11 Most Undervalued Financial Stocks To Buy According To Hedge Funds

Published February 25, 2023 at 1:37 pm EST Updated August 19, 2026 at 9:26 am EDT

In this article, we will take a look at the 11 most undervalued financial stocks to buy according to hedge funds.

Financial stocks are wavering as chances of recession mount amid expectations that the Federal Reserve will have to continue being aggressive to tame inflation. Earnings from major banks also showed that the rising interest rate environment is taking a toll on banks’ earnings. Major banks are also allocating huge sums of money for loan-loss provisions in anticipation of a recession.

According to a Bloomberg report, Morgan Stanley’s Michael Wilson believes the S&P 500 could fall 26% in the first half of 2023. The analyst said that the rally during the start of the year made US equities expensive. The analyst reportedly said that the US stocks’ measure of equity risk premium has entered the “death zone.” Wilson thinks that while the US economy might dodge a full-blown recession, the Federal Reserve’s hawkish policy is far from being over. He also said that the risk-reward for equities is now “very poor.”

“Continued Volatility Through Year-End”

A strong jobs report and data pointing to stubborn inflation has forced investors to keep their optimism in check. Carol Schleif, chief investment officer at BMO Family Office, said that investors are still trying to adjust to the reality that the Federal Reserve is unlikely to change its hawkish stance and instead will focus on fighting inflation, according to Bloomberg. That, according to Schleif, means we will experience “continued volatility through year-end.”

Most Undervalued Financial Stocks To Buy According To Hedge Funds

Photo by Ferran Fusalba Roselló on Unsplash

Methodology

For this article, we used the Finviz stock screener to identify stocks from the Financial sector with PE ratios under 15 as of February 22. After this first check we got a long list of stocks. From this list we chose top 11 stocks that have the highest number of hedge fund investors as of the end of 2022. For this metric we used Insider Monkey’s proprietary database of 943 hedge funds’ holdings as of the end of the fourth quarter of 2022.

Most Undervalued Financial Stocks To Buy According To Hedge Funds

11. HSBC Holdings plc (NYSE:HSBC)

Number of Hedge Fund Holders: 11

British bank HSBC Holdings plc (NYSE:HSBC) ranks 11th in our list of the most undervalued financial stocks to buy according to hedge funds. Earlier this month the bank posted its fourth quarter results. Adjusted profit before tax in the quarter jumped about 92% to $6.8 billion. Revenue in the quarter increased by 24% on a YoY basis to reach $14.9 billion. Net interest margin increased by 28 basis points to 1.48%.

HSBC Holdings plc (NYSE:HSBC) this month also declared a $1.15/ADS interim dividend, which is payable on April 27 to shareholders of record as of March 3.

As of the end of the fourth quarter of 2022, 11 hedge funds reported owning stakes in HSBC Holdings plc (NYSE:HSBC). The total value of these stakes was over $122 million. The biggest stakeholder of HSBC Holdings plc (NYSE:HSBC) was Ken Griffin’s Citadel Investment Group which had a $40 million stake in the firm.

10. Bank of Montreal (NYSE:BMO)

Number of Hedge Fund Holders: 12

Bank of Montreal (NYSE:BMO) has a low PE ratio which makes it undervalued. At the end of the fourth quarter, 12 hedge funds in Insider Monkey’s database of hedge funds reported having stakes in Bank of Montreal.

In December, Bank of Montreal declared a quarterly dividend of CAD 1.43 per share, which was a 2.9% increase from its prior dividend.

For the fourth quarter, Bank of Montreal’s adjusted EPS came in at C$3.04, missing estimates by C$0.01. Revenue in the period jumped about 61% on a YoY basis to reach C$10.57 billion, easily beating estimates by C$3.65 billion.

9. UBS Group AG (NYSE:UBS)

Number of Hedge Fund Holders: 16

Swiss bank UBS Group AG (NYSE:UBS) ranks 9th in our list of the most undervalued financial stocks to buy according to hedge funds. UBS Group AG beat analyst estimates for the fourth quarter of 2022 revenue but warned of an uncertain economic outlook for 2023. UBS Group AG said its GAAP EPS in the fourth quarter came in at $0.50. Revenue in the quarter fell about 7.85 on a YoY basis to $8.03 billion, beating estimates by $60 million. The company’s cost/income ratio was 75.8%.

UBS Group AG said that it was starting 2023 from a position of strength.

At the end of the fourth quarter of 2022, 16 hedge funds reported having stakes in UBS Group AG, according to Insider Monkey’s database of 943 hedge funds’ holdings. The net worth of these hedge funds’ stakes was about $250 million.

8. Royal Bank of Canada (NYSE:RY)

Number of Hedge Fund Holders: 17

Royal Bank of Canada (NYSE:RY) is also a decent dividend-paying stock. It has a dividend yield of 3.86% as of February 22.

In December, Bank of America Global Research analyst Ebrahim Poonawala gave bullish comments on Royal Bank of Canada and upgraded the stock to Neutral rating. The analyst said in his note that even though Royal Bank of Canada shares have outperformed their peers, the trend could continue because of a worsening macro backdrop as “investors seek exposure to RY’s EPS/ROE defensibility and dependable execution.”

As of the end of the fourth quarter of 2022, 17 hedge funds reported owning stakes in Royal Bank of Canada, up from 14 hedge funds in the previous quarter. The biggest stakeholder of Royal Bank of Canada during this period was Robert Richards’ Heathbridge Capital Management which has an $11 million stake in the company.

7. The Toronto-Dominion Bank (NYSE:TD)

Number of Hedge Fund Holders: 17

The Toronto-Dominion Bank (NYSE:TD) is one of the most undervalued financial stocks to buy according to hedge funds.

Back in December, Canaccord Genuity analyst Scott Chan upgraded the stock to Buy. The analyst said that The Toronto-Dominion Bank’s strong personal and commercial banking momentum helped by First Horizon acquisition should enable it to generate above-average growth.

In December, The Toronto-Dominion Bank posted its fourth quarter results. Adjusted EPS in the quarter came in at C$2.18, beating estimates by C$0.14. Revenue in the period jumped about 12% on a YoY basis to reach C$12.25 billion, beating estimates by C$950 million.

At the end of the fourth quarter of 2022, 17 hedge funds tracked by Insider Monkey had stakes in The Toronto-Dominion Bank. The total value of these stakes was over $186 million. The biggest stakeholder of The Toronto-Dominion Bank during this period was Noam Gottesman’s GLG Partners which owns a $28 million stake in the company.

6. U.S. Bancorp (NYSE:USB)

Number of Hedge Fund Holders: 58

U.S. Bancorp (NYSE:USB) has a PE ratio of 12.92 as of February 22. U.S. Bancorp is seeing an increased interest from hedge funds. At the end of the fourth quarter of 2022, 58 hedge funds reported having stakes in U.S. Bancorp, up from 52 hedge funds in the previous quarter. The biggest stakeholder of U.S. Bancorp at the end of 2022 was Jean-Marie Eveillard’s First Eagle Investment Management which had a $430.4 million stake in the company. On the other hand, Warren Buffett’s hedge fund cut its stake in U.S. Bancorp by about 90% in the quarter.

U.S. Bancorp has a dividend yield of over 4%, much better than the industry average dividend yield. The bank also has a strong track record of dividend growth.

5. The Goldman Sachs Group, Inc. (NYSE:GS)

Number of Hedge Fund Holders: 74

At the end of the fourth quarter of 2022, 74 hedge funds tracked by Insider Monkey had stakes in The Goldman Sachs Group, Inc. (NYSE:GS). The total worth of these stakes was about $5 billion. The biggest hedge fund stakeholder of The Goldman Sachs Group, Inc. at the end of 2022 was Boykin Curry’s Eagle Capital Management which had a $1.1 billion stake in the firm.

Earlier this month, The Wall Street Journal reported The Goldman Sachs Group, Inc. paused its plan to acquire new credit card programs.

Recently, The Goldman Sachs Group, Inc. disclosed in a filing that its Chairman and CEO David Solomon’s annual salary for 2022 was cut to $25 million from $35 million.

4. Citigroup Inc. (NYSE:C)

Number of Hedge Fund Holders: 81

Citigroup Inc. (NYSE:C) is a highly popular financial stock among hedge funds tracked by Insider Monkey. As of the end of the fourth quarter of 2022, 81 of the 943 hedge funds in Insider Monkey’s proprietary database had stakes in Citigroup Inc.. The net worth of these stakes was over $7.5 billion.

For the fourth quarter, Citigroup Inc.’s EPS came in at $1.10, missing estimates by $0.10. Revenue in the quarter jumped about 5.8% on a YoY basis to reach $18 billion, beating estimates by $30 million.

However, the growth in revenue was driven by Citigroup Inc.’s sale of its Thailand consumer business.

At the end of the fourth quarter of 2022, Warren Buffett’s Berkshire Hathaway had a $2.4 billion stake in Citigroup Inc.. The second biggest hedge fund stakeholder was Boykin Curry’s Eagle Capital Management which owns an $874 million stake in Citigroup Inc..

3. Wells Fargo & Company (NYSE:WFC)

Number of Hedge Fund Holders: 87

With a PE ratio of 14.7 as of February 22, Wells Fargo & Company is a notable financial stock that looks undervalued. Wells Fargo & Company saw a sharp spike in hedge fund sentiment during the last quarter of 2022, as 87 hedge funds reported owning stakes in the company at the end of the period, compared to 77 hedge funds in the previous quarter. The total value of these hedge funds’ stakes was over $5.5 billion. The biggest stakeholder of Wells Fargo & Company during this period was Boykin Curry’s Eagle Capital Management which owns a stake worth over $1.1 billion in the company.

Wells Fargo & Company CFO Mike Santomassimo recently said at a conference that “it’s going to get worse” in 2023. He was pointing to persistent inflation, tight labor market and a slowing housing market. However, the executive said that consumer spending remains healthy, driven by travel and entertainment.

Here is what Oakmark Funds specifically said about Wells Fargo & Company in its Q3 2022 investor letter:

“Wells Fargo & Company (NYSE:WFC) has been a long-time holding in the Oakmark Fund. Despite the positives of higher interest rates and the company making good progress on reducing expenses and regulatory consent orders, Wells Fargo shares have fallen one-third from their highs earlier this year to roughly 6.5x our estimate of normalized earnings power, and the stock ended the quarter at ~1x next year’s tangible book value. We find this is far too cheap for a strong banking franchise capable of tangible returns in the low-to-mid teens across business cycles.”

2. Bank of America Corporation (NYSE:BAC)

Number of Hedge Fund Holders: 100

Bank of America Corporation (NYSE:BAC) ranks 2nd in our list of the most undervalued financial stocks to buy according to hedge funds. Recently, Bloomberg reported that Bank of America Corporation was mulling laying off 200 investment bankers globally amid an uncertain economic outlook and rising interest rates. The report said that the number of job cuts are still “being reviewed” and they can start in the coming weeks.

Earlier this month, KBW analyst David Konrad downgraded Bank of America Corporation to Underperform from Market Perform.

While Bank of America Corporation is facing short-term pressures on the back of rising interest rates, the stock could be a long-term winner for those who are looking for stability and dividends.

A total of 100 hedge funds in Insider Monkey’s database reported owning stakes in Bank of America Corporation at the end of the fourth quarter of 2022. The biggest stakeholder of the bank was Warren Buffett’s Berkshire Hathaway which had a whopping $33 billion stake in Bank of America Corporation.

Ariel Investment made the following comment about Bank of America Corporation in its Q3 2022 investor letter:

“We initiated three new positions in the quarter. We added leading financial institution Bank of America Corporation (NYSE:BAC) which serves individual consumers, small and middle-market businesses, and large corporations with a full range of banking, investing, asset management, and other financial and risk management products and services. The current company was formed through various mergers including NationsBank, FleetBoston, US Trust, Countrywide Financial, and Merrill Lynch with the legacy commercial bank to form a national banking powerhouse and bulge bracket investment firm. As one of the ‘Big Four’ U.S. banks it enjoys scale driven cost advantages and economies of scale which provide meaningful competitive advantages and potential for strong returns in the largely commoditized banking industry. A survivor of the financial crisis, BAC has emerged with a solid capital base and stands to benefit from a rising interest rate environment.”

1. JPMorgan Chase & Co. (NYSE:JPM)

Number of Hedge Fund Holders: 100

JPMorgan Chase & Co. is one of the biggest banks in the world and its PE ratio shows that it’s also one of the most undervalued. Insider Monkey’s database of over 940 hedge funds and their holdings shows that 100 elite hedge funds had stakes in JPMorgan Chase & Co. as of the end of the fourth quarter of 2022. The total worth of these stakes was about $5.2 billion. The biggest stakeholder of JPMorgan Chase & Co. during this period was Edgar Wachenheim’s Greenhaven Associates which owned about 4.8 million shares of the company.

Earlier this month, data showed that JPMorgan Chase & Co.’s credit card delinquency rate in January came in at 0.83%, compared to 0.76% in December.

JPMorgan Chase & Co. is also a dividend-paying stock. JPMorgan Chase & Co. has upped its dividend consistently for over a decade now.

Here is what Vltava Fund has to say about JPMorgan Chase & Co. in its Q3 2022 investor letter:

“We regard JPM to be the strongest and best- managed bank in the world. It is a leader in investment banking, commercial banking, credit cards, and asset management. Its size (the largest bank in the USA, with nearly USD 4,000 billion in assets) and diversification give it a strong competitive advantage that is compounded by its cost advantages and the high costs to clients associated with switching banks. JPM’s management prides itself on running the only large bank to avoid major instability over the long term.

JP Morgan’s quality and strength first became fully evident in 2008 under the leadership of its CEO Jamie Dimon. Not only did JP Morgan help to stabilize the market by taking over the failing Bear Stearns in the spring of that year, but throughout the Great Financial Crisis it was the only big US bank that did not require government assistance and it was highly profitable even in the difficult year of 2008.

A well-functioning and efficient bank can be a very good long-term investment, because the interest compounding effect works well here. JPM’s return on equity (ROE) is well into the double digits and this puts it in a good position to continue producing better long-term returns than does the market. JPM has been very profitable even during years when interest rates were close to zero. The current – and perhaps not temporary – return to somewhat more normal, higher interest rates should have a significantly positive impact on the bank’s interest income and overall profitability.”

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