We recently published a list of 15 Best Penny Stocks to Buy According to Billionaires. In this article, we are going to take a look at where Gerdau S.A. (NYSE:GGB) stands against other best penny stocks to buy according to billionaires.
Can Small-Cap Stocks Overtake Large-Caps in 2025?
On February 14, Morningstar released a report on its outlook for small-cap stocks in 2025. The research highlighted the potential for small-cap stocks to outperform in 2025, driven by favorable macroeconomic conditions, valuation discounts, and sector-specific opportunities.
The report noted that small-cap companies are more sensitive to short-term interest rate movements due to their capital structure. When central banks cut rates, debt servicing costs for these firms decrease, improving their financial position and potentially leading to better performance. Historically, interest-rate cuts have been associated with positive returns in the small-cap segment. Quoting an example of Australia, the report highlighted that the Reserve Bank of Australia (RBA) has recently shifted to a dovish stance, with interest-rate cuts expected in 2025. This anticipated reduction of up to 0.75% by year-end could renew investor interest in Australian small caps.
Moreover, currently, small-cap stocks are trading at significant discounts compared to large-cap counterparts. As per the report, such valuation gaps have historically preceded strong price appreciation for small caps, especially when market sentiment improves. If we look internationally the small and mid-cap equities are trading at a Price/Earnings ratio of 16.4x compared to 19.2x for the MSCI World Index. Morningstar believes that If small and mid-cap valuations revert to their historical premium over the broader market, they could trade at a P/E of 20.2x. Therefore, projections indicate that small caps are set to experience higher earnings growth than large caps in 2025, offering robust returns for investors seeking growth opportunities. In addition, the report noted that the global reshoring trend, where multinational corporations bring supply chains back to domestic markets, is also expected to benefit small caps operating locally. This shift could also spur mergers and acquisitions, as larger firms seek smaller businesses to capitalize on reshoring benefits.
Lastly, periods of heightened market concentration have historically led to outperformance by small caps. The current market climate suggests that this trend might continue, rewarding investors who focus on smaller, agile companies.
Our Methodology
To curate the list of 15 best penny stocks to buy according to billionaires we used the Finviz stock screener and Insider Monkey’s Q4 2024 billionaires database. Using the screener we aggregated a list of penny stocks (trading below $5) and sorted the list by market capitalization. Next, we ranked the stocks in ascending order of the number of billionaire investors. Additionally, we have also added the hedge fund sentiment around each stock, as of Q4 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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Is Gerdau S.A. (NYSE:GGB) the Best Penny Stock to Buy According to Billionaires?
A steel coil being loaded into a facility for further processing and distribution.
Gerdau S.A. (NYSE:GGB) is a Brazil-based multinational steel producer that specializes in long steel products and recycled scrap metal processing. It manufactures steel using mini-mills, integrated mills, and direct reduced iron plants, with 71% of its output derived from recycled scrap metal. The company operates across the Americas, with key facilities in Brazil, the US, Canada, and other Latin American countries.
In fiscal 2024, Gerdau S.A. (NYSE:GGB) had a challenging quarter due to inflationary pressure and high interest rates in Brazil. As a result, its steel shipments during Q4 2024 decreased 3.9% year-over-year to 2.7 million tonnes. Moreover, the net sales also declined 3.2% during the same time. However, on the bright side, the company achieved BRL 1.5 billion in savings through cost-reduction initiatives, enhancing operational efficiency compared to 2023.
Looking ahead, Gerdau S.A. (NYSE:GGB) expects improved demand coming from North America, driven by construction and infrastructural projects. The stock was held by 8 billionaires in Q4 2024, making it one of the best penny stocks to buy according to billionaires.
Overall, GGB ranks 5th on our list of best penny stocks to buy according to billionaires. While we acknowledge the potential of GGB 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 time frame. If you are looking for an AI stock that is more promising than GGB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
