We recently compiled a list of the 10 Best Long-term Penny Stocks to Buy Now. In this article, we are going to take a look at where Ambev S.A. (NYSE:ABEV) stands against the other long-term penny stocks.

Analysis of the Current Market Environment

A market analysis discussion was held on July 8 with a CNBC panel comprising Carson Group chief market strategist, Ryan Detrick, and Wealth Enhancement Group SVP, Nicole Webb. Both panelists believe that we are in a bullish market and the trend is expected to continue. Webb expressed optimism about the market's potential to churn higher, even during the current overbought environment. She expects continued defensiveness and earnings growth from mega-cap tech companies. Webb is hopeful for a shift towards rate normalization rather than abrupt cuts.

Ryan Detrick shared bullish sentiments, basing his outlook on the improving inflation data. He pointed out that 34% of the core Personal Consumption Expenditures (PCE) components are experiencing deflation, with notable declines in used car prices and grocery store prices. He expects the Fed to cut rates in September and November, and he believes that these cuts will be in response to declining inflation rather than a sign of economic weakness.

When the CNBC interviewer noted the significant gains leading tech companies contributed and questioned the reliance on these firms for sustained market growth, Nicole Webb acknowledged the complexity of these market themes. However, she maintained a positive outlook and expects broader market earnings growth in the second half of the year. She mentioned favorable conditions for rate cuts and ongoing advancements in AI-driven productivity and cost-cutting as supportive factors for the bull market.

Penny Stocks: Opportunities and Risks in the Current Market Environment

The current market conditions as discussed above present a mixed bag for penny stocks. On one hand, the overall bullish sentiment and expected rate cuts could provide a favorable environment. Lower interest rates typically reduce borrowing costs and can lead to increased investment in riskier assets, including penny stocks. Additionally, a strong economy and rising market indices may boost investor confidence, which could potentially drive more speculative investments into lower-priced stocks.

However, there are also significant challenges. The reliance on mega-cap tech companies for market gains suggests that investors are favoring well-established, financially stable firms over riskier, smaller companies. This preference for safety and quality can limit the flow of capital into penny stocks. Furthermore, the high valuations and earnings expectations for larger firms mean that any market corrections or shifts in sentiment could disproportionately impact smaller, more volatile stocks. This would especially be true if we take Morgan Stanley’s Mike Wilson’s comments into account. In a Bloomberg TV interview on July 8, he said that there is a high chance of a 10% correction between now and the US election and added that the third quarter of the current year is going to be “choppy.”

Overall, while some positive macroeconomic trends could benefit penny stocks, investors need to be cautious. The market's current emphasis on stability and proven performance may not bode well for these highly speculative investments. Thorough research and a clear understanding of the risks should be on top priority for those considering penny stocks in this environment.

Our Methodology

For this article, we identified around 20 fundamentally strong penny stocks (trading below $5 on July 18) from several financial media websites and sources. We only chose the stocks that have been profitable for at least over a year, showed signs of earnings growth, and have significant future growth prospects. We narrowed down our list to 10 stocks most widely held by institutional investors. The stocks are listed in ascending order of their hedge fund sentiment.

Why do we care about what hedge funds do? 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 close-up on several cans of freshly brewed beer in a commercial brewery.

Ambev S.A. (NYSE:ABEV)

Share Price as of July 18: $2.10

Number of Hedge Fund Holders: 14

Ambev S.A. (NYSE:ABEV) headquartered in Brazil, is a subsidiary of Interbrew International B.V. and produces, distributes, and sells alcoholic and non-alcoholic beverages. It is a prominent beverage company and has established a strong presence across Latin American and Caribbean markets. The company’s portfolio includes well-known beer brands such as Brahma, Antarctica, Brahva, Budweiser, and more. Its non-alcoholic beverage portfolio showcases various brands, including Gatorade, H2OH!, and Pepsi Black, among others.

Ambev (NYSE:ABEV) maintains a diverse portfolio of alcoholic and non-alcoholic beverages, strategically positioned to benefit from changing consumer preferences and new market opportunities as mentioned in our previous articles on 10 Best NYSE Penny Stocks To Buy. The company holds the top position in Brazil's beverage industry, commanding more than 60% of the beer market and maintaining a robust presence throughout Latin America. This leadership in the Brazilian beer market serves as a strong platform for revenue expansion and growth. According to the Brazil Beer Market Overview, 2028 report by Bonafide Research, the Brazilian beer market is expected to grow at a compound annual growth rate (CAGR) exceeding 4.83% from 2023 to 2028. The growth forecast presents significant opportunities for Ambev S.A. to enhance its market share and profitability.

In Q1, key brands like Corona, Spaten, Brahma, and Budweiser have achieved remarkable success, with overall brand health indicators reaching unprecedented levels. The company has shown significant growth in the premium and super-premium segments, driven prominently by Corona's expansion of over 70%. In the premium brand segment, Ambev has expanded its market share for five consecutive quarters. The Budweiser family saw a 55% increase in volume in the first quarter, reaching an all-time high.

Additionally, core brands such as Antarctica and Brahma have demonstrated robust growth rates slightly exceeding industry averages, as highlighted in the Q1 2024 earnings call. Ambev's (NYSE:ABEV) balanced growth strategy, focusing on both core products and expanding premium and core plus segments, has been achieved alongside stable trade inventory levels, reflecting effective supply chain management.

CEO Jean Jereissati has emphasized the company's successful innovation efforts. New products like Stella Pure Gold and Budweiser Zero have collectively grown by over 40% in Q1, compared to the previous quarter, indicating strong consumer adoption and market responsiveness. Ambev's (NYSE:ABEV) is committed to driving growth through continuous product innovation and adaptation to meet evolving consumer preferences. The stock is one of the best long-term penny stocks to buy now.

Ambev (NYSE:ABEV) was part of 14 hedge funds’ portfolios in the first quarter with a total stake value of $166.139 million. First Eagle Investment Management is the biggest shareholder in the company and has a position worth $775.509 million as of Q1.

Overall ABEV ranks 2nd on our list of the best long-term penny stocks to buy. You can visit 10 Best Long-term Penny Stocks to Buy Now to see the other long-term penny stocks that are on hedge funds’ radar. While we acknowledge the potential of ABEV 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 ABEV but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

Read Next: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.

Disclosure: None. This article is originally published at Insider Monkey.