In this article, we will look at the 10 Cheapest High Quality Stocks to Buy According to Hedge Funds.
On June 4, Jurrien Timmer, director of Global Macro for Fidelity Management & Research Company released his commentary on the stock market outlook. He highlighted the recent calmness in the market to be a good omen for future predictions. Timmer sees some upside combined with limited downside for the next 6 to 12 months.
The upside might be capped due to valuations, noted Timmer. He elaborated that the forward price-earnings ratio of the S&P 500 is near a cycle high of 21 after rebounding from April lows. Moreover, the earnings growth estimates for 2025 have been revised down from 12% to 7%, thereby indicating a moderation but not a severe downturn. This implies that the market is not priced for a negative outcome, which limits further upside potential because expectations are already relatively optimistic. Timmer further highlighted, that earnings growth is expected to stabilize in the mid-single digits, which supports a moderate outlook for corporate profits.
However, there is some downside to the outlook arising from certain risks and challenges, including renewed hawkish tariff rhetoric that could impact stocks and the US dollar. In addition, bond yields are under upward pressure due to a rising term premium, which is the extra yield investors demand for lending over longer periods. This shift from a decade of near-zero or negative term premiums could continue to push yields higher, thereby pressuring stock P/E ratios through the Fed model. Timmer noted that investors should expect a trading range with limited upside and downside, influenced by earnings growth, interest rates, and risk premiums.
With that let’s take a look at the 10 cheapest high-quality stocks to buy according to hedge funds.
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Our Methodology
To compile the list of the 10 cheapest high-quality stocks to buy according to hedge funds, we used iShares MSCI USA Quality Factor ETF and Invesco S&P 500 Quality ETF. Using the ETFs, we aggregated a list of high-quality stocks trading below the Forward P/E of the S&P 500, which is 23.37, as per the Wall Street Journal. Next, we ranked these stocks in ascending order of the number of hedge fund holders, sourced from Insider Monkey’s Q1 2025 database. Please note that the data was recorded on June 12, 2025.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10 Cheapest High-Quality Stocks to Buy According to Hedge Funds
10. F5, Inc. (NASDAQ:FFIV)
Forward P/E Ratio: 20.14
Number of Hedge Fund Holders: 36
F5, Inc. (NASDAQ:FFIV) is one of the 10 Cheapest High-Quality Stocks to Buy According to Hedge Funds. On June 11, F5, Inc. (NASDAQ:FFIV) announced new capabilities for F5 BIG-IP Next for Kubernetes in collaboration with NVIDIA Corporation (NASDAQ:NVDA). The F5 BIG-IP Next for Kubernetes will be accelerated with NVIDIA’s BlueField-3 DPUs and the NVIDIA DOCA software framework.
This collaboration centers on enhancing AI-first application delivery running natively on NVIDIA BlueField-3 DPUs. F5, Inc. (NASDAQ:FFIV) highlighted that the collaboration was validated by Sesterce customer validation and deployment. Sesterce is a European company known for its next-generation infrastructures and sovereign AI.
The deployment by Sesterce highlighted enhanced performance, multi-tenancy, and security, with an initial 20% improvement in GPU utilization. Moreover, the integration with NVIDIA Dynamo and KV Cache Manager helped reduce latency and optimize GPU resources for the large language model interface.
Integration between F5 and NVIDIA was enticing even before we conducted any tests, said Youssef El Manssouri, CEO and Co-Founder at Sesterce. Our results underline the benefits of F5’s dynamic load balancing with high-volume Kubernetes ingress and egress in AI environments, added the CEO.
F5, Inc. (NASDAQ:FFIV) is a technology company that provides solutions to secure, deliver, and optimize applications and APIs across any environment. Its key offerings include BIG-IP, F5 NGINX, and F5 Distributed Cloud Services. They help organizations ensure fast operating and secure applications.
9. Sempra (NYSE:SRE)
Forward P/E Ratio: 16.7
Number of Hedge Fund Holders: 48
Sempra (NYSE:SRE) is one of the 10 Cheapest High-Quality Stocks to Buy According to Hedge Funds. On June 11, Sempra (NYSE:SRE) announced signing a non-binding heads of agreement with JERA Co. Inc. JERA Co. Inc. is one of the largest power generation companies in Japan.
The agreement covers a 20-year sale and purchase of 1.5 million tonnes per annum of liquefied natural gas from the Port Arthur LNG development project in Jefferson County, Texas. The Port Arthur LNG Phase 2 is an expansion of the existing Port Arthur LNG facility. Management of Sempra (NYSE:SRE) noted that the Phase 2 project has received all key permits and is expected to include two liquefaction trains capable of producing about 13 Mtpa of LNG. Moreover, the project is competitively positioned and is under active marketing, further enhancing its prospects.
We are pleased to collaborate with JERA, Japan’s largest power generation company and one of the world’s largest LNG buyers, as they continue to work with the United States, said Justin Bird, chief executive officer of Sempra Infrastructure.
Sempra (NYSE:SRE) is a leading North American energy infrastructure company that invests in, develops, and operates energy infrastructure and provides electric and natural gas services. Its operations are organized into three main segments including Sempra California, Sempra Texas Utilities, and Sempra Infrastructure.
8. Jabil Inc. (NYSE:JBL)
Forward P/E Ratio: 19.9
Number of Hedge Fund Holders: 55
Jabil Inc. (NYSE:JBL) is one of the 10 Cheapest High-Quality Stocks to Buy According to Hedge Funds. On June 10, Barclays analyst George Wang raised the firm’s price target on Jabil Inc. (NYSE:JBL) from $184 to $206, while keeping an Overweight rating on the stocks.
The firm raised the price target based on the positive expectations for Jabil Inc.’s (NYSE:JBL) third-quarter 2025 earnings, which are set to be released on June 17. Analyst George Wang believes that the strength of cloud business will offset the challenges in key vertices including electric vehicles, renewables, and industrials amidst macroeconomic uncertainty.
Jabil Inc. (NYSE:JBL) disclosed a third-quarter outlook during its second-quarter 2025 earnings call. Management anticipates net revenue between $6.7 billion to $7.3 billion and GAAP operating income of $282 million to $352 million.
Jabil Inc. (NYSE:JBL) is an international manufacturing company that provides engineering, electronics design, production, and supply chain solutions. The company serves key industries including automotive, healthcare, renewable energy, cloud infrastructure, and consumer electronics.
7. Caterpillar Inc. (NYSE:CAT)
Forward P/E Ratio: 19.03
Number of Hedge Fund Holders: 62
Caterpillar Inc. (NYSE:CAT) is one of the 10 Cheapest High-Quality Stocks to Buy According to Hedge Funds. On June 11, Caterpillar Inc. (NYSE:CAT) announced raising its quarterly dividend by 10 cents to $1.51 per share. The increased dividend will be payable by August 20, 2025.
The 10 cent increase reflects a 7% increase in quarterly dividends. Caterpillar Inc. (NYSE:CAT) has a dividend yield of 1.55% and has grown the payout at a rate of 6.48% during the past 5 years. The company aims to return all Machinery, Energy & Transportation free cash flow to its shareholders over time through dividends and buybacks.
Continued delivery on our enterprise strategy for long-term profitable growth, combined with strong operating performance, has led to robust ME&T free cash flow, said Joe Creed, CEO of Caterpillar Inc. (NYSE:CAT).
Caterpillar Inc. (NYSE:CAT) is an international leader in construction and mining equipment. The company operates through three main segments including Construction Industries, Resource Industries, and Financial Products.
6. Lockheed Martin Corporation (NYSE:LMT)
Forward P/E Ratio: 17.37
Number of Hedge Fund Holders: 68
Lockheed Martin Corporation (NYSE:LMT) is one of the 10 Cheapest High-Quality Stocks to Buy According to Hedge Funds. On June 10, Lockheed Martin Corporation (NYSE:LMT) announced expanding its synthetic aviation turbine fuels to F-16 Fighting Falcon and C-130 Hercules.
Earlier this year, Lockheed Martin Corporation (NYSE:LMT) approved the use of synthetic aviation turbine fuels in the F-35 Lightning II. The new fuel sources helped the company in readiness by reducing reliance on the extended supply chain. Management noted that the company is demonstrating its dedication to energy resilience and mission readiness. The approval allows F-35s, F-16s, and C-130s to use synthetic blends of fuels with traditional fuels in a 50% ratio.
Synthetic aviation turbine fuels are advanced alternative fuels derived from a variety of sources. They are engineered to meet stringent aviation standards, providing a cleaner, more adaptable energy option for military aviation.
Lockheed Martin Corporation (NYSE:LMT) is a leading aerospace and defense company that operates through Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space.
5. QUALCOMM Incorporated (NASDAQ:QCOM)
Forward P/E Ratio: 13.52
Number of Hedge Fund Holders: 82
QUALCOMM Incorporated (NASDAQ:QCOM) is one of the 10 Cheapest High-Quality Stocks to Buy According to Hedge Funds. On June 10, Wells Fargo analyst Aaron Rakers maintained a Sell rating on QUALCOMM Incorporated (NASDAQ:QCOM) with a price target of $140.
The maintained Sell rating by Wells Fargo comes after QUALCOMM Incorporated (NASDAQ:QCOM) recently announced the acquisition of Alphawave Semi, a company that deals in high-speed wired connectivity and computing technologies. Aaron Rakers noted that while the acquisition might strategically benefit QCOM’s data center ambition, it comes at a significant premium over Alphawave’s previous closing price. The deal worth $2.4 billion (all-cash) represents a 96% premium over Alphawave’s previous closing price, thereby raising concerns regarding QUALCOMM Incorporated’s (NASDAQ:QCOM) financial decision.
Analyst Aaron Rakers acknowledged that Alphawave’s technology complements QUALCOMM Incorporated’s (NASDAQ:QCOM) existing CPU and GPU design. However, the comparatively small financial value of the transaction might not significantly benefit the financial position of QCOM in the near term, thereby justifying his Sell rating.
QUALCOMM Incorporated (NASDAQ:QCOM) is a leading technology company that specializes in the development and commercialization of wireless technology. It also designs integrated circuits for mobile, IoT, and edge computing.
4. Applied Materials, Inc. (NASDAQ:AMAT)
Forward P/E Ratio: 18.31
Number of Hedge Fund Holders: 83
Applied Materials, Inc. (NASDAQ:AMAT) is one of the 10 Cheapest High-Quality Stocks to Buy According to Hedge Funds. On June 10, Applied Materials, Inc. (NASDAQ:AMAT) announced a quarterly dividend of $0.46 per share, payable on September 11, 2025.
In March 2025, Applied Materials, Inc. (NASDAQ:AMAT) increased the quarterly dividends by 15% from $0.40 to $0.46. This marked the 8th consecutive year of dividend increase. The company has a forward dividend yield of 1.05% and grown the payouts at a rate of 14.32% over the past 5 years.
During the second quarter, the company distributed around $2.0 billion through dividends and share buybacks. Management noted that it had around $15.9 billion remaining to be distributed to shareholders through repurchase at the end of this period.
Applied Materials, Inc. (NASDAQ:AMAT) operates as a materials engineering company that manufactures and provides materials for Semiconductors, applied global services, and display industries.
3. Johnson & Johnson (NYSE:JNJ)
Forward P/E Ratio: 14.75
Number of Hedge Fund Holders: 91
Johnson & Johnson (NYSE:JNJ) is one of the 10 Cheapest High-Quality Stocks to Buy According to Hedge Funds. On June 11, Johnson & Johnson (NYSE:JNJ) announced findings from Phase 3b APEX study for TREMFYA, showing that it significantly reduces symptoms for active psoriatic arthritis and also inhibits the progression of joint structural damage.
TREMFYA is currently the only IL-23 inhibitor proven to significantly inhibit the progression of joint structural damage in patients with active PsA. The APEX study showed that the treatment demonstrated a two-and-a-half times greater ability to inhibit joint structural damage compared to placebo after 24 weeks of treatment.
The data showed that over 40% of TREMFYA-treated patients achieved a 50% improvement in joint symptoms, moreover, 67-68% achieved a 20% improvement. The positive results from the study reinforce Johnson & Johnson’s (NYSE:JNJ) TREMFYA as a potential first-in-line treatment option for adults with active psoriatic arthritis.
Johnson & Johnson (NYSE:JNJ) is a healthcare company that researches, develops, manufactures, and sells a wide range of healthcare products. It operates mainly through two segments including Innovative Medicine and MedTech.
2. Adobe Inc. (NASDAQ:ADBE)
Forward P/E Ratio: 20.43
Number of Hedge Fund Holders: 111
Adobe Inc. (NASDAQ:ADBE) is one of the 10 Cheapest High-Quality Stocks to Buy According to Hedge Funds. On June 11, J. Parker Lane from Stifel Nicolaus maintained a Buy rating on Adobe Inc. (NASDAQ:ADBE) with a price target of $525. The rating is based on the company’s strong position in the creative software market.
Analyst J. Parker Lane noted the strategic edge of Adobe Inc. (NASDAQ:ADBE) in the creative market through its core software including Photoshop and Premiere Pro. These software continue to dominate the market against their competition from other software like Canva and Figma. Despite the growing competition, Adobe continues to exercise its edge by offering unique updates and feature-rich capabilities for professional users.
In addition, J. Parker Lane also highlighted that the company in its recent Summit event showed that its outlook has not been hampered by the macroeconomic conditions, thereby boosting investor confidence.
Adobe Inc. (NASDAQ:ADBE) is an international technology company that provides software and solutions for creative digital content. It operates through key segments including Digital Media, Digital Experience, and Publishing and Advertising.
1. UnitedHealth Group Incorporated (NYSE:UNH)
Forward P/E Ratio: 13.5
Number of Hedge Fund Holders: 139
UnitedHealth Group Incorporated (NYSE:UNH) is one of the 10 Cheapest High-Quality Stocks to Buy According to Hedge Funds. On June 11, Jefferies analyst David Windley maintained a Buy rating on UnitedHealth Group Incorporated (NYSE:UNH), with a price target of $399.
The rating comes after the company announced increased quarterly dividends. UnitedHealth Group Incorporated (NYSE:UNH) increased the quarterly dividend from $2.10 to $2.21 per share. The company’s annual dividends now stand at $8.84 per share reflecting a yield of 2.9%.
In addition, the company posted growth in its fiscal first quarter of 2025. Revenues for the quarter reached $109.6 billion, representing a $9.8 billion increase compared to the same period last year. The number of consumers served by UnitedHealthcare increased by 780,000 year-to-date, whereas Optum Health expects to serve 650,000 new value-based care patients in 2025.
UnitedHealth Group Incorporated (NYSE:UNH) is a healthcare company that works in two areas including health insurance and health services. The company helps people get medical care and insurance while using technology to make better healthcare services.
While we acknowledge the potential of UNH to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than UNH and that has 100x upside potential, check out our report about this cheapest AI stock.
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Disclosure: None.
