In this article, we discuss 10 value stocks to buy according to Joel Greenblatt.
Value investors are once again in the limelight as inflation wreaks havoc on the growth economy. One of those value investors is Joel Greenblatt, the chief of Gotham Asset Management, a hedge fund with a 13F portfolio value of more than $3 billion at the end of the fourth quarter of 2021. Greenblatt made his fortune on the market through a value-focused investing strategy that averaged returns of 50% in the late 1980s and early 1990s. He is also famous for working closely with Big Short investor Michael Burry during his early days in the market.
The value investing guru recently spoke to William Green in a larger discussion around his outlook on the economy. The Gotham Asset Management chief sought to brush aside the hype around blockchain technology in general and Bitcoin in particular during the interview, saying he did not own any Bitcoin because he thought it was “not an intelligent way” to invest in the crypto economy. Greenblatt labeled Bitcoin “speculation” and predicted that it would “never earn any money” but stressed that he was not totally dismissive of blockchain technology.
Greenblatt compared Bitcoin to expensive art, noting that the pieces that may be popular now may not be popular in the future. These and other thoughts that Greenblatt has on the economy are much better understood in the context of the latest market moves made by the investor. Some of the top value holdings in the Gotham Asset Management portfolio at the end of December 2021 included Target Corporation (NYSE:TGT), McDonald’s Corporation (NYSE:MCD), and The Home Depot, Inc. (NYSE:HD), among others discussed in detail below.
Our Methodology
The stocks were picked from the fourth quarter 13F holdings of Gotham Asset Management, based on the fund’s latest 13F regulatory filing with the SEC. The analyst ratings of each stock are also discussed to provide readers with some additional context for their investment decisions. Data from around 900 elite hedge funds tracked by Insider Monkey in the fourth quarter of 2021 was used to identify the number of hedge funds that hold stakes in each firm.
Joel Greenblatt of Gotham Asset Management
Value Stocks to Buy According to Joel Greenblatt
10. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 71
Exxon Mobil Corporation (NYSE:XOM) is an integrated oil and gas firm. According to its latest 13F filing, Gotham Asset Management owned 253,999 shares of the company at the end of December 2021 worth $15.5 million, representing 0.50% of the value of its 13F portfolio. The fund increased its stake in the energy giant by 20% between September 30 and December 31
On March 9, Barclays analyst Jeanine Wai kept an ‘Overweight’ rating on Exxon Mobil Corporation (NYSE:XOM) stock and raised the price target on it to $98 from $91, identifying “current gas price strip and updated Permian production/capex assumptions” as some of the main reasons behind the ratings update.
At the end of the fourth quarter of 2021, 71 hedge funds tracked by the database of Insider Monkey held stakes worth $5.3 billion in Exxon Mobil Corporation (NYSE:XOM), compared to 64 funds in the previous quarter holding stakes worth $4.6 billion.
Just like Target Corporation (NYSE:TGT), McDonald’s Corporation (NYSE:MCD), and The Home Depot, Inc. (NYSE:HD), Exxon Mobil Corporation (NYSE:XOM) is one of the stocks on the radar of value investors amid rising inflation.
In its Q4 2021 investor letter, Saturna Capital highlighted a few stocks and Exxon Mobil Corporation (NYSE:XOM) was one of them. Here is what the fund said:
“Few companies maintain their position at the top for more than a decade or two. One that did was Exxon Mobil Corporation (NYSE:XOM), which appeared decennially from 1980 through 2010. In 2019 it was ranked 10th, but as of writing has dropped to 39th place.”
9. United Parcel Service, Inc. (NYSE:UPS)
Number of Hedge Fund Holders: 55
United Parcel Service, Inc. (NYSE:UPS) provides letter and package delivery services. Greenblatt’s hedge fund owned 72,502 shares of the delivery firm at the end of the fourth quarter of 2021 worth $15.5 million, representing 0.5% of its 13F portfolio value. The fund increased its stake in United Parcel by 16% in the fourth quarter.
On February 2, Wells Fargo analyst Allison Poliniak-Cusic maintained an ‘Overweight’ rating on United Parcel Service, Inc. (NYSE:UPS) stock and raised her price target on it to $270 from $245, noting the earnings results of the firm topped expectations, and were reflective of the “better not bigger” strategy of the firm.
Among the hedge funds tracked by Insider Monkey, New York-based Renaissance Technologies is a leading shareholder in United Parcel Service, Inc. (NYSE:UPS) with 1.1 million shares worth more than $249 million.
In its Q4 2021 investor letter, Saturna Capital also discussed United Parcel Service, Inc. (NYSE:UPS). Here is what the fund said:
“Given the likelihood of rising inflation and interest rates ahead, we anticipate adjustments to the portfolio to reduce exposure to highly valued stocks dependent on low interest rates to support terminal year valuations, while seeking investments in companies more correlated with a return to economic normalcy. Despite the share price decline, it remains expensive with modest growth. We sold our position in United Parcel. The United Parcel Service, Inc. (NYSE:UPS) sale was premature, and we may re-engage given an opportunity.”
8. Lowe’s Companies, Inc. (NYSE:LOW)
Number of Hedge Fund Holders: 72
Lowe’s Companies, Inc. (NYSE:LOW) is a home improvement retailer. The latest data shows that the investment firm led by Joel Greenblatt owned 59,045 shares in the company at the end of December 2021 worth $15.2 million, representing 0.49% of its 13F portfolio value. The fund increased its stake in the home improvement company by 50% in the fourth quarter.
On February 23, Baird analyst Peter Benedict kept an ‘Outperform’ rating on Lowe’s Companies, Inc. (NYSE:LOW)’s stock, with a price target of $285, underlining that home improvement demand would prove “more durable” than some feared in the coming months.
At the end of the fourth quarter of 2021, 72 hedge funds held stakes worth $6.8 billion in Lowe’s Companies, Inc. (NYSE:LOW), up from 60 in the preceding quarter with holdings worth $5 billion.
In its Q4 2021 investor letter, Pershing Square Capital Management, an asset management firm, highlighted a few stocks and Lowe’s Companies, Inc. (NYSE:LOW) was one of them. Here is what the fund said:
“Lowe’s Companies, Inc. (NYSE:LOW) is a high-quality business with significant long-term earnings growth potential
Supportive macroeconomic backdrop
-Aging housing stock, lack of new inventory, robust home equity values, and unprecedented pro project backlog
-COVID-19 causing millennials to enter the housing market
Positioned to grow EPS largely independent of market conditions
-Idiosyncratic revenue opportunities driving share gains
-Self-help initiatives catalyzing operating margin expansion
-Buybacks representing ~8% of current market capitalization planned for 2022
Multi-year business transformation with substantial earnings upside
-Margin target of 13% has substantial upside; Home Depot at ~15.3% and increasing
-Potential to generate high-teens EPS growth over the next several years.
Lowe’s Companies, Inc. (NYSE:LOW) continues to trade at a significantly discounted P/E multiple relative to Home Depot despite materially higher prospective EPS growth. LOW’s share price including dividends increased 63% in 2021 and has decreased 10% year-to-date in 2022.”
7. Micron Technology (NASDAQ:MU)
Number of Hedge Fund Holders: 83
Micron Technology (NASDAQ:MU) makes and sells semiconductor products. Gotham Asset Management owned 161,973 shares of the company worth $15 million as of December 31, representing 0.48% of the value of its 13F portfolio. The fund upped its stake in the chip stock by 25% in the fourth quarter.
On March 30, Morgan Stanley analyst Joseph Moore kept an ‘Equal Weight’ rating on Micron Technology (NASDAQ:MU) and raised the firm’s price target on its shares to $83 from $77, noting that the firm “continues to execute well and the strong earnings power continues to be more durable than expectations”.
At the end of the fourth quarter of 2021, 83 hedge funds in the database of Insider Monkey held stakes worth $5.5 billion in Micron Technology (NASDAQ:MU), compared to 63 funds with $3.8 billion in holdings a quarter earlier.
In its Q3 2021 investor letter, Hazelton Capital Partners, an asset management firm, highlighted a few stocks and Micron Technology (NASDAQ:MU) was one of them. Here is what the fund said:
“It’s hard to explain how shares of Micron Technology (NASDAQ:MU), manufacture of DRAM and NAND semiconductor chips, can fall during a global chip shortage. In most industries, focusing on demand can give you a clear insight into what lays ahead for a company. Today, the memory and storage chip industry is no different. However, in the past, companies focused on market share led to the reckless build out of chip fabrication plants (FABs), oversupply, falling average selling prices (ASPs) of memory and storage chips, lower margins, and declining cash flows. As the industry consolidated – there are now just 3 major producers of DRAM and 5 on the NAND side – rational behavior among the key players began to take hold as competitors began focusing more on R&D. Currently, chip pricing remains cyclical although less so than in the past and that cyclicality has a long-term upward bias. The ongoing transition to newer and more robust platforms (3D 176-layer NAND & 1-Alpha node DRAM) has provided the memory and storage chip industry with improved supply capacity under its current manufacturing footprint, ultimately pressuring ASPs. Over the past three years, as most of the large platform conversions have already taken place, being able to add more bits per wafer has reached a saturation point. With no major FAB build outs planned in the near-term by competitors Samsung or SK Hynix, constrained supply and flattening cost curves should lead to durable and upward sloping ASPs once the recent volatility from the chip shortage subsides.
Currently Micron Technology (NASDAQ:MU) trades at just 8x 2022 estimate earnings. Micron Technology (NASDAQ:MU) is expecting growth in both DRAM and NAND not just from the supply of more chips to data centers, artificial intelligence, the auto sector, and mobile devices, but also from greater demand for gigabyte capacity per unit within those segments. With a healthy balance sheet, improving return on invested capital, and expanding cash flows, not only should Micron benefit from improving future earnings but its multiple should also reflect the transition to a flattening cost curve.”
6. DTE Energy Company (NYSE:DTE)
Number of Hedge Fund Holders: 27
DTE Energy Company (NYSE:DTE) is a multi-utilities firm. Gotham Asset Management owned 119,933 shares of the company at the end of December 2021 worth $14.3 million, and representing 0.46% of value of its 13F portfolio. The company was a new addition to the portfolio in the fourth quarter.
On March 10, Argus analyst Marie Ferguson maintained a ‘Buy’ rating on DTE Energy Company (NYSE:DTE) stock and raised her price target on it to $132 from $130, backing the firm to grow its EPS by 5%-6% annually over the next five years and to provide shareholders with total annual returns of 9%-10%.
At the end of the fourth quarter of 2021, 27 of the hedge funds tracked by our database held stakes worth $778 million in DTE Energy Company (NYSE:DTE), up from 22 in the preceding quarter, which held stakes worth $426 million.
Along with Target Corporation (NYSE:TGT), McDonald’s Corporation (NYSE:MCD), and The Home Depot, Inc. (NYSE:HD), DTE Energy Company (NYSE:DTE) is one of the stocks that institutional investors have their eye on as interest rates rise.
5. eBay Inc. (NASDAQ:EBAY)
Number of Hedge Fund Holders: 53
eBay Inc. (NASDAQ:EBAY) owns and runs an online marketplace. Securities filings show that Gotham Asset Management owned 214,872 shares of the company at the end of the fourth quarter of 2021 worth $14.2 million, representing 0.46% of the portfolio’s value. The fund increased its stake in the ecommerce firm by 3% between October and December.
On March 15, Deutsche Bank analyst Lee Horowitz initiated coverage of eBay Inc. (NASDAQ:EBAY) with a ‘Buy’ rating and a price target of $64, underlining that the market was underappreciating the position of the firm given the secular growth trends around ecommerce.
Among the hedge funds being tracked by Insider Monkey, United Kingdom-based investment firm Ako Capital is a leading shareholder in eBay Inc. (NASDAQ:EBAY) with 4.9 million shares worth more than $327 million.
In its Q4 2020 investor letter, Steel City Capital, an asset management firm, highlighted a few stocks and eBay Inc. (NASDAQ:EBAY) was one of them. Here is what the fund said:
“eBay (Long): eBay Inc. (NASDAQ:EBAY) continues to be a core holding in the Partnership’s long book despite not having any “sexy” attributes or unknown catalysts. I like EBAY because it checks the boxes of being both capital light and priced as a value stock (low multiple of free cash flow), factors which are attractive in a potentially inflationary environment.
In 3Q’20 the company printed $2.6 billion of revenue vs. guidance of $2.4 billion (a $200 million beat) while full year revenue guidance was taken up by $400 million, implying 4Q’20 would be higher by $200 million as well. Free cash flow from continuing ops was guided to $2.3 billion for the full year, slightly above the $2.0 billion the business regularly generated before getting a Covid/stimulus related boost.
eBay Inc. (NASDAQ:EBAY) will have about $4.6 billion of cash on hand at year end5 and should receive another $2.0 billion in after-tax proceeds this quarter related to the sale of its Classifieds portfolio6 . Additionally, the company will receive 540 million shares from Adevinta which are currently valued at ~$8.3 billion, and also holds a warrant to purchase a 5.0% stake in payment processor Adyen which was last valued at ~$775 million. Additional asset sales are also not out of the question7 . Backing everything out at today’s market cap of $38.2 billion gives a clean market cap for the core marketplace of $22.6 billion. At a minimum, I expect $2.0 billion of free cash flow in FY’21, with the potential for a higher figure to the extent the incoming administration is successful in cutting additional stimulus checks. By FY’22, free cash flow should ramp to $2.3 billion after incorporating a full year’s contribution from the managed payments initiative. This values eBay Inc. (NASDAQ:EBAY) at 9.6x free cash flow, or 11.7x excluding stock-based comp.”
4. 3M Company (NYSE:MMM)
Number of Hedge Fund Holders: 41
3M Company (NYSE:MMM) is a diversified technology company. The firm’s latest 13F filing reveals that Greenblatt’s fund owned 78,792 shares of the company at the end of the fourth quarter of 2021 worth $13.9 million, representing 0.45% of the value of its 13F portfolio. The investment firm upped its stake in the firm by 45% in the fourth quarter.
On February 15, Wells Fargo analyst Joseph O’Dea kept an ‘Equal Weight’ rating on 3M Company (NYSE:MMM) with a price target of $173. The stock has nosedived in recent weeks after the firm lost a $50 million jury verdict in its ongoing stream of defective earplug lawsuits.
Among the hedge funds being tracked by Insider Monkey, Washington-based firm Fisher Asset Management is a leading shareholder in 3M Company (NYSE:MMM) with 5.7 million shares worth more than $1 billion.
3. Target Corporation (NYSE:TGT)
Number of Hedge Fund Holders: 49
Target Corporation (NYSE:TGT) is a general merchandise retailer. Regulatory filings show that the investment firm led by Joel Greenblatt owned 55,044 shares in the company at the end of the fourth quarter of 2021 worth $12.7 million, representing 0.41% of its 13F portfolio value. The fund slashed its stake in the company by 8% between October and December.
On March 2, BMO Capital analyst Kelly Bania kept an ‘Outperform’ rating on Target Corporation (NYSE:TGT) and raised the firm’s price target on its shares to $295 from $275, highlighting that the shares look inexpensive and reflect the company’s “affordable luxury” proposition.
Among the hedge funds being tracked by Insider Monkey, Florida-based GQG Partners is a leading shareholder in Target Corporation (NYSE:TGT) with 4.9 million shares worth more than $1.1 billion.
In its Q2 2021 investor letter, Nelson Capital Management, an asset management firm, highlighted a few stocks and Target Corporation (NYSE:TGT) was one of them. Here is what the fund said:
“We added Target Corporation (NYSE:TGT) to our consumer staples sector. Target Corporation (NYSE:TGT) offers a broad array of products in owned and known brand items at affordable prices. Its omni-channel fulfillment centers allow customers to receive their items via in-store pickup, curbside pickup, same-day shipping and regular shipping while simultaneously reducing operating costs. With a significantly lower valuation than peers and a unique operating strategy, Target Corporation (NYSE:TGT) is an attractive holding.”
2. The Home Depot, Inc. (NYSE:HD)
Number of Hedge Fund Holders: 68
The Home Depot, Inc. (NYSE:HD) is a home improvement retailer. The latest data shows that Gotham Asset Management owned 29,811 shares of the firm at the end of December 2021 worth $12.3 million, representing 0.39% of the value of its 13F portfolio. The firm dumped about 20% of its stake in the firm during the fourth quarter of 2021.
On February 25, investment advisory Edward Jones upgraded The Home Depot, Inc. (NYSE:HD) to ‘Buy’ from ‘Hold’, though without a price target. The ratings update was issued by analyst Brian Yarbrough.
Among the hedge funds being tracked by Insider Monkey, Fisher Asset Management is a leading shareholder in The Home Depot, Inc. (NYSE:HD) with 7.8 million shares worth more than $3.2 billion.
In its Q4 2021 investor letter, Ensemble Capital, an asset management firm, highlighted a few stocks and The Home Depot, Inc. (NYSE:HD) was one of them. Here is what the fund said:
“On the more positive side, we saw notable performance contribution from The Home Depot, Inc. (NYSE:HD). In the midst of a housing shortage and rising home prices, Americans turned to home improvement projects with Home Depot’s startlingly fast growth in 2020 continuing throughout 2021. With each quarter that passed showing a continuation of strong growth rather than the slowdown that many investors expected, the stock led the S&P 500 for most of the year and turned in a heady 27% rally in the fourth quarter to close out the year. Notably, while Do It Yourself homeowners did indeed shop at The Home Depot, Inc. (NYSE:HD) less than they did during record setting 2020, almost half of the company’s revenue comes from Pro contractors where strong growth continues.”
1. McDonald’s Corporation (NYSE:MCD)
Number of Hedge Fund Holders: 57
McDonald’s Corporation (NYSE:MCD) owns and runs fast food restaurants. According to its latest 13F filing, Gotham Asset Management owned 47,950 shares in the company at the end of December 2021 worth $12.8 million, representing 0.41% of its 13F portfolio’s value. The fund increased its stake in the firm by 55% in the fourth quarter.
On March 30, UBS analyst Dennis Geiger kept a ‘Buy’ rating on McDonald’s Corporation (NYSE:MCD) shares, with a price target of $290, underlining that the firm was “attractive for investors looking for a high quality, defensive compounder” given rising inflation.
At the end of the fourth quarter of 2021, 57 hedge funds in the database of Insider Monkey held stakes worth $2.2 billion in McDonald’s Corporation (NYSE:MCD), compared to 58 funds long MCD in the preceding quarter, with holdings worth $3.3 billion.
For more great investment ideas, check out 13 Best Hemp Stocks to Buy Now and Billionaire Dan Loeb’s Top 10 Stock Picks.
Follow Insider Monkey on Twitter
Suggested Articles:
- 12 Best Marijuana Stocks to Invest In
- 15 Most Valuable Weed Companies in the World
- 10 Best Weed Stocks to Buy Now
Disclosure. None. 10 Value Stocks to Buy According to Joel Greenblatt is originally published on Insider Monkey.
