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Is Waterdrop Inc. (WDH) a good NYSE penny stock to buy now?

We recently published a list of The 10 best penny stocks on the NYSE to buyIn this article, we will look at how Waterdrop Inc. (NYSE:WDH) compares to the other penny stocks on the NYSE.

The latest Consumer Price Index (CPI) data from the Bureau of Labor Statistics was released on June 12 and suggests a slowdown in inflation, which could have a positive impact on the U.S. market and economy. Stabilizing prices, especially in core categories such as housing and food, indicate possible relief for consumers and could positively influence the Federal Reserve’s monetary policy decisions. Stabilizing inflation could boost consumer confidence and support economic stability.

In addition, the latest inflation report for May, released on June 28, showed that U.S. personal income rose by $114.1 billion, up 0.5%, while disposable personal income (DPI) also rose 0.5% to $94 billion, the lowest increase since March 2021. The core personal consumption expenditures (PCE) index, a key indicator for the Federal Reserve that excludes food and energy costs, rose 0.1% from April, in line with Wall Street expectations and slowing from April’s 0.3% increase. Annually, core PCE rose 2.6%, the smallest increase in over three years.

The data showed steady increases in incomes and spending. Real DPI, adjusted for inflation, grew 0.5%, and real PCE rose 0.3%, driven by a 0.6% increase in spending on goods and a 0.1% increase in spending on services. Health care, housing, and transportation services contributed to the increase in spending on services, while prescription drugs led to an increase in spending on goods. Overall, the data showed rising incomes, controlled inflation, and increased consumer spending. This combination suggests steady economic growth and stability, as well as manageable inflationary pressures.

What does the data mean for small-cap stocks?

We discussed the key developments from the Fed’s latest meeting in our article on the best Robinhood stocks and mentioned that the chairman’s statement suggested that there had been some progress in reducing inflation towards the desired 2% target. However, he stressed that more data and evidence was needed to confirm that this downward trend was consistent and sustainable. This means that the latest data may not yet be enough, but it is still a good starting point to guide the Fed’s decision regarding rate cuts. The CME FedWatch tool shows that 58% of the market believes the Fed will cut rates by 25 basis points.

Back in April, Peter Kraus, CEO of Aperture Investors, told CNBC that inflation has limited the growth of small-cap stocks, which have underperformed large-cap stocks by 9% annually over the past three years. Although he had some recession concerns, he said small-cap stocks would perform better when interest rates fall. He noted that returns are usually the same over the long term, even if the declines in the overall market and small caps have been different.

With that in mind, in our latest article we take a look at some of the best penny stocks on the NYSE. While not all of them are small-cap stocks, they could certainly benefit from a drop in interest rates.

Our methodology

For this article, we identified over 60 stocks trading under $5 that are rated “Buy” or better by Wall Street analysts and have a market cap of over $200 million. We further narrowed our list down to 10 stocks based on several but different metrics such as future growth prospects, valuations and shareholder returns. We listed the stocks in ascending order or by their hedge fund sentiment, which was sourced from Insider Monkey’s database of over 900 elite hedge funds. We favored the stocks that were profitable over the past twelve months. Still, some stocks in the list have yet to make gains and analysts remain bullish on them.

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

A financial analyst presents a table of insurance solutions in the boardroom.

Waterdrop Inc. (NYSE:WDH)

Share price as of June 27: 1.10 USD

Number of hedge fund holders: 1

Waterdrop Inc. (NYSE:WDH) is a China-based company that provides online insurance brokerage services. The company trades at 9.4 times its 2024 earnings, making its valuation attractive enough for investors to take a closer look at the stock. It is our 10th best NYSE penny stock to buy.

In early 2024, the personal insurance sector experienced steady growth amid the ongoing economic recovery, creating a favorable environment for Waterdrop Inc. (NYSE:WDH). The company reported total revenue of RMB705 million (1 RMB = $0.14) in the first quarter, up 16.3% year-on-year. In addition, the company posted GAAP net income of RMB80.6 million, up 62.2% year-on-year. It is the ninth consecutive profitable quarter since the first quarter of 2022, which is a clear sign of the company’s continued financial health and operational efficiency.

In addition, Waterdrop Inc. (NYSE:WDH) recently declared its first special cash dividend since its listing in 2021. The dividend was $0.04 per ADS, or $0.004 per common share. In addition, the company has been actively pursuing share repurchases, repurchasing 45.5 million ADSs on the open market by the end of May 2024. This initiative, which began with the announcement of a share repurchase program in September 2021, has reached a total amount of approximately $95.9 million.

Renaissance Technologies is the sole shareholder of Waterdrop Inc. (NYSE:WDH), with an interest valued at $210,000 as of March 31.

Total width: ranks 10th on our list of the best NYSE penny stocks to buy. You can visit The 10 best penny stocks on the NYSE to buy to see the other NYSE penny stocks that are on hedge funds’ radar. While we recognize WDH’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than WDH but trades at less than five times its earnings, read our report on the cheapest AI stock.

READ MORE: Analyst sees a new $25 billion ‘opportunity’ for NVIDIA and Jim Cramer recommends these 10 stocks in June.

Disclosure: None. This article was originally published on Insider Monkey.

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