In this piece, we will take a look at the 15 most undervalued large cap stocks to buy according to Wall Street analysts. If you want to skip our analysis of the latest in the stock market, then take a look at 5 Most Undervalued Large Cap Stocks to Buy.
With the second half of 2023 having set in, all eyes on Wall Street were on officials of the Federal Reserve. Fed chairman Jerome Powell and other central bankers were set to meet at Jackson Hole in late August, and given the crucial role that the banks have played in the stock market for more than a year now, investors were naturally tuned in to see if anything had changed.
So far, the Federal Reserve has hiked interest rates to multi year high levels, and courtesy of the strong hype surrounding artificial intelligence, markets have reversed the massive losses that they had bled through last year. However, while the first half of 2023 was one of the best time periods on the market in history, the second half is rather muted when it comes to share price gains. In fact, major indexes have pared back some of their gains particularly since August is vacation time in the financial world and because some folks likely took profits and re balanced their portfolios.
At Jackson Hall, Chairman Powell’s comments made it clear that since inflation is high, any hopes of interest rates coming down any time soon are unwarranted. However, at the same time, it’s also clear that 2023 and ahead will be different when it comes to an extremely hawkish Fed. The Fed chair made it clear that the central bank will be more cautious moving forward and will be more cognizant of any risks to economic health from further interest rate hikes. The labor market continues to be one of the Fed’s top markers in determining future interest rate hikes, and Mr. Powell is of the view that should wages grow or unemployment drop, then the labor market could provide consumers with higher discretionary income to drive up prices. Naturally, this is unacceptable, since bringing down inflation is one of the primary objectives of the recent interest rate hiking cycle.
The key takeaway from Chair Powell’s latest remarks is that the central bank is able and willing to further increase interest rates. Yet, markets seemed to have shrugged off this willingness, as during the last trading day of the week, the S&P500 was up 29 points and the NASDAQ Composite gained 126 points. Both of these indexes had initially dropped as Mr. Powell was explaining his latest position, showing the fear that is currently prevalent in the market when it comes to the Federal Reserve. Even though markets might have been relatively calm today, the fact still remains that there is no fixed formula for the Fed chair and his team to decide when interest rates have reached the perfect level to avoid seriously damaging the economy and bringing down inflation at the same time.
This hair wrenching problem was part of his closing remarks as Mr. Powell outlined:
Two percent is and will remain our inflation target. We are committed to achieving and sustaining a stance of monetary policy that is sufficiently restrictive to bring inflation down to that level over time. It is challenging, of course, to know in real time when such a stance has been achieved. There are some challenges that are common to all tightening cycles. For example, real interest rates are now positive and well above mainstream estimates of the neutral policy rate. We see the current stance of policy as restrictive, putting downward pressure on economic activity, hiring, and inflation. But we cannot identify with certainty the neutral rate of interest, and thus there is always uncertainty about the precise level of monetary policy restraint.
That assessment is further complicated by uncertainty about the duration of the lags with which monetary tightening affects economic activity and especially inflation. Since the symposium a year ago, the Committee has raised the policy rate by 300 basis points, including 100 basis points over the past seven months. And we have substantially reduced the size of our securities holdings. The wide range of estimates of these lags suggests that there may be significant further drag in the pipeline.
. . . .These uncertainties, both old and new, complicate our task of balancing the risk of tightening monetary policy too much against the risk of tightening too little. Doing too little could allow above-target inflation to become entrenched and ultimately require monetary policy to wring more persistent inflation from the economy at a high cost to employment. Doing too much could also do unnecessary harm to the economy.
Today, we’ll take a look at some large cap stocks that are undervalued according to Wall Street analysts. Large caps are generally more stable in the time of a stock market downturn when compared to their small cap peers. At the same time, they also provide more liquidity to lock in potential gains, and the nature of the firms and their business models reduces the risks of stock market scams. There are also several ways to determine whether a stock is undervalued. One of these involves taking a look at the price to earnings ratio while another involves calculating the differential between an analyst’s projected share price and the market price.
Today we’ll rely on the latter and the top three picks are First Citizens BancShares, Inc. (NASDAQ:FCNCA), Humana Inc. (NYSE:HUM), and MercadoLibre, Inc. (NASDAQ:MELI).
source: pixabay
Our Methodology
To compile our list of undervalued large cap stocks to buy according to Wall Street analysts, we selected the stocks with the highest share price upside and Buy or better analyst ratings with market capitalization greater than $10 billion and less than $200 billion.
15 Most Undervalued Large Cap Stocks To Buy According To Wall Street
15. Markel Group Inc. (NYSE:MKL)
Latest Share Price Upside: 10%
Average Analyst Share Price Target: $1,616
Markel Group Inc. (NYSE:MKL) is a diversified American insurance firm with a global operations base. Its shares are rated Strong Buy on average and the stock is up a reasonable 10.87% year to date.
As of Q2 2023, 29 hedge funds out of the 910 part of Insider Monkey’s research were Markel Group Inc. (NYSE:MKL)’s investors. Out of these, the biggest shareholder is Warren Buffett’s Berkshire Hathaway through an investment of $652 million.
Along with Humana Inc. (NYSE:HUM), First Citizens BancShares, Inc. (NASDAQ:FCNCA), and MercadoLibre, Inc. (NASDAQ:MELI), Markel Group Inc. (NYSE:MKL) is an undervalued stock to buy according to Wall Street analysts.
14. MSCI Inc. (NYSE:MSCI)
Latest Share Price Upside: 10%
Average Analyst Share Price Target: $586
MSCI Inc. (NYSE:MSCI) is an investment advisory, management, and financial services firm. Like other financial firms, it has performed well lately and beaten analyst EPS estimates in all four of its latest quarters.
By the end of this year’s second quarter, 51 out of the 910 hedge funds part of Insider Monkey’s database had held a stake in MSCI Inc. (NYSE:MSCI). Out of these, the firm’s largest shareholder is Henry Ellenbogen’s Durable Capital Partners since it owns 678,556 shares that are worth $318 million.
13. Fair Isaac Corporation (NYSE:FICO)
Latest Share Price Upside: 11%
Average Analyst Share Price Target: $947
Fair Isaac Corporation (NYSE:FICO) is a software company that provides data analytics and other services to firms all over the world. The firm is slated to perform well in the future according to Baron Funds, as its latest investor letter cited confidence in Fair Isaac’s CEO.
As of June 2023, 46 of the 910 hedge funds polled by Insider Monkey had invested in the company. Fair Isaac Corporation (NYSE:FICO)’s biggest hedge fund shareholder is Dev Kantesaria’s Valley Forge Capital through its $763 million stake.
12. AutoZone, Inc. (NYSE:AZO)
Latest Share Price Upside: 13%
Average Analyst Share Price Target: $2,775
AutoZone, Inc. (NYSE:AZO) is a car parts retailer. The firm has been performing well this year as the car market has been resilient in a high rate environment but the shares are nearly flat year to date after dropping in May.
Insider Monkey dug through 910 hedge funds for their June quarter of 2023 investments to discover that 52 had bought the firm’s shares. AutoZone, Inc. (NYSE:AZO)’s largest stakeholder is Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital courtesy of its $328 million investment.
11. ServiceNow, Inc. (NYSE:NOW)
Latest Share Price Upside: 13%
Average Analyst Share Price Target: $639
ServiceNow, Inc. (NYSE:NOW) is one of the dominating players when it comes to data analytics and corporate digital transformation. It has partnered up with NVIDIA to offer artificial intelligence capabilities to customers and the stock is 46% year to date.
By the end of 2023’s second quarter, 93 out of the 910 hedge funds part of Insider Monkey’s study had held a stake in ServiceNow, Inc. (NYSE:NOW). Out of these, the biggest investor is Rajiv Jain’s GQG Partners since it owns $859 million worth of shares.
10. TransDigm Group Incorporated (NYSE:TDG)
Latest Share Price Upside: 15%
Average Analyst Share Price Target: $991
TransDigm Group Incorporated (NYSE:TDG) is an aircraft component manufacturer that sells products such as pumps, actuators, and motors. It is among the handful of companies that are slated to benefit from an uptick in global air travel and the stock is rated Buy on average.
67 out of the 910 hedge funds part of Insider Monkey’s Q2 2023 database have bought the firm’s shares. TransDigm Group Incorporated (NYSE:TDG)’s largest stakeholder among these is Mark Massey’s AltaRock Partners since it owns 1.3 million shares that are worth $1.2 billion.
9. Texas Pacific Land Corporation (NYSE:TPL)
Latest Share Price Upside: 15%
Average Analyst Share Price Target: $2,186
Texas Pacific Land Corporation (NYSE:TPL) is a land management company that manages oil production activities and provides its land for other use cases. Most of the firm’s shares are owned by institutional investors, and analysts have set an average share price target of $2,186.
As of June 2023, out of the 910 hedge fund portfolios studied by Insider Monkey, 23 had held a stake in Texas Pacific Land Corporation (NYSE:TPL). Murray Stahl’s Horizon Asset Management is the company’s biggest investor since it holds a $1.8 billion stake.
8. Chipotle Mexican Grill, Inc. (NYSE:CMG)
Latest Share Price Upside: 16%
Average Analyst Share Price Target: $2,168
Chipotle Mexican Grill, Inc. (NYSE:CMG) is a popular restaurant chain in America. Resilience in the U.S. consumer has helped the firm beat analyst EPS estimates in three of its four latest quarters and the shares are rated Strong Buy on average.
After digging through 910 hedge fund holdings for their second quarter of 2023 investments, Insider Monkey discovered that 55 had bought the firm’s shares. Chipotle Mexican Grill, Inc. (NYSE:CMG)’s largest hedge fund stakeholder is Bill Ackman’s Pershing Square due to its $2 billion investment.
7. IDEXX Laboratories, Inc. (NASDAQ:IDXX)
Latest Share Price Upside: 17%
Average Analyst Share Price Target: $678
IDEXX Laboratories, Inc. (NASDAQ:IDXX) is a medical company that deals in animal health management products. The firm had good news for investors in August as it raised annual revenue and profit guidance.
Insider Monkey’s June quarter of 2023 research covering 910 revealed that 43 had invested in IDEXX Laboratories, Inc. (NASDAQ:IDXX). Terry Smith’s Fundsmith LLP is the largest shareholder out of these, owning 2.9 million shares that are worth $1.4 billion.
6. Deckers Outdoor Corporation (NYSE:DECK)
Latest Share Price Upside: 18%
Average Analyst Share Price Target: $616
Deckers Outdoor Corporation (NYSE:DECK) is a footwear company headquartered in Goleta, California. Its shares are rated Strong Buy on average and analysts have penciled in an 18% upside to the shares.
As of Q2 2023, 47 out of the 910 hedge funds polled by Insider Monkey had bought the firm’s shares. Deckers Outdoor Corporation (NYSE:DECK)’s biggest investor is Robert Pitts’ Steadfast Capital Management through its $218 million stake.
First Citizens BancShares, Inc. (NASDAQ:FCNCA), Deckers Outdoor Corporation (NYSE:DECK), Humana Inc. (NYSE:HUM), and MercadoLibre, Inc. (NASDAQ:MELI) are some undervalued large cap stocks being favored by Wall Street analysts.
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Disclosure: None. 15 Most Undervalued Large Cap Stocks To Buy According To Wall Street is originally published on Insider Monkey.