We recently compiled a list of the 11 Penny Stocks That Will Make You A Millionaire.In this article, we are going to take a look at where Absci Corporation (NASDAQ:ABSI) stands against the other penny stocks.
Why Should You Invest in Penny Stocks?
Penny stocks are often overlooked by most investors. These are the smallest of the small companies operating in the market, and so they typically lose out on being covered in detail by financial reporters and analysts. However, because of this conundrum, many penny stocks end up becoming excellent under-the-radar investments for those investors who don't mind a bit of risk. This is especially the case for penny stocks operating in the artificial intelligence space today. This isn't to say that penny stocks offer a sure-shot way of making big profits at all times, though. Since these stocks are of companies that are incredibly small relative to the usual players we hear about in the market news, they are also incredibly risky to invest in - as such, investing in penny stocks is a move that only investors with a tolerance for high-risk, high-reward strategies should make.
In the current market landscape, there may be more room to consider investing in smaller companies. This is because of the potential September rate cut from the Fed. Financial professionals are considering this potential cut to be a catalyst for the growth of smaller companies in the market, which have been largely left ignored over the past two years since the Fed's policy has been so tight. So a rate cut in September may actually result in an overall growth cycle emerging for smaller players in the market.
How's The Market Looking For Smaller Stocks Today?
On August 21, Tom Lee, co-founder of Fundstrat Global Advisors, joined CNBC's "Closing Bell Overtime" to discuss this very development. He noted that as the Fed is starting to normalize its policy and as merger activity in the US is beginning to accelerate, smaller companies are becoming increasingly more poised to benefit. Lee also added that there's a misconception in the market that smaller companies are growing, or at least have the tendency to, grow slower than bigger companies. In fact, he noted that the small cap index has a median earnings growth that is almost 700 basis points faster than the broader market index, while top-line growth is almost 400 basis points faster. Lee also said the following:
"For small caps to rise 40% means that the P/E, the median Russell 2000 stock goes from 10x to 14x. So, it's not asking the market to provide some magic and a huge re-evaluation... [With small-caps] you're getting better growth, lower valuation, and I think the catalyst is now that the market is convinced that the Fed is embarking on a rate cutting cycle."
According to Lee, money that's been on the sidelines over the past few years because of the Fed's rate policy could now potentially funnel into smaller companies because they offer a good risk-reward balance to investors now. Because of these developments, we've compiled a list of some of the smallest stocks trading on the market today by going through five months' worth of articles on Stock Gumshoe, a financial analysis website that offers unique insights into what some call "secret stocks," which have been going largely ignored by most investors.
Our Methodology
We read Stock Gumshoe articles from April to August of 2024 and then selected the penny stocks that have promising futures ahead of them. The stocks are ranked in ascending order of the number of hedge funds holding stakes in them as of the end of the second quarter of 2024, according to Insider Monkey's hedge fund data.
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 scientist in a lab, focused on a molecular microscope with biologic drug candidates.
Absci Corporation (NASDAQ:ABSI) is a biotech company based in Vancouver, Washington. It operates as a data-first generative AI drug creation company that combines AI with scalable wet lab technologies to create biologics for patients.
Alexander Green, in the Oxford Club's Oxford Microcap Trader newsletter, recently talked about a "tiny" AI stock in which Green made a $100,000 investment. Stock Gumshoe thinks that the stock Green was hinting at was Absci Corporation (NASDAQ:ABSI). Here are some of Green's comments that were used to make this guess:
“What this company does – that sets it apart from all the biotechs out there – is that it’s using generative AI to find new, effective drugs… it could cut time to create a drug from years to days... It’s groundbreaking technology. It’s no surprise then that the world’s largest AI and healthcare companies are lining up to make partnerships with my #1 microcap.”
Some other clues that were handed out were that the company had partnered with NVIDIA and Merck to design new medicines, with the latter partnership expected to rake in $610 million in upfront revenue. Travis Johnson at Stock Gumshoe believes that this description perfectly fits Absci Corporation (NASDAQ:ABSI). This company presently has partnership deals that represent $900 million in potential revenue plus royalties.
While the stock represents a great growth opportunity, with analysts noting that it has an upside potential of 87.5%, it should be noted that drug discovery is a slow business, even with the involvement of AI. As such, all the partnerships and potential royalty payments lined up for Absci Corporation (NASDAQ:ABSI) may not materialize any time soon - but the potential still exists for this stock to turn its investors into millionaires when the time comes.
We saw 17 hedge funds long Absci Corporation (NASDAQ:ABSI) in the second quarter, with a total stake value of $74.4 million.
Overall ABSI ranks 2nd on our list of the penny stocks that will make you a millionaire. While we acknowledge the potential of ABSI as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ABSI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
