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 Commercial Vehicle Group, Inc. (NASDAQ:CVGI) 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 high-tech manufacturing plant bustling with robotic arms producing auto parts.
Commercial Vehicle Group, Inc. (NASDAQ:CVGI) is a leading manufacturer and supplier of electrical vehicle assemblies, electrical wire harnesses, seating systems, mechanical assemblies, plastic products, warehouse automation, and robotic assemblies. In addition, the company serves the industrial and recreational vehicle markets, e-commerce, transportation, and construction equipment markets.
Commercial Vehicle Group, Inc. (NASDAQ:CVGI) is based in Ohio U.S., and is organized into four key segments: Vehicle Solutions, Industrial Automation, Electrical Systems, and After-Market Division.
The company is facing headwinds due to changing market dynamics amid softening of consumer demands, supply chain issues, and a quarterly decline in revenue. As a result, over the last year, the share price has dropped over 49%.
During the first quarter of 2024, Commercial Vehicle Group, Inc. (NASDAQ:CVGI) struggled with generating sales and reported a revenue of $232.1 million, down by 11.6% YoY. Net income during the quarter witnessed a serious downfall of over 66%, down from $8.7 million in q1 2023 to just $2.9 million in q1 2024. The firm reported an EPS of $0.09 that fell significantly short of analysts' expected EPS of $0.18.
This decline was primarily driven by a softening of consumer demand, partially offset by an increase in Electrical System Sales. Furthermore, Vehicle solution revenue declined by 14.1% due to the wind-down of certain programs due to supply shortages. Industrial Automation segment revenue decreased by 55.9% with an operating loss of $2 million due to a decrease in consumer demand.
Electrical Systems was the only segment that performed well with a revenue of $55.8 million, an improved growth of 1.9% YoY from increased pricing and sales volume amid supply chain challenges.
Moreover, there was a decline of over 55% in the operating income owing to reduced sales volume and an increase in restructuring charges. However, this was somewhat offset by reduced selling, general, and administrative expenses (SG&A).
Despite the challenges, the company’s management is optimistic about the future outlook and is focused on strengthening operational efficiency and commercial excellence to improve order intake in all sections. In parallel, to these operational improvements, the management is set to explore new end markets and develop innovative products. For instance, the development of a product called STACC which was exhibited at the Modex Show in March 2024.
STACC is a novel automation system prototype that is poised to revolutionize the Micro-fulfillment sector of e-commerce. STACC stands for Stacked, Tote, Automated Conveyance Cube, a modular and expandable goods-to-person service solution that is specifically designed to cater to growing e-commerce storage demands.
Micro-fulfillment is a small-scale warehouse facility that helps e-commerce businesses store their inventories within a short distance to the end consumers. In this way, businesses save a lot of costs and reduce transit time. These fulfillment centers are secure and highly automated, with high demand for these units.
According to research, the global micro-fulfillment market is set to grow at a CAGR of 24.3% from 2024 to 2030 and reach $15.2 billion by 2030 owing to the recent growth of e-commerce, particularly online grocery with a focus on delivery speed. With live demonstrations of STACC and the company’s offering to join the pre-order list, Commercial Vehicle Group, Inc. (NASDAQ:CVGI) is set to capitalize on this growing market.
With the forward P/E of 9.51 relative to the trailing p/e of 4.9, the company is expected to grow its share price relative to earnings in the current fiscal year.
At present, 70.8% of the company’s shares are held by a total of 118 institutional owners which adds to the investor confidence but also makes the stock price vulnerable to the institutional owners' trading decisions.
Moreover, Gary Prostopino, an analyst of Barrington Research, maintains the 12-month price target of $10 for the stock with a price upside of over 85%. Gary gave the stock a “Buy” rating based on the firm’s ability to maintain its guidance for the rest of the year and resilience in sales of $232.1 million despite headwinds aligning with analyst's expectations.
According to the Insider Monkey database, 13 hedge funds held stakes in the Commercial Vehicle Group, Inc. (NASDAQ:CVGI). Royce and Associates managed by Chuck Royce is the largest stakeholder having over 2 million shares valued at $13.16 million. Shares are up 10% compared to the last quarter of 2023.
Overall CVGI ranks 5th on our list of the best value penny stocks to buy. While we acknowledge the potential of CVGI 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 CVGI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
