We recently published a list of 10 small-cap stocks with high potential. In this article, we’ll take a look at how Root, Inc. (NASDAQ:ROOT) stands compared to other small-cap stocks with high potential.
Moving on from a tumultuous summer in financial markets marked by heightened expectations for interest rate cuts and the associated impact on stock and bond performance, investors are now navigating a climate of increased volatility and uncertainty. The small-cap segment of the stock market is receiving increasing attention in 2024 as expectations for a shift in monetary policy rise. Since early July, small and medium-sized companies have significantly outperformed their larger peers, demonstrating strong demand for these stocks despite continued economic uncertainty. This trend has sparked increased interest from investors looking for high-growth potential opportunities in a more volatile market environment.
Nancy Prial, co-chief executive officer and senior portfolio manager at Essex Investment Management, offered an optimistic outlook for small-cap stocks in a recent interview with CNBC on Sept. 30. This has already occurred and further reductions are expected. According to Prial, small-cap stocks remain under-represented in the market and make up a small portion of the overall stock market. He stressed that if the confidence comes from surviving a soft landing rather than a recession, the conditions are ripe for small and medium-sized enterprises to perform well.
Pryal emphasized that stock selection will be important in this environment, as not all small-cap stocks will benefit equally from rate cuts. He expects some small-cap companies could see earnings growth in the 15% to 20% range next year due to strong fundamentals and growth-oriented business models. While broader indexes may not achieve the same level of returns, some companies within this segment could significantly outperform, according to Prial.
As the outlook for the small-cap market brightens, sectors such as technology are also poised to benefit from advances in artificial intelligence and automation. Prial said these areas could drive innovation and growth in the small-cap sector and provide attractive opportunities for investors. With clear signals from central banks and continued technological developments, SMEs are in a position to take advantage of emerging trends, making them attractive for companies looking to diversify and take advantage of high-potential stocks in the final quarter of the year. It is an option.
story continues
Tom Lee, head of research at Fundstrat Global Advisors, is similarly bullish. Lee believes the recent volatility in small-cap stocks is part of a multi-year bottoming process driven by economic data and investor expectations. Despite the unpredictability, Lee expects small-cap stocks to rise significantly once the rate-cutting cycle becomes clear. He notes that small-cap stocks typically trade at 10 times forward earnings, giving them better prospects for earnings growth than many mega-growth stocks. For Lee, easy monetary policy and improving fundamentals make small-cap stocks attractive buys even in the face of short-term volatility.
One of the main factors behind the renewed interest in small-cap stocks is the expected loosening of monetary policy by central banks. Analysts widely expect a series of rate cuts in the coming months as inflation slows and economic growth slows. Lower borrowing costs would benefit small-cap stocks, which often rely on traditional bank loans instead of accessing the corporate bond market like larger companies. As a result, small and medium-sized enterprises are likely to benefit more directly from the expected rate cuts, making them an attractive investment opportunity as the economy begins to recover.
Despite widespread optimism, investing in small-cap stocks comes with risks. A significant portion of these companies have reported negative profits over the past year, highlighting the need for a selective approach. Analysts recommend focusing on profitable sectors such as financials, utilities and consumer staples, which have shown resilience despite economic headwinds. For example, the financial industry is generating solid profits, and the public utilities industry is also showing strong performance, although it accounts for a small percentage of market capitalization.
By diversifying their portfolios with strategically selected small-cap stocks and leveraging the stabilizing power of fixed income, investors can not only weather market volatility, but also position themselves to thrive in an evolving economic environment. can. The remainder of 2024 is very likely to be a pivotal time for small-cap stocks, offering opportunities for those willing to accept the risks and rewards involved.
our methodology
In this article, we use the Finviz screener to identify 20 stocks with a market cap of less than $2 billion, an analyst rating of buy or buy equivalent as of October 5, and a target price of 40% above the current price. has been identified. These stocks are going up even more. We then examined Insider Monkey’s data for 912 hedge funds as of Q2 2024. We’ve narrowed the list down to the 10 stocks most widely held by institutional investors and ranked them in ascending order by numerical value. Number of hedge funds holding the stock as of Q2 2024.
Here at Insider Monkey we’re obsessed with hedge fund stocks. The reason is simple. Our research shows that by mimicking the top stock picks of the best hedge funds, you can outperform the market. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has returned 275% since May 2014, outperforming the benchmark by 150 percentage points (Learn more ).
Root, Inc. (ROOT): Revolutionizing insurance with data-driven technology
Experienced insurance agents explain the benefits of insurance products to customers.
Root Co., Ltd. (NASDAQ:ROOT)
Number of hedge fund holders: 11 people
Market capitalization as of October 5: 598.2 million
Average analyst price target as of October 5: $70.43
Year-to-date stock price increase: 280.53%
Root, Inc. (NASDAQ:ROOT) is an American small-value insurance company specializing in auto, homeowners, and renters insurance. The Company operates a direct-to-consumer model and primarily serves customers through its mobile applications and website, as well as digital and media channels, sales partners, and distributors. Root, Inc. (NASDAQ:ROOT), headquartered in Columbus, Ohio, was founded in 2015 and has quickly established itself as an innovative player in the insurance industry through its data-driven approach and advanced technology.
Root, Inc. (NASDAQ:ROOT) stands out as a high-potential small-cap stock due to its strong financial performance and effective use of proprietary data science to streamline operations and improve customer service. . Root reported operating income of $4 million and positive adjusted EBITDA of $12 million for the second quarter of 2024, both of which were achieved for the second consecutive quarter. The company’s net loss was $8 million, a significant 79% improvement from the previous year. Root, Inc. (NASDAQ:ROOT)’s disciplined underwriting practices and focus on cost reduction contributed to a gross loss ratio of 61.6%, demonstrating its operational efficiency and strong risk management capabilities.
The company’s direct channel is its primary source of new business and continues to show strong growth potential. Root leverages proprietary technology and machine learning models to optimize pricing and provide a better experience for customers. This approach has enabled Root to achieve the industry’s highest loss ratios while focusing on profitability. Additionally, Root, Inc. (NASDAQ:ROOT) has made significant progress within its partnership channel, increasing new writing by 120% year-over-year. With more than a dozen partners and a strong pipeline of additional opportunities, the company is well positioned to drive further growth.
Root, Inc. (NASDAQ:ROOT)’s strong financial metrics, including a 62% total accident period loss ratio and four consecutive quarters of positive operating cash flow, are testament to the company’s disciplined strategy and effective use of data. is. Root, Inc. (NASDAQ:ROOT) could become America’s leading personal insurance company as it continues to expand its footprint and integrate its technology into new channels.
Overall, ROOT ranks 8th among our list of high-potential small-cap stocks. While we acknowledge ROOT’s growth potential, we believe some AI stocks are more likely to deliver higher returns and achieve it in a shorter time frame. If you’re looking for AI stocks with more promise than ROOT but trading at less than 5x earnings, check out our report on the cheapest AI stocks.
Read next: $30 trillion opportunity: 15 humanoid robot stocks to buy, according to Morgan Stanley and Jim Cramer, says NVIDIA has ‘become a wasteland.’
Disclosure: None. This article was originally published on Insider Monkey.
