Is Kosmos Energy Ltd. (KOS) the Best Affordable Stock Under $10 to Buy?
We recently compiled a list of the 10 Best Affordable Stocks Under $10 to Buy. In this article, we are going to take a look at where Kosmos Energy Ltd. (NYSE:KOS) stands against the other affordable stocks under $10 to buy.
The Rate Cut Debate Continues
The Fed commenced its easing cycle, however, the debate stands. Investors and analysts alike are fixated on what the Fed’s path will look like before the year comes to a close. On October 16, Seema Shah, Principal Asset Management’s chief global strategist, appeared in an interview on Yahoo Finance to discuss her rate cut expectations and thesis on the equity market.
Shah emphasizes that while the jobs report was strong, the data upholds an element of seasonality and volatility. She adds that it’s important that these numbers alone are not blown out of proportion or extrapolated to predict the Fed’s cycle. While she acknowledges that labor demand has been sluggish, she believes that the trends have not been as concerning so far.
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In addition to that, while the US economy has been sluggish, it is not showing signs of decline, indicative of the fact that a normalization process is underway. Shah believes a 25 basis point cut in November and December would be the most ideal situation. She adds that the Fed’s path is pretty clear for now and uncertainty will start to come in by mid-2025.
Strong Fundamentals are Key to Equities
People have kept aside cash for quite a while now, and like other investors and analysts, Seema Shah also sheds light on the situation and hints at risk assets becoming popular. Shah shares that there is approximately $6.6 trillion sitting in money market funds right now and she does not expect all of it to move to equities. In fact, part of the money sitting in cash will be used by people to create safety nets for themselves.
She adds that investors who had moved their investments into safe spaces during a period of high interest rates are more likely to move out their cash to other investment places as interest rates start to go down. With a soft landing in sight, Shah shares stocks are in a sweet spot, especially because the upside to equities is growing.
Overall, equities boast a continued upside, not as high as 2023, but solid regardless. The upside to equities is going to be primarily driven by fundamentals, especially earnings. Moreover, during growth periods, the market broadening out to other sectors is key, which has been the case for 2024. Since fundamentals are crucial at the moment, we have compiled a list of cheap stocks with strong fundamentals and solid earnings growth expectations. Let’s take a look at the 10 best affordable stocks under $10 to buy.
Our Methodology
To come up with the 10 best affordable stocks under $10, we studied stocks on the Finviz Stock Screener with a Forward P/E of under 15 and a share price of less than $10. We then examined the hedge fund sentiment of each stock and picked the most popular ones. Our list is in ascending order of the number of hedge fund holders 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 drilling rig in action, operated by an oilfield services team.
Kosmos Energy Ltd. (NYSE:KOS)
Number of Hedge Fund Holders: 25
Share Price as of October 18, 2024: $4.21
Forward P/E as of October 18, 2024: 8.55
Kosmos Energy Ltd. (NYSE:KOS) is an upstream oil company that specializes in deepwater exploration. The company is focused on meeting the growing demand for energy from across the globe. The company has oil production and exploration capabilities in Ghana, Equatorial Guinea, and the Gulf of Mexico, as well as gas development capabilities in Mauritania and Senegal.
In the second quarter of 2024, Kosmos Energy Ltd. (NYSE:KOS) boasted net production of 62,100 barrels of oil equivalent per day, up by 7% year-over-year, with sales of 65,400 barrels of oil equivalent per day. Revenue in dollar terms was valued at $451 million with capital expenditures at $215 million.
During the same quarter, the company achieved the first oil at Winterfell, completed the Kodiak-3 well workover, and completed the startup of the Odd Job subsea pump project. That said, full-year capital expenditures are expected to reach $750 million. Ahead of 2024, the company expects production to increase and capital expenditure to decrease, bringing in higher levels of free cash flow and improved liquidity.
Overall, the company expects production to rise as crucial startups have been completed and projects have been delivered. With these projects, the company expects to close the year with 90,000 barrels of oil equivalent per day. Kosmos Energy Ltd. (NYSE:KOS) expects to carry its current momentum into 2025 and lock in greater growth opportunities. KOS is cheap and we say that because it is trading at a discount of 29% to its sector median. Analysts expect KOS to grow its earnings by 4.8% this year.
Patient Capital Management stated the following regarding Kosmos Energy Ltd. (NYSE:KOS) in its Q3 2024 investor letter:
"Both Kosmos Energy Ltd. (NYSE:KOS) and Seadrill Limited (SDRL) were top detractors in the quarter as energy prices moved lower. We believe both these names are particularly attractive for idiosyncratic reasons beyond a simple bet on energy prices.
Kosmos Energy (KOS) is an exploration and production services company with assets in Africa. The company is nearing the point where their free cash flow generation will inflect meaningfully higher as new production comes online and CAPEX spend returns to a more normalized maintenance level. We see this as a classic case of time arbitrage where the market is myopically focused on the current year’s high level of investment while ignoring the strong free cash flow generation on the other side. At the current commodity curve, the company will generate its market cap in FCF from 2025-2028. With the combination of gas heavy reserves and inflecting cash flow generation, we think Kosmos is significantly undervalued and a potential acquisition target."
Overall KOS ranks 5th among the 10 best affordable stocks under $10 to buy. While we acknowledge the potential of KOS 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 time frame. If you are looking for an AI stock that is more promising than KOS 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.