In this piece, we will take a look at 11 cheap new stocks to buy. If you want to skip our introduction covering the stock market and how firms raise capital, then take a look at 5 Cheap New Stocks To Buy.
The stock market exists because of two primary reasons. The first is to let investors make money, and the second is to allow firms to raise capital. Going public is a dream for many aspiring and existing entrepreneurs, not only because it allows them to rapidly scale up their business operations by generating millions if not billions of dollars in capital but also because a successful public listing can turn founders into overnight millionaires.
The process of listing shares on the stock market is called an initial public offering (IPO). A private company willing to go public typically engages the services of an investment bank and together the pair go on a roadshow to convince potential investors to buy the shares once they become public. If the roadshow is successful, then the shares can 'pop' on the day of the IPO and change the firm's fortunes in the blink of an eye.
Yet, at the same time, the ability of a company to benefit from an IPO depends on the broader economic climate which affects the stock market. The market of late 2022 and 2023 is vastly different from what investors have been accustomed to for over a decade. This is because interest rates in the U.S. are at historically high levels, and when rates are high, investors seek safer investments instead of the speculatively risky stock market. Today's high rate environment is also making its mark on the IPO sector.
Data from S&P Global Market Intelligence shows that during the second quarter of 2023, global IPOs stood at their lowest levels since 2020. And that's saying something since 2020 was when the world was smack in the middle of a life changing, black swan pandemic. S&P's data shows that during Q2, global IPOs dropped to 321 from 338 during the first quarter to sit higher only than the levels during Q2 2022 - which was the worst quarter for the post pandemic stock market.
Back then, IPO investors had to face off with economic devastation, and right now, they're looking high interest rates dead in the eye. In terms of monetary value, firms cumulatively generated $36.9 billion from IPOs during Q2 2023, and during H1 2023 this stood at $60.83 billion to mark a substantial 38.5% drop from the year ago figures. If you thought this was bad, then consider the fact that when compared to the funds raised during H1 2021, the H1 2023 value marks a stunning 83.1% drop. This trend is particularly painful in the U.S. as during H1 2023 IPOs in America raised $10.05 billion. While this is a lot of money for either of us, the fact that IPO activity during H1 2021 generated $176 billion shows that the market was, in simple words, devastated.
But what about those firms that are going public? A stock market bound by high interest rates leads to low valuations, and no one really likes to sell at a price lower than they're worth - especially venture capital firms. These financial companies, such as Franklin Resources, Inc. (NYSE:BEN), are some of the earliest investors in startups, and their equity stakes are often based on valuations that factor in the interest rate. So, when rates go up, these valuations drop, and should a firm choose to go public in a high rate environment, then the VCs have to take a haircut.
This was precisely the case when the grocery delivery company Instacart (Maplebear Inc.) (NASDAQ:CART) went public earlier this year as part of a high profile IPO that sought to remove the lull in the market. Instacart's IPO saw its two biggest VC investors, Sequoia Capital and Andreessen Horowitz take a 75% hit on their investment. This was because Instacart offered its shares at between $28 to $30, which was substantially lower than the $125 per share that the VCs had paid in 2021 when Instacart was valued at $39 billion. The firm's current market capitalization is $39 billion, so you be the judge about the impact of interest rates on the high growth technology sector and the broader stock market.
Another big IPO this year has been one of Arm Holdings plc (NASDAQ:ARM). Arm is arguably one of the biggest semiconductor companies in the world since its designs are used across a wide variety of personal and enterprise computing applications. A variant of its technology is used by Arm licensee Apple Inc. (NASDAQ:AAPL) for its smartphone and notebook processors, and QUALCOMM Incorporated (NASDAQ:QCOM)'s products also rely on these. Arm's shares are currently trading for $51, and are down by roughly 20% from the closing price at the IPO date and sit at the same level as the opening price on the day of its IPO.
So, as stock valuations remain depressed and IPO activity slows, we decided to take a look at some cheap new stocks to buy. Out of these, the top picks are Corebridge Financial, Inc. (NYSE:CRBG), GigaCloud Technology Inc. (NASDAQ:GCT), and Seadrill Limited (NYSE:SDRL).
To compile our list of the cheap new stocks to buy, we made a list of all stocks with market capitalization greater than $300 million that went public over the past 24 months and have average analyst ratings of Buy or better. Then, those with the lowest price to trailing earnings ratio were selected as the best cheap new stocks to buy.
GE HealthCare Technologies Inc. (NASDAQ:GEHC) is the former healthcare technology arm of General Electric that listed its shares for trading in January 2023. Since then, the stock has been up by more than 23% with analysts having set an average share price target of $84.60.
During June 2023, 44 hedge funds out of the 910 polled by Insider Monkey had bought GE HealthCare Technologies Inc. (NASDAQ:GEHC)'s shares. It joins GigaCloud Technology Inc. (NASDAQ:GCT), Corebridge Financial, Inc. (NYSE:CRBG), and Seadrill Limited (NYSE:SDRL) in our list of cheap new stocks with Buy ratings.
10. Skyward Specialty Insurance Group, Inc. (NASDAQ:SKWD)
Price To Trailing Earnings Ratio: 17.58
Skyward Specialty Insurance Group, Inc. (NASDAQ:SKWD) is an insurance company headquartered in Houston, Texas. Its shares IPO'd in January 2023, at a share price of $15. Since then, the stock has doubled in value since it is trading at $30 right now.
By the end of this year's second quarter, 17 out of the 910 hedge funds part of Insider Monkey's database had invested in Skyward Specialty Insurance Group, Inc. (NASDAQ:SKWD).
Nextracker Inc. (NASDAQ:NXT) is a small American solar company that offers solar tracking products. Its IPO took place in February 2023, and the shares were priced at a high end range of $23. Right now, they're trading for $34, and analysts have set an average share price target of $51.
As of Q2 2023 end, 38 out of the 910 hedge funds tracked by Insider Monkey had held a stake in Nextracker Inc. (NASDAQ:NXT).
Excelerate Energy, Inc. (NYSE:EE) is an LNG company that provides storage, transportation, and other associated services. Its IPO took place in April 2022, and the stock has more than halved from the $24 listing price. The average analyst share price target is $24.67, so there appears to be some upside.
After digging through 910 hedge funds for their June quarter of 2023 investments, Insider Monkey discovered 13 Excelerate Energy, Inc. (NYSE:EE) investors.
ProFrac Holding Corp. (NASDAQ:ACDC) is a backend American oil and gas company that provides drilling, well completion, and other services to oil companies. Its shares debuted on the stock market in May 2022, and the Class A stock was priced at $18. Right now, the shares are trading at $8.49, so investors who bought them back then have had to deal with losses. Analysts believe that the stock is worth $13.50 based on the average share price target, and ProFrac Holding Corp. (NASDAQ:ACDC)'s third quarter financials saw it report a hefty 19% sequential drop which led its net loss to widen to $17.9 million over the year ago quarter's $4.6 million.
Insider Monkey scoured through 910 hedge fund holdings for their June quarter of 2023 investments and found that 11 had bought and invested in ProFrac Holding Corp. (NASDAQ:ACDC)'s shares.
MasterBrand, Inc. (NYSE:MBC) is a midsized furniture and carpentry company headquartered in Jasper, Indiana. Its shares started trading on the NYSE exchange in December 2022, and have gained gained roughly $3 so far. Since then, and despite a highly inflationary economy, the firm has gone on to beat analyst EPS estimates in all four of its quarters. Analysts have set an average share price target of $16.
As of June 2023 end, 31 out of the 910 hedge funds profiled by Insider Monkey were MasterBrand, Inc. (NYSE:MBC)'s investors. Corebridge Financial, Inc. (NYSE:CRBG), GigaCloud Technology Inc. (NASDAQ:GCT), MasterBrand, Inc. (NYSE:MBC), and Seadrill Limited (NYSE:SDRL) are some cheap new stocks to buy.
