In this article, we will take a look at the top 11 most undervalued blue chip stocks to buy according to hedge funds. You can skip this part and go to 5 Most Undervalued Blue Chip Stocks To Buy According To Hedge Funds.
The stock market crash of 2022 plunged US equities to new lows. While it has ushered in a chaos in the markets, long-term investors are seeing it as an opportunity to pile into undervalued stocks with strong upside potential. In October last year, Finance Professor at the University of Pennsylvania Jeremy Siegel said that stocks were “undervalued greatly” in the long run. He said at the time that rising interest rates were keeping a lid on the stocks but said the rates were not expected to remain elevated for a long time.
“I’m staying put, I certainly wouldn’t be surprised if a year, year and half from now we’re 20-30% higher. I think stocks are undervalued greatly in the long-run.”
Siegel also noted that sooner or later inflation will be tamed and the Federal Reserve will not continue its strong rates hikes. In 2023, many analysts are expecting the Federal Reserve to slow and eventually halt rate hikes.
However, the overall outlook for the economy is not too optimistic. According to Morgan Stanley’s Michael Wilson corporate profit estimates are still too high. The analyst said in a note to investors earlier in January that the equity risk premium is at its lowest since the run-up to 2008. That’s why Wilson believes the S&P 500 could fall much lower than the 3,500 to 3,600 points the market is currently estimating in the event of a mild recession.
Despite the short-term headwinds and recession warnings, wise investors know that sooner or later the markets will turn around. When they do, only those investors will turn out to be the winners who’d invested when everyone was selling. Financial analysts at Morningstar said in a report published in September 2022 that the market was offering a huge discount as it had plunged to record lows seen only in rare instances.
“While near-term conditions may pressure earnings in the short term, at current valuations we think the market has fallen more than enough to incorporate those headwinds. In our view, we think the market is overly pessimistic regarding the long-term prospects for equity valuations .”
While these optimistic comments don’t look much prescient in hindsight, they’ll hold weight when seen with a long-term outlook.
Photo by Chris Liverani on Unsplash
Our Methodology
For this article, we scanned Insider Monkey’s database of 920 elite hedge funds’ holdings and picked the top 11 blue chip stocks with PE ratios less than 15. The list is ranked in ascending order of the number of hedge funds having stakes in these companies.
Most Undervalued Blue Chip Stocks To Buy According To Hedge Funds
11. Toyota Motor Corporation (NYSE:TM)
Number of Hedge Funds Having Stakes in the Company as of Q3 2022: 12
PE Ratio as of January 25: 10.45
Toyota Motor Corporation (NYSE:TM) is one of the most notable auto stocks in the world. Toyota Motor Corporation (NYSE:TM)’s strategy of focusing on both EV and hybrid markets is working. While Toyota Motor Corporation (NYSE:TM)’s management is extremely bullish on EV cars and the company is working on several electric models, Toyota Motor Corporation (NYSE:TM) is not letting go of its hybrid investments. This has diversified Toyota Motor Corporation (NYSE:TM)’s position. Its hybrid cars have a huge demand in the world. On the EV front, Toyota Motor Corporation (NYSE:TM) has a goal to produce 3.5 million electric vehicles by 2030.
As of the end of the third quarter, 12 hedge funds tracked by Insider Monkey reported having stakes in Toyota Motor Corporation (NYSE:TM). The total value of these stakes was $742 million.
10. Novartis AG (NYSE:NVS)
Number of Hedge Funds Having Stakes in the Company as of Q3 2022: 26
PE Ratio as of January 25: 9.52
Swiss pharma company Novartis AG (NYSE:NVS) is one of the most undervalued stocks to buy according to elite hedge funds. As of the end of the third quarter of 2022, 26 hedges tracked by Insider Monkey reported having stakes in Novartis AG (NYSE:NVS), compared to 22 funds in the previous quarter. The total value of these shares was about $783 million. The biggest stakeholder of Novartis AG (NYSE:NVS) was Jim Simons’ Renaissance Technologies, which has a $242 million stake in Novartis AG (NYSE:NVS).
In December, The European Commission (EC) approved Novartis AG (NYSE:NVS)’s drug Pluvicto to treat certain patients with advanced prostate cancer.
Here is what Madison Investors Fund has to say about Novartis AG (NYSE:NVS) in its Q3 2022 investor letter:
“We sold our position in Novartis. We like the company’s track record of innovation, and its diversified portfolio of drugs. However, we’ve become increasingly concerned about the outlook for some of its recently launched therapeutics, as well as some generic competition in a few of its mature drugs. If pressed, we still like the odds that Novartis will do well, but the outlook is a little cloudier than it’s been in a while. As noted above, we’ve been big fans of its Alcon unit for many years, and now that Alcon is independent, we decided to concentrate our investment there.”
9. Shell plc (NYSE:SHEL)
Number of Hedge Funds Having Stakes in the Company as of Q3 2022: 39
PE Ratio as of January 25: 5.04
Shell plc (NYSE:SHEL) ranks 9th in our list of the most undervalued blue chip stocks to buy according to hedge funds. Earlier in January, Shell plc (NYSE:SHEL) said its profits from the gas-trading unit for the fourth quarter will be “significantly higher” when compared to the previous quarter despite outages and product declines. Shell plc (NYSE:SHEL) said for the fourth quarter it expects production from its Upstream segment of 1.825 million – 1.925 million boe/day, compared with its previous estimate of 1.75 million to 1.95 million boe/day.
As of the end of the third quarter, 39 hedge funds tracked by Insider Monkey reported having stakes in Shell plc (NYSE:SHEL). The total value of these stakes was $3.1 billion. The biggest stakeholder in Shell plc (NYSE:SHEL) during this period was Ken Fisher’s hedge fund with a stake over $1 billion.
8. Chevron Corporation (NYSE:CVX)
Number of Hedge Funds Having Stakes in the Company as of Q3 2022: 66
PE Ratio as of January 25: 10.14
Oil giant Chevron Corporation (NYSE:CVX) had a remarkable year in 2022, as its stock gained about 55% in the period. However, Chevron Corporation (NYSE:CVX)’s PE ratio is still attractive.
A total of 66 hedge funds tracked by Insider Monkey reported having stakes in Chevron Corporation (NYSE:CVX) as of the end of the third quarter. The total value of these stakes was $27.1 billion. The biggest stakeholder of Chevron Corporation (NYSE:CVX) was Warren Buffett’s Berkshire Hathaway, with a $24 billion stake.
Madison Funds made the following comment about Chevron Corporation (NYSE:CVX) in its fourth quarter 2022 investor letter:
“This quarter we are highlighting Chevron Corporation (NYSE:CVX) as a relative yield example in the Energy sector. CVX is a leading integrated oil company with exploration, production, and refining operations. It is the second largest oil company in the United States with more than 70% of production volumes from oil and liquid-linked natural gas. We believe it has a sustainable competitive advantage due to its scale and low-cost position. It has a large acreage position in the Permian Basin, which is a high-quality oil field. CVX was an early mover in the Permian and did not overpay to enter the oilfield; 75% of its position has a no or low royalty rate, which gives it a cost advantage over competitors.
Our thesis is that free cash flow growth per share is expected to accelerate due to disciplined capital spending, rising Permian production volumes, and stock repurchases. The company has also made important investments in low-carbon areas like greenhouse gas reduction, carbon capture, hydrogen, and renewable fuels which we believe will pay off later in the decade as the world transitions more to renewable energy sources…” (Click here to read the full text)
7. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Funds Having Stakes in the Company as of Q3 2022: 75
PE Ratio as of January 25: 9.19
Oil giant Exxon Mobil Corporation (NYSE:XOM) is a dividend aristocrat. Exxon Mobil Corporation (NYSE:XOM) has gained about 50% over the past 12 months. Still Exxon Mobil Corporation (NYSE:XOM)’s PE ratio as of January 25 stands at 9.19. It is one of the best undervalued blue chip stocks to buy according to hedge funds. Of the 920 elite funds in Insider Monkey’s database, 75 funds had stakes in Exxon Mobil Corporation (NYSE:XOM). The biggest stakeholder of Exxon Mobil Corporation (NYSE:XOM) was Rajiv Jain’s GQG Partners, which had a $3 billion stake in Exxon Mobil Corporation (NYSE:XOM).
6. Pfizer Inc. (NYSE:PFE)
Number of Hedge Funds Having Stakes in the Company as of Q3 2022: 77
PE Ratio as of January 25: 8.64
Pfizer Inc. (NYSE:PFE) is one of the best stock picks for recession, according to hedge funds and Wall Street analyst. Pfizer Inc. (NYSE:PFE) has been increasing its dividends consistently for the past 12 years. Pfizer Inc. (NYSE:PFE) has several products that do not face a decrease in demand even during market downturns. Pfizer Inc. (NYSE:PFE) recently said that its non-COVID revenue could reach about $70 billion to $84 billion in 2030. This will offset $17 billion revenue impact from upcoming “patent cliffs” for leading revenue generators in 2025 – 2030.
Pfizer Inc. (NYSE:PFE)’s CEO Albert Bourla also said that Pfizer Inc. (NYSE:PFE) has its “best days” ahead amid several product launches.
Of the 920 elite hedge funds tracked by Insider Monkey, 77 funds had stakes in Pfizer Inc. (NYSE:PFE), compared to 70 funds in the previous quarter. The total value of these stakes was about $2.4 billion.
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Disclosure: None. 11 Most Undervalued Blue Chip Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.
