7 Cheap Stocks for Beginners Worth Investing In

In this article we will look at 7 Cheap Stocks for Beginners Worth Investing In.

Does the Federal Reserve’s interest rate cut translate into an increase in consumer debt?

The Federal Reserve has approved a 50 basis point interest rate cut, which is proving to be a positive for stocks, at least for now. The rate cut also means businesses and consumers have some immediate relief, but is society ready to break out of its high-inflation mindset?

According to a recent Reuters report, even before the Fed announced its rate cut, financial markets had already begun to make consumer and business loans cheaper. Mortgage rates fell slightly, corporate bond yields were also lowered, and everyday personal and auto loans were also eased. For example, the average rate a person had to pay for a 30-year fixed mortgage on a home is 6%, down 2 percentage points from a year earlier. In addition, according to Redfin, a real estate company, the average price of homes sold in mid-September was $3,000 lower than the peak in April, down 3% year over year. The recent survey shows that while inflation has slowed significantly recently, public sentiment is still dispirited by the past two years of high inflation.

In one of our recent articles, we talked about how the interest rate cut helps both growth and value stocks. However, market trends show that the latest announcement favors growth stocks more than value stocks. Here is a snippet of the 10 worst affordable stocks under $10:

“It’s true that interest rate cuts help both growth and value stocks, but which one is doing better? The current market trend shows that the expectation of a rate cut and the announcement have supported growth stocks more than value stocks, and have also made small caps the new favorites.

When discussing value stocks and how the market could be entering a period of slower growth, Vahan Janjigian, Chief Investment Officer at Greenwich Wealth Management, and Margaret Patel, Senior Portfolio Manager for Multi-Asset Solutions at Allspring Global Investments, discussed this in a recent interview with CNBC. Janjigian expressed caution about the market even after the Fed cuts rates. He believes that interest rates will rise in the long term. This is because the market will eventually achieve a more normalized yield curve, which he believes is good for the economy. If the yield curve continues to trend upward, it will favor value stocks more than growth stocks.

He stated that the market is moving in the direction that Janjigian expects, we may see a sell-off in stocks that are currently going up, including tech and growth stocks. He also pointed out some of the biggest risks to investing. He mentioned that the rising deficit, debt, and debt servicing costs are some of the biggest risks. Debt is also one of the reasons why interest rates could potentially rise in the future because as debt increases, it could potentially raise the market-set interest rate.

Gerard Cassidy, managing director at RBC Capital Markets, believes banks are considered value stocks once the Fed begins cutting interest rates.

On September 20, Cassidy appeared on CNBC to discuss how banks are likely to fare in the current environment. Gerard Cassidy conducted research on the 25-year history of banking in the United States and concluded that when the Fed cuts interest rates during a period without a recession, bank stocks tend to rise. He recalled that in 1995, when the Fed cut interest rates and the economy was not in recession, bank stocks rose 55%.

Cassidy believes that banks’ deposits are what set them apart from other companies. When the Fed starts cutting interest rates, banks’ cost of funding falls because of their deposits. What’s more, most banks have loans and bonds due in 2021 and 2022 at extremely low yields, so those assets are maturing in a higher-rate environment even as rates fall. Regardless, funding rates are falling faster, which results in higher margins for banks.

The concept explained above has not changed since the comparison period in 1995, indicating that bank stocks could potentially benefit from lower interest rates. Gerard Cassidy believes that the current market environment should result in higher net interest margins and net interest income for at least the 20 largest banks.

Finally, speaking about consumer borrowing behavior, Cassidy believes we need more cuts and the scale of easing needs to come. He believes that at least 100 basis points will trigger some borrowing among the general public.

With that in mind, let’s discuss 7 cheap stocks worth investing in for beginners.

Our methodology

To compile a list of 7 cheap stocks for beginners worth investing in, we selected stocks of established companies that were most widely held by hedge funds and had a P/E below 15. The list is sorted by ascending number of institutional holders, as of Q2 2024.

Why do we care about what hedge funds are doing? The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

7 Cheap Stocks for Beginners Worth Investing In

7. Citigroup Inc. (NYSE:C)

P/E ratio for the future: 10.66

Earnings growth this year: 3.30%

Number of hedge fund owners: 85

Citigroup Inc. (NYSE:C) is a major international financial services company that operates in over 500 countries and processes over $5 trillion in payments per day. The bank operates through two main business segments, namely the Consumer Segment and the International Client group.

The company’s strategic moat lies in its ability to operate internationally. The company has global licenses, making it one of the preferred banking partners for the largest Fortune 500 companies.

Citigroup Inc.’s (NYSE:C) treasury and trade solutions business aims to meet the needs of large, multinational corporations. The bank is also undergoing a major transformation in its risk management and data systems. Management said it is in the process of modernizing its infrastructure, unifying its technology platforms and adding more automation and controls to its overall banking system.

Thanks to the ongoing transformation, the company hopes to gain more international customers and, consequently, higher profits. The second quarter of 2024 has already seen a significant increase in the financial results of banks. The bank’s revenue increased by 4% year-on-year, reaching $20.1 billion, and net income increased by 10% during the same period, reaching $3.2 billion.

Citigroup Inc. (NYSE:C) is also trading at a discount to its sector and is emerging as one of the cheap beginner stocks worth investing in. It is trading at 10.6 times its forward earnings, which is a 12% discount to the sector. It is also expected to grow its earnings by 3.3% for the year to $5.7.

In its Q1 2024 investor letter, Diamond Hill Capital Long-Short Fund provided the following information regarding Citigroup Inc. (NYSE:C):

“Other top contributors in the first quarter include Meta Platforms, Citigroup Inc. (NYSE:C) and Walt Disney. Banking and financial services company Citigroup’s restructuring efforts are ongoing, and the company continues to address regulatory issues and build capital in anticipation of increased requirements. The company expects expenses to decline significantly in the second half of 2024, which will strengthen its outlook going forward.”

6. PDD Holdings Inc. (NASDAQ:PDD)

P/E ratio for the future: 8.39

Profit growth this year: 84.10%

Number of hedge fund owners: 86

PDD Holdings Inc. (NASDAQ:PDD) is a global retail group with a wide range of businesses. Two of its main businesses are Pinduoduo and Temu. At first glance, the company’s business model looks very similar to Alibaba or JD.com. However, the company may turn out to be better than these two e-commerce giants.

The first thing that attracts investors is the low valuation. The stock is trading at just 8 times forward earnings, and earnings are expected to grow 84% within a year.

PDD Holdings Inc. (NASDAQ:PDD) was founded just 9 years ago, but the company has grown steadily, quickly becoming the third largest e-commerce platform in China. It is competing with established tech giants and is leading the race in some areas. The company quickly capitalized on the market with its strategy of targeting lower-income customers in second-tier cities. It sold products at a lower price point than its peers and quickly saw rapid growth.

The company then launched a unique farm-to-table platform that allowed farmers to sell fresh produce directly to consumers, giving it a strategic advantage over its competitors. Jej Temu, a cross-border marketplace, also saw solid growth. The app has more than 167 million monthly active users, with about 50 million of those users coming from the United States.

It also did well financially, despite a lack of interest from U.S. investors due to ongoing tensions between the two countries. In the second quarter of 2024, revenue rose 86% to CNY97 billion ($13.74 billion), and net margins improved 8% year-on-year.

Hayden Capital stated in its Q2 2024 investor letter that PDD Holdings Inc. (NASDAQ:PDD):

“PDD Holdings Inc. (NASDAQ:PDD): A few weeks ago, Latepost (a leading Chinese technology news site) confirmed that Pinduoduo’s online grocery initiative is solidly profitable (LINK). According to the article, Duoduo Grocery is able to achieve ~5% net profit margin in competitive markets (where they compete with Meituan Select). In non-competitive markets, they can achieve ~10-15% net margin.

The company doesn’t disclose the exact size of Duoduo Grocery, but our calculations suggest it’s likely to be around ~300 billion RMB this year and continue to grow in double digits. At this level, the division likely contributes ~2.5 billion USD to annual profits.

This is an impressive result, but it must be admitted that it is not a huge step forward in light of the total net profit the company is expected to achieve this year (~14% of total profits)…” (Click here to read the full text)