is paying for a firm. A higher P/E ratio is for growth stocks as investors have already factored in future share price growth by paying higher prices right now. Naturally, the prices of growth stocks leave less room for future appreciation conditional on a variety of factors, while firms with low P/E ratios and high share price targets can see potentially explosive returns in the future.
Of course, while financial ratios and estimates are good tools to have in one's trading belt, the reality is that stocks also often move in response to broader macroeconomic trends. This has particularly been true for the past two years now, in the wake of the Federal Reserve's rapid interest rate hikes. Higher rates depress economic activity and increase the opportunity cost for investing in the stock market, so these days, any whiff that the stock market gets of lower rates in the future makes investors pounce and push indexes higher. Right now, stock market investors are eagerly awaiting the inflation data for October which will shed light on price increases or decreases in America. Inflation undershot analyst estimates in September and led to markets posting consecutive daily gains that marked shifting tides in today's market dynamics.
So, as investors wait for inflation data to see when the Federal Reserve might start reducing interest rates, we decided to take a look at the cheapest stocks with the biggest upside. Some top picks are Vital Energy, Inc. (NYSE:VTLE), Southwestern Energy Company (NYSE:SWN), and Obsidian Energy Ltd. (NYSE:OBE).
11 Cheapest Stocks With Biggest Upside
A close-up of a chart of company stock prices rising, reflecting its market capitalization.
Our Methodology
To compile our list of the cheapest stocks with the biggest upside, we first made a list of the 40 stocks with the lowest price to earnings ratio and then ranked them by the number of hedge funds that had bought the shares in Q3 2023. Out of these, the top stocks are those that are cheap and have the biggest upside.
MEI Pharma, Inc. (NASDAQ:MEIP) is a small biotechnology company headquartered in San Diego, California. The firm is developing treatments for cancer. Not only does MEI Pharma, Inc. (NASDAQ:MEIP) have a remarkably low P/E ratio, but the firm also pays a dividend and it announced a $1.75 payout in November 2023.
As of Q3 2023 end, four out of the 910 hedge funds profiled by Insider Monkey had held a stake in MEI Pharma, Inc. (NASDAQ:MEIP). Kevin C. Tang's Tang Capital Management owned the biggest stake among these which was worth $2.2 million.
Along with Southwestern Energy Company (NYSE:SWN), Vital Energy, Inc. (NYSE:VTLE), and Obsidian Energy Ltd. (NYSE:OBE), MEI Pharma, Inc. (NASDAQ:MEIP) is a great cheap stock with significant potential upside.
Castor Maritime Inc. (NASDAQ:CTRM) is an ocean shipping company with nearly two dozen vehicles in its fleet. 2023 has been a busy year for the firm as it has placed several of its vessels for sale as it struggles to deal with successive double digit percentage drops in its net income.
During 2023's September quarter, four out of the 910 hedge funds polled by Insider Monkey were the firm's investors. Castor Maritime Inc. (NASDAQ:CTRM)'s largest hedge fund shareholder is Israel Englander's Millennium Management as it owns $68,434 worth of shares.
Express, Inc. (NYSE:EXPR) is an American retail company that sells clothes in the U.S. and in Puerto Rico. A stressed retail environment in a high inflation era has led to troubles at the firm since it has missed analyst EPS estimates in two out of its four latest quarters.
During this year's third quarter, four out of the 910 hedge funds part of Insider Monkey's database had bought and owned Express, Inc. (NYSE:EXPR)'s shares. Out of these, the biggest stakeholder was Chuck Royce's Royce & Associates due to its $842,409 investment.
CXApp Inc. (NASDAQ:CXAI) is a technology company that allows business customers to technologically transform their business operations. The firm's third quarter financial report saw it beef up its gross margins and grow its recurring revenue to tout a strong business model.
Insider Monkey dug through 910 hedge fund portfolios for their September quarter of 2023 shareholdings to find that six were CXApp Inc. (NASDAQ:CXAI)'s investors.
SCYNEXIS, Inc. (NASDAQ:SCYX) is a small healthcare company headquartered in Jersey City, New Jersey. It exclusively focuses its attention on developing drugs and treatments for fungal infections. It's also the first stock on our list that is rated Strong Buy on average, and analysts have set an average share price target of $12.50.
Insider Monkey took a look at 910 hedge fund portfolios for this year's third quarter and found that eight had invested in the company. SCYNEXIS, Inc. (NASDAQ:SCYX)'s largest hedge fund investor is Timothy P. Lynch's Stonepine Capital as it owns 2.8 million shares that are worth $6.5 million.
National CineMedia, Inc. (NASDAQ:NCMI) is an advertising agency headquartered in Centennial, Colorado. The firm's third quarter results were markedly better than the year ago figures, as they saw it grow operating revenue by 27% annually and advertising revenue by 31%.
During Q3 2023, ten out of the 910 hedge funds profiled by Insider Monkey had held a stake in National CineMedia, Inc. (NASDAQ:NCMI). Mathey Barrett's Glendon Capital Management was the biggest hedge fund shareholder through its $7.5 million investment.
National CineMedia, Inc. (NASDAQ:NCMI), Vital Energy, Inc. (NYSE:VTLE), Southwestern Energy Company (NYSE:SWN), and Obsidian Energy Ltd. (NYSE:OBE) are some cheap stocks that hedge funds are buying.
