We recently compiled a list of the 10 Best Quality Penny Stocks To Buy. In this article, we are going to take a look at where Ambev S.A. (NYSE:ABEV) stands against the other quality penny stocks.
Penny stocks are shares of small companies that usually trade for less than $5 per share. They are often found in smaller or newer businesses and tend to be more volatile and risky because they can rise or fall in value quickly.
Many penny stocks trade on smaller exchanges or over-the-counter (OTC) markets rather than major stock exchanges. While they can offer big rewards if a company grows, they also come with higher risks, as these companies may have unstable finances or less information available to investors.
Most penny stocks usually fall under the small-cap stocks category. However, that is not always the case. Some large companies with high market caps have low share prices due to several factors, even though they are well-established and stable. The most common reason is share dilution.
When a company issues a large number of shares, its share price can be low, even if the company is worth billions overall. We have some companies on our list that fall into the category. This does not necessarily mean the company is struggling or risky like typical penny stocks but the low share price is due to the way its shares are distributed rather than poor performance or instability.
Sustainable Growth Expected in Small Caps Amidst Market Shifts
On July 26, Nathan Moser, Managing Director and Senior Portfolio Manager at Impax Asset Management joined Schwab Network and discussed some long-term possibilities around small-cap stocks. He discussed the recent changes in small-cap stocks and highlighted the positive shift.
He noted that after years of struggles, the recent rise in small caps seems more sustainable, which is driven by strong inflows into ETFs and passive investment vehicles. Moser believes the market’s current move could last for years, despite some short-term volatility, and encouraged buying on any market dips.
Moser pointed out that sectors like regional banks, real estate, and housing have performed well, most likely because investors believe that the Federal Reserve may delay or avoid a recession. He said that the recent rise is just the beginning and compared it to the early stages of a baseball game, with more room for growth in the small-cap sector.
He said, “We’re in the first inning of this move, in my opinion.” However, he advised to keep focus on high-quality, profitable companies due to the risks associated with lower-quality stocks in small caps.
Our Methodology
For this article, we identified 30 quality penny stocks trading under $5, as of September 3. The stocks we identified are profitable, have real sales, and are expected to remain profitable in the future as well. We narrowed down the list to 10 stocks most widely held by institutional investors. We listed the stocks in ascending order of their hedge fund sentiment.
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).
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A close-up on several cans of freshly brewed beer in a commercial brewery.
Ambev S.A. (NYSE:ABEV)
Stock Price as of September 3: $2.27
Number of Hedge Fund Holders: 18
Ambev S.A. (NYSE:ABEV), a prominent beverage company based in Brazil, plays a key role in the Latin American market and is part of the global brewing giant Anheuser-Busch InBev. With operations spanning 18 countries across the Americas, it offers a broad product range that includes well-known beer brands such as Skol, Brahma, and Budweiser, alongside popular soft drinks like Guaraná Antarctica and Soda Antarctica.
In Q2, 18 hedge funds held stakes in Ambev S.A. (NYSE:ABEV), with positions worth $197.147 million. As of the second quarter, First Eagle Investment Management is the most significant shareholder in the company and has a position worth $635.790 million. It is among our best quality penny stocks to buy.
In the third quarter, Ambev S.A. (NYSE:ABEV) reported a 6.1% increase in revenues compared to the previous year, reaching BRL 20 billion (1 BRL = US$ 0.18 as of September 3). The company also posted an EPS of R$0.15. The revenue growth shows strong performance across its various segments, particularly in Brazil.
The beer segment in Brazil exceeded expectations with a 7% year-over-year revenue increase, driven by a 3% rise in sales volumes. Similarly, the Central America and Caribbean (CAC) division saw a 3% growth in volume, which is a sign of the company’s strong presence in these regions.
The company’s premium and super-premium brands, including Corona, Spaten, and Original, have experienced impressive volume growth in the low teens. The Budweiser family also contributed to high-teens volume growth in the core plus segment. Additionally, core brands like Brahma and Antarctica showed resilience with a modest volume increase in the low single digits. The consistent performance across different product categories shows the company’s ability to cater to diverse consumer preferences.
The company is also making strides in digital innovation. Its BEES Marketplace, a B2B e-commerce platform, has continued to grow, with gross merchandise value increasing by 32% year-over-year. This platform is designed to support small and medium-sized retailers, enhancing their ability to compete in the market.
Meanwhile, Zé Delivery, its beverage delivery service, has expanded its coverage and generated over 16 million orders, marking a 13% increase from the previous quarter.
Overall ABEV ranks 2nd on our list of quality penny stocks to buy. 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.
