In this article, we will take a look at the 10 most promising low-cost stocks according to hedge funds.
Inflation Data Hints at a Lower Than 50 bps Cut
The September Consumer Price Index data showed that consumer prices rose way above expectations. On October 10, Omair Sharif, Inflation Insights president, appeared in an interview on Yahoo Finance to discuss his market thesis amid rising consumer prices.
Sharif highlights that while inflation data is higher than expected housing inflation has started to cool down a bit more. He also adds that food prices have come down significantly ever since the outburst after COVID-19, hinting that there are a lot of positives to extract from the current market situation.
Sharif suggests that the market is not up to a point where the Fed will be worried about the status quo, wiping out any hopes for a 50 basis point cut in November. His market thesis is that a 25 basis point cut in November will be the best course of action.
The Bull Market is Turning Two Years Old
As the Street approaches the second anniversary of the bull market, the market is set up for major changes. On October 11, Matthew Palazzolo, Bernstein Private Wealth Management’s senior investment strategist, appeared in an interview on Yahoo Finance to discuss the market outlook.
Palazzolo suggests that the Fed’s monetary policy is probably the biggest risk to the bull market at the moment. He adds that the Fed will continue to cut rates in 2025. While returns are expected to be modest the scenario is expected to be fairly conducive for equity investors.
He adds that the market is expected to broaden out from the magnificent seven and their valuations will increase relatively slowly. Palazzolo highlights that low-cost names will offer greater opportunity. He also suggests that companies beyond the big seven are more in line with their long-term average.
Now that we have assessed the current market outlook, let’s take a look at the 10 most promising low-cost stocks according to hedge funds.
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Our Methodology
To find the most promising low-cost stocks according to hedge funds, we used the Finviz stock screener. We set the Forward P/E under 15 to get a list of cheap stocks with a market capitalization of over $2 billion. We then examined the hedge fund sentiment of these stocks as of Q2 2024 and picked the most popular ones. The stocks are sorted in ascending order of the number of hedge fund holders as of Q2 2024 as a primary metric and their Forward P/E as of October 13, as a secondary metric.
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).
10 Most Promising Low-Cost Stocks According to Hedge Funds
10. General Motors Company (NYSE:GM)
Number of Hedge Fund Holders: 72
Forward P/E Ratio as of October 13, 2024: 4.8
General Motors Company (NYSE:GM) is one of the most promising low-cost stocks according to hedge funds. The company designs and produces trucks, crossovers, cars, and automobile parts.
While the company’s most profitable products include SUVs and internal combustion engine (ICE) pickups, General Motors (NYSE:GM) is making significant investments in electric vehicles, promising high growth potential in 2024 and ahead.
During the third quarter of 2024, General Motors Company (NYSE:GM) delivered more than 32,000 electric vehicles, up by 60% year-over-year, and 46% sequentially. The company is on track to develop nearly 200,000 General Motors-branded electric vehicles by the end of 2024.
Declining battery costs have been a catalyst for the EV industry and the company especially. General Motors Company (NYSE:GM) expects production volume and demand to grow for the foreseeable future. The company’s affordable electric vehicle lineup sets it apart from competitors. General Motors Company (NYSE:GM) is able to offer lower prices due to its massive cost-saving initiatives. Over the last two years, the company has reduced fixed costs by more than $2 billion, giving it a competitive advantage.
Diamond Hill Capital stated the following regarding General Motors Company (NYSE:GM) in its Q2 2024 investor letter:
“Other top Q2 contributors included Extra Space Storage and General Motors Company (NYSE:GM). Shares of automobile manufacturer General Motors (GM) rose as its internal combustion engine business has also received a boost from the recent slowdown in electric vehicle adoption among consumers. GM also announced additional share repurchases in Q2, reinforcing its commitment to returning cash to shareholders.”
9. Elevance Health, Inc. (NYSE:ELV)
Number of Hedge Fund Holders: 73
Forward P/E Ratio as of October 13, 2024: 13.47
Elevance Health, Inc. (NYSE:ELV) ranks ninth on our list of the most promising low-cost stocks according to hedge funds. Formerly referred to as Anthem, Inc., Elevance Health is now a prominent health benefits company in the United States.
In the fiscal second quarter of 2024, Elevance Health, Inc. (NYSE:ELV) generated revenue worth $43.2 billion and an adjusted operating gain of $2.8 billion. In addition to that, the company generated an operating cash flow worth $2.4 billion year-to-date. As a regular dividend payer, the company paid a quarterly dividend of $1.63 per share, representing a cash distribution of $378 million.
On October 1, the company revealed its 2025 Medicare Advantage Plans. According to the report, Elevance Health, Inc. (NYSE:ELV) will offer flexible medicare advantage plans with personalized benefits to nearly 40.3 million eligible consumers in 23 states across the US. In addition to that, the company’s affiliated health plans serve 2.9 million Medicare members, and in 2025, Elevance plans to provide personalized care for customers beyond healthcare.
Overall, the company’s financial results were driven by its diversified portfolio and the efficient execution of its strategic initiatives. Elevance Health, Inc. (NYSE:ELV) has strong fundamentals positioning it as an important name in the industry. Its 119 million strong clientele is evidence of its standing in the industry.
Artisan Partners’ Artisan Select Equity Fund stated the following regarding Elevance Health, Inc. (NYSE:ELV) in its Q2 2024 investor letter:
“The top contributors to performance for the quarter were Alphabet, Lam Research and Elevance Health, Inc. (NYSE:ELV). Elevance shares rose 5% during the quarter. The business has been performing well and has delivered good profit growth this year, despite a flat top line. It has largely navigated the challenges related to Medicaid redeterminations, which have caused temporary volatility in membership and health care utilization levels. Its vertical integration strategy is gaining traction, with strong revenue and profit growth at its Carelon Services business. Elevance’s shares are trading at 13X earnings, which is a very attractive investment proposition for a durable business that expects long-term earnings growth of over 12%.”
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