We recently compiled a list of the 10 Best NASDAQ Penny Stocks To Invest In. In this article, we are going to take a look at where Talkspace, Inc. (NASDAQ:TALK) stands against the other NASDAQ penny stocks.
Penny stocks are companies that are trading under $5 per share. They represent a unique and controversial segment of the financial market. Penny stocks are known for their low market capitalization, limited liquidity, and high volatility. While penny stocks can offer significant returns for investors, they are full of risks that often make them unsuitable for the average investor. Moreover, penny stocks are more prone to scams such as pump-and-dump schemes, chop stocks, and reverse mergers. We discussed these scams in detail in our article on the best books on penny stocks.
Despite the risks, penny stocks also come with huge advantages. One of the biggest advantages of penny stocks is their potential for massive gains even with a small increase in price. For example, a $1 stock rising to $2, provides a 100% return on investments, which makes them perfect for investors with high risk tolerance.
Assessing the Favorability of Current Market Conditions for Small-Caps
On July 15, Tom Lee, Fundstrat Global Advisors co-founder and head of research discussed the recent rotation of funds from large-cap stocks into small-cap stocks and expressed optimism about their potential rise, in a CNBC interview. The Russel 2000 small cap index is up 11.55% higher between July 9 and 16. He believes the current rally, which began last week, could be more substantial than the October to December 2023 rally that saw a 27% gain in the small-cap index over eight weeks. Lee attributed this rally to larger institutional short positions and even more oversold conditions, in addition to lower valuations, with median P/E ratios now at 10 times 2025 earnings. He predicts a 40% rise over ten weeks, further fueled by the June CPI data indicating softer inflation, which could lead the Fed to cut rates by September.
Regarding the S&P 500, Lee expects July to be positive and expects the broader market index to possibly reach 5700-5800 (0.6% to 2.3% increase from July 16 levels). However, he expects a more pronounced rotation into small caps in August, potentially leading to flat or slightly declining performance for the broader market. He noted that during the previous small-cap rally, large caps underperformed, and he expects a similar dynamic this time, given the significant current short positions against small caps. If Lee’s prediction holds, penny stocks, which account for a significant number of penny stocks, could prove to be attractive investments.
However, if we look at the broader market apart from the penny stocks, AI has been driving the NASDAQ but market participants have raised concerns about a potential AI bubble. This sentiment is shared by Jefferies analysts, Jim Covello from Goldman Sachs, and David Cahn from Sequoia Capital, among others. These analysts are showing skepticism about AI’s economic impact and suggesting that AI may not deliver substantial returns to justify its high costs. Jefferies highlighted difficulties in AI monetization and noted that global investments in AI servers are expected to range from $400 billion to $500 billion between 2023 and 2025, with high power costs adding to the challenge. The firm emphasized that considerable AI revenue is required for a satisfactory return on investment. While current AI stocks are supported by solid cash flows, unlike during the dot-com bubble, the market may see a correction if monetization goals are not met by 2025 or 2026.
On a positive note, other analysts such as Joseph Briggs of Goldman Sachs are optimistic about AI’s potential. They project that generative AI could automate a substantial portion of tasks, leading to significant productivity and GDP growth over the next decade. Despite high current expenditures, some analysts believe the investment in AI is comparable to past technology cycles. They argue that companies linking AI investments to revenue growth are being rewarded, indicating that the investments may pay off in the long run. While there are short-term challenges like chip shortages, the broader adoption of AI could positively impact various sectors, including utilities, in the future. Finally, the potential for AI to transform industries and drive efficiency remains high, with the possibility of future advancements that could justify current spending.
Our Methodology
For this article, we identified around 90 penny stocks listed on NASDAQ with Buy or better analyst ratings and market capitalizations of over $300 million. We narrowed down our list to 10 stocks based on multiple but different metrics such as future growth prospects, valuations, and analysts’ ratings and comments. We listed the stocks in ascending order of their hedge fund sentiment which was taken from Insider Monkey’s database of over 900 elite hedge funds.
Why do we care about what hedge funds do? 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 psychotherapist conducting an assessment in a virtual video session.
Talkspace, Inc. (NASDAQ:TALK)
Share Price as of July 12: $2.14
Number of Hedge Fund Holders: 37
Talkspace, Inc. (NASDAQ:TALK) is a New York-based virtual behavioral healthcare company that provides psychotherapy and psychiatry services via its platform. The platform offers a variety of services, including text-based therapy, live video, and audio sessions for users seeking psychiatric and therapeutic support, catering to different age groups from teens to seniors. The company provides customized solutions for individuals, businesses, and health plans, including services like employee assistance programs and collaborations with organizations to improve mental health.
Hedge fund sentiment was positive toward Talkspace, Inc. (NASDAQ:TALK) in Q1 as hedge funds with investments in the stock were 27 in the quarter, with positions worth $106.061 million. This is compared to 19 funds with positions worth $59.3 million in the preceding quarter. Hudson Executive Capital is the top investor in the company, as of March 31, and has a stake worth $35 million.
Talkspace, Inc. (NASDAQ:TALK) is set for significant growth in the behavioral healthcare market, which is expected to grow to $115.21 billion by 2030 from $83.7 billion in 2023 in the US. A key part of Talkspace’s strategy is the upcoming Medicare coverage rollout in multiple states, including California and New York, covering over 10 million people with traditional Medicare.
The company is also making progress with Medicare Advantage networks, which shows its appeal as a partner in behavioral health solutions. It aims to be in-network in all 50 states by year-end, establishing itself as a leader in accessible and affordable mental health services.
The stock has consensus Buy ratings among 4 Wall Street analysts. The average price target of $4.00 has an upside of 87%, as of July 12.
Overall TALK ranks 2nd on our list of the best NASDAQ penny stocks to buy. You can visit 10 Best NASDAQ Penny Stocks To Invest In to see the other NASDAQ penny stocks that are on hedge funds’ radar. While we acknowledge the potential of TALK 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 timeframe. If you are looking for an AI stock that is more promising than TALK 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.
