We recently compiled a list of the 8 Most Profitable Penny Stocks To Invest In. In this article, we are going to take a look at where Companhia Energetica Minas Gerais (NYSE:CIG) stands against the other profitable penny stocks.

Potential in Small-Caps

The misallocation of capital to less productive sectors can lead to inflationary pressures and hinder economic growth. A lot of experts now suggest that investors should be cautious and focus on small and mid-cap stocks (SMid caps) that may thrive in a low-interest rate environment. The overall strategy involves updating price targets for companies sensitive to interest rates that also show strong revenue and earnings growth potential in a soft landing scenario. As September was concluding, Curtis Nagel, senior US SMid cap internet analyst at BofA Securities, appeared on CNBC to discuss the potential opportunities in small-cap stocks as the Fed made its cut decision. Here's a short excerpt from the article 7 Best Small Company Stocks To Invest In that discusses this in more detail:

With the upward revision of price targets for companies with high sensitivity to interest rates, SMid-cap stocks are seen as a promising area for investors. Yet, some experts tend to disagree based on the recent small-cap performance.

Tom Lee, Fundstrat co-founder, joined 'Power Lunch' on CNBC on October 7 to discuss the staying power of the bull market, touching on small caps, and his overall market outlook. As most market analysts highlight the resilience of the bull market amidst looming threats, particularly with the US elections just 4 weeks away, Tom Lee expressed optimism about the S&P 500, suggesting it could close at 5,700 or even higher by the year-end. He attributed this potential growth to a dovish Fed beginning to cut rates and the stimulus measures being implemented in China, which he believes will positively impact the market. With significant cash still on the sidelines, Lee sees a favorable environment for stocks over the next 3 to 12 months.

Despite Lee's bullish outlook, he acknowledged that small-cap stocks have exhibited weakness since the Fed began raising rates. He noted that while small caps are within a few percentage points of their all-time highs, they have not performed as well as expected. The market's current risk appetite is mixed, and with the upcoming election and elevated oil prices contributing to uncertainty, investors may be hesitant to take on new risks.

When discussing oil prices, Lee pointed out that any disruption in Iranian oil supplies, accounting for only about 3% of global output, could have psychological effects on the market. While such an interruption might not significantly impact economic terms, it could lead to increased volatility and consumer pain if oil prices surge. He emphasized that markets generally dislike uncertainty, and even temporary spikes in oil prices could create discomfort for consumers.

While there are challenges ahead, especially with the election approaching, the underlying economic conditions and potential policy shifts could provide opportunities for investors. The interplay between monetary policy, geopolitical factors, and market sentiment will be crucial in shaping market dynamics in the coming months. The market needs to be carefully watched before investor decisions can be made and to help you streamline your research process.

Methodology

We sifted through Finviz to compile an initial list of the top penny stocks, with a share price under $5. From that list, we narrowed our choices to 15 companies with positive TTM net income and 5-year net income compound annual growth rate. We then selected the 8 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 hydroelectric plant with a large dam and water flowing through its turbines.

Companhia Energetica Minas Gerais (NYSE:CIG)

TTM Net Income: $1.1 billion 

5-Year Net Income CAGR: 7.47% 

Share Price as of October 9: $1.99

Number of Hedge Fund Holders: 13

Companhia Energetica Minas Gerais (NYSE:CIG) is one of the main electricity concessionaires in Brazil. It operates in various areas of the electricity sector, including power generation, transmission, distribution, gas, and other businesses, generating electricity from sources like hydroelectric, thermal, and wind power plants. It transmits and distributes electricity to residential, commercial, and industrial customers, and participates in natural gas distribution and energy efficiency through its subsidiary, Efficientia.

Gasmig, a subsidiary, has started the Centro-Oeste Project, constructing 300 kilometers of pipeline with a budget of ~$140 million. For 2024, the company plans to invest over $1 billion, with over $2 billion already allocated.

The company's revenue declined 3.84% year-over-year, recording $1.73 billion. Recurring EBITDA marked a 2% increase. Its strong operating cash flow in the first half of 2024 supports its financial stability and ability to manage debt, fund investments, and distribute dividends. Renewable energy is a key growth area. The company's investments in renewable energy in the first half of 2024 were up 43.1% from the previous year. The launch of photovoltaic solar plants in June 2024 marks a significant expansion into renewable sources.

Companhia Energetica Minas Gerais (NYSE:CIG) is a promising investment with strong momentum, financial performance, and growth prospects in the energy sector. Its focus on renewable energy and infrastructure projects positions it well for continued success.

Overall CIG ranks 4th on our list of the most profitable penny stocks to invest in. While we acknowledge the potential of CIG 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 CIG 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.