We recently compiled a list of the 7 Cheap Hot Stocks To Invest In Now. In this article, we are going to take a look at where Crocs Inc. (NASDAQ:CROX) stands against the other cheap hot stocks.
Value Opportunities
Small-cap stocks seem to be set for growth, driven by anticipated rate cuts and strategic stock-picking opportunities. Analysts have noted that these stocks still remain undervalued compared to larger counterparts, and continued rate cuts and confidence in a soft landing for the economy could enhance their performance. In easier words, the outlook for small-cap stocks remains bullish amid changing economic conditions and anticipated monetary policy shifts. Investors are encouraged to focus on strategic stock selection to capitalize on potential earnings growth in this sector as market dynamics evolve. Nancy Prial, Co-CEO & Senior Portfolio Manager at Essex Investment Management, talked about this earlier in an interview on CNBC, expressing that she expects small-cap stocks to grow further. We covered this discussion in our article on the 8 Most Undervalued Small-Cap Stocks To Buy According To Analysts, here’s an excerpt from it:
“Prial noted that small caps have been outperforming in the third quarter, largely driven by expectations of rate cuts, with a 50 basis point reduction being more significant than previously anticipated. She expressed optimism that small caps have substantial room to grow, emphasizing that this could mark the beginning of a multi-year cycle for these stocks. Currently, small-cap stocks are underrepresented in the market, comprising just under 5% of the total equity market, which is at record lows. This low ownership level presents an attractive opportunity for investors.
She pointed out that small-cap stocks remain significantly undervalued compared to their larger counterparts… Prial acknowledged that while the S&P 500 is projected to see earnings growth of 13% in the fourth quarter and 15% in 2025, she believes small caps could exceed these figures. Despite a slight slowdown in economic growth, she maintained that small-cap stocks could achieve earnings growth rates between 15% and 20% next year. She cautioned, however, that overall indices might not reflect this growth as estimates often start high before being revised downward.”
But small-caps aren’t the only undervalued sector right now, as GLOBALT Investments senior portfolio manager, Keith Buchanan, mentioned on Wealth! at Yahoo Finance, on October 7. In a recent market update, stocks were slipping as traders digested a hotter-than-expected Consumer Price Index report. With over 90 minutes into the trading day, investors were looking for the next big catalyst, which many believe will come from the upcoming earnings season. To discuss these themes, Keith Buchanon noted that while the excitement around AI seems to be waning, there are still significant opportunities in other sectors.
Buchanon pointed out that earnings expectations have shifted from mid-single digits to mid-double digits for the upcoming year. He emphasized that the fourth quarter is expected to mark a transition from lower healthy growth to more robust growth. This change is not solely due to AI but also reflects broader revenue growth across various sectors, including industrials and energy. He expressed enthusiasm about the potential for earnings growth to stabilize as it expands beyond traditional sectors like technology and consumer services.
When asked about specific sectors to watch as 2024 approaches, Buchanon indicated a shift in focus from AI-centric stocks to more traditional value spaces. He mentioned financials as one sector already benefiting from increased investor interest. Additionally, he highlighted industrials and consumer discretionary sectors as areas that have been overlooked and offer attractive valuations compared to the broader S&P 500.
Buchanon also reflected on the broader market context, noting that the S&P 500 had gained 34.4% over the past 12 months ending in September 2024. Despite various geopolitical tensions, including elections and conflicts around the world, he emphasized that these events are factored into their investment strategies. He drew parallels between current geopolitical risks and those seen in 2021 when inflation became a pressing concern following Russia’s invasion of Ukraine.
He acknowledged that while they do not make trades based solely on election outcomes, they consider all incoming information that could impact economic consensus when advising clients. Buchanon’s approach emphasizes a long-term perspective in navigating current market volatility and positioning portfolios for future growth.
Buchanon’s opinion helps investors prepare for earnings season and consider opportunities beyond the AI narrative that has dominated discussions over the past couple of years. With a focus on value sectors and a broadening investment strategy, he is positioning for potential growth as we head into 2025.
Methodology
We used Finviz to compile an initial list of the top stocks with a year-to-date performance of over 30%. Then we narrowed down to 25 stocks that had a forward price-to-earnings ratio under 15. We then selected the 7 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 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 busy retail store full of customers trying on a wide range of footwear.
Crocs Inc. (NASDAQ:CROX)
Year-to-Date Performance as of October 11: 45.92%
Forward Price-to-Earnings Ratio: 9.98
Number of Hedge Fund Holders: 40
Crocs Inc. (NASDAQ:CROX) is a global footwear company, operating in over 80 countries, known for its iconic, comfortable, and colorful clogs. It offers a range of footwear for men, women, and children, including casual shoes, sandals, and boots. Unique design and comfortable fit have made it a popular choice for people of all ages, and it continues to innovate and expand its product line.
This company heavily invests in collaborations and is actively evolving its partnership model to strengthen consumer engagement and brand popularity. In Q2 2024, it celebrated SpongeBob’s 25th anniversary with a limited-edition clog release at the Las Vegas Sphere. It’s pursuing sneaker and lifestyle opportunities, as demonstrated by the highly successful launch of the Salehe Juniper sneaker.
In the second quarter of 2024, it made $4.01 per share. The revenue was up 3.65% from a year-ago period, accounting for $1.11 billion. The company is focused on three key strategies: boosting brand awareness and global appeal, investing in talent to increase market share, and expanding its product offerings to attract new customers.
It experienced strong growth in the Tier 1 markets. In North America, it outperformed expectations with a 3% revenue increase, driven by strong D2C sales and increased demand from retailers. Internationally, revenue grew by 22%, with China and Australia showing significant growth. China’s growth was particularly impressive, reaching ~70% on top of last year’s triple-digit growth.
The company is celebrating its annual Croctober festivities by bringing some of its most requested fan creations to life. New products include Pet Crocs, Classic Lined Clogs, and a life-sized Crocs Costume, as announced on October 9. Crocs Inc.’s (NASDAQ:CROX) strong fundamentals and strategic initiatives have positioned it as a promising stock.
Silver Beech Capital stated the following regarding Crocs, Inc. (NASDAQ:CROX) in its first quarter 2024 investor letter:
“In October 2023, we invested in Crocs, Inc. (NASDAQ:CROX), the manufacturer/retailer of iconic foam casual footwear, at an attractive mid-teens FCF yield. Crocs is a well-managed, capital light, high margin, growing consumer-favorite brand.
We believe a combination of cognitive and institutional biases prevented the market from correctly evaluating the company, including anchoring sales expectations to the company’s pre-pandemic sales volume, overextrapolating sales slowdowns at the company’s relatively small HeyDude subsidiary, and focusing on questionable short-term oriented alternative data. The market misunderstood (and perhaps still does) the company’s growth profile, earnings quality, and earnings power. In the year ahead, we forecasted there was a straightforward path to Crocs posting strong near-term topline and FCF growth while deleveraging.
After a few months, the market agreed with us that Crocs was simply too cheap and quickly rerated the company. The Fund does not own a stake in Crocs today. The Fund’s investment in Crocs generated a 248% gross IRR / 40% total gross return over our 4-month investment period.”
Overall CROX ranks 2nd on our list of the cheap hot stocks to invest in now. While we acknowledge the potential of CROX 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 CROX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
