We recently published a list of 10 Worst Affordable Stocks to Buy NowIn this article, we’ll take a look at where Progress Software Corporation (NASDAQ:PRGS) stands in comparison to some of the worst stocks to buy right now.
How is the market performing now that interest rate cuts are taking effect?
In one of our recent articles on the 10 Hot Penny Stocks On the Move, we discussed how the overall macroeconomic conditions have played a crucial role in creating an environment leading to the Fed’s upcoming rate cut. Here is an excerpt from the article:
“The U.S. economy has stabilized, recession risks have been postponed, and inflation continues to cool. On August 30, Reuters reported that the Federal Reserve had received further confirmation that inflation continues to decline. The personal consumption price index rose 2.5 percent year-on-year in July, and inflation remained within the Fed’s 2 percent target. The Fed chairman signaled that “the time has come to cut interest rates.”
In addition, another Reuters report on the same day reported a rise in the US dollar as another key inflation measure fell in line with forecasts. The Fed is expected to cut rates by 25 basis points this month. Markets have predicted 100 basis points of rate cuts by the end of 2024.
The stock market is already benefiting from the expected rate cuts. On August 20, CNBC reported that the stock market was rising again, sending the S&P 500 and NASDAQ on track for their eighth straight positive session, marking their longest winning streak this year.”
While there has been debate over whether to cut 25 points or 50 points, the market has been volatile ahead of the announcement. On September 17, CNBC reported that the S&P 500 was lower after hitting a record high on Tuesday. The market hit a new record high of 5,670.81, falling 0.1% to 5,627. The Nasdaq rose 0.1% while the Dow Jones fell 40 points.
Traders have weathered summer headwinds and moved past concerns about the health of the U.S. economy, thanks to expectations that the Fed will cut interest rates. Wall Street, on the other hand, has been put on hold. Analysts hope the rate cuts will boost corporate earnings growth.
Tom Lee, co-founder of Fundstrat Global Advisors, spoke to CNBC about how the market is expected to perform in the lead-up to the federal rate cuts and after the announcement. Lee believes that one of the factors causing confusion among investors is the election season. The market is expected to remain in a volatile environment for the next eight weeks until the election is over. However, the federal rate cuts come at a crucial time to provide some positive momentum for the market.
There are two main reasons that lead to the rate cuts, one is the decreasing inflation and the other is the slowing labor market that needs help from the Federal Reserve. Moreover, Lee thinks that regardless of whether the Fed decides to cut 25 or 50 points, the result will be positive for the market. He thinks that investors should be confident about the next 12 months because when the Fed cuts the rate, the profit ratio for the markets is almost 100%. Moreover, the markets go up after the election, regardless of who takes the seat.
Our methodology
To compile the list of 10 worst affordable stocks to buy right now, we used the Finviz stock screener. We set our filters to get affordable stocks with high short interest, i.e. stocks trading below the market average Forward P/E of 23.79, with expected positive earnings growth this year and high short interest. From the list of affordable stocks, we selected 20 stocks that were held the most by institutional investors. After we had the aggregated list, we ranked them based on their Short % of Shares Outstanding, as sourced from Yahoo Finance. Note that the list is sorted in ascending order of short interest.
Why do we care what hedge funds do? The reason is simple: our research has shown that we can beat the market by mimicking the best stock picks of the best hedge funds. Our quarterly newsletter strategy selects 14 small- and large-cap stocks each quarter and has delivered a 275% return since May 2014, outperforming its benchmark by 150 percentage points (see more details here).
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Progress Software Corporation (NASDAQ:PRGS)
Forward Price/Earnings Ratio: 12.19
Profit growth this year: 9.20%
Number of hedge fund holders: 27
Short % of shares outstanding: 11.55%
Progress Software Corporation (NASDAQ:PRGS) is a technology company that helps businesses create, manage and deploy their applications smoothly. Some of the company’s core services include application development, data management, infrastructure management, infrastructure automation, and consulting services related to project management and custom software development.
PRGS is trading at just 12 times forward earnings, while earnings are expected to grow by 9.20% over the year, making it an affordable stock.
While short interest is high at 11.55%, it is still held by 27 institutional investors, with stakes worth $173.8 million. Renaissance Technologies is the largest holder with a position worth $61 million.
Today, the company has more than 100,000 enterprises that run their business systems on Progress Software Corporation (NASDAQ:PRGS) solutions. More than 6 million business users run apps powered by Progress technologies.
Management’s focus on AI integration and M&A is proving successful for the company. Q2 revenue was above the higher end of guidance at $175 million. Additionally, earnings per share beat guidance by $0.12, registering at $1.09 for the quarter.
Acquisition highlights during the quarter included the acquisition of ShareFile by Progress Software Corporation (NASDAQ:PRGS), a business unit group of Cloud Software Group. The newly added technology will strategically enhance Progress’ Digital Experience portfolio and enable organizations to deliver effective team collaboration.
Additionally, as a step toward unlocking AI capabilities, the company has released early access to Progress MarkLogic Server 12, making it easy for customers to integrate generative AI into their businesses. MarkLogic Server 12 has improved the relevance and accuracy of AI responses, and a single API enables users to leverage the power of AI faster.
Progress Software Corporation (NASDAQ:PRGS) has raised its full-year guidance to $725 million to $735 million in revenue, with earnings per share in the range of $4.70 to $4.80.
Diamond Hill Small Cap Fund made the following comment regarding Progress Software Corporation (NASDAQ:PRGS) in its third-quarter 2023 investor letter:
“Progress Software Corporation (NASDAQ:PRGS) is a diversified, multi-product infrastructure software company with high customer retention and cash generation capabilities. Its core solutions are focused on data management and IT environment monitoring — a stable core business that is growing nicely. We expect shareholders to benefit from value-creating M&A over time — an opportunity that is not reflected in the current stock price. We also like the management team, which we believe is capable and pragmatic.”
General PRGS is in 9th place on our list of the worst affordable stocks to buy right now. While we recognize PRGS’s potential as an investment, our conviction is based on the belief that some AI stocks hold more promise for delivering higher returns, and in a shorter time frame. If you’re looking for an AI stock that shows more promise than PRGS but trades at less than 5x earnings, check out our report on the cheapest AI stocks.
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Disclosure: None. This article was originally published on Insider Monkey.