In this article, we will take a look at the 15 most undervalued value stocks to buy according to hedge funds.
Investors began to pile into value stocks in 2022 as financial markets wavered amid rising inflation, the Fed’s policy tightening and an uncertain geopolitical situation. The broader market’s rotation towards value stocks is expected to continue this year as well, believe experts at Goldman Sachs, according to a Bloomberg report published earlier in January. A Goldman Sachs team led by Peter Oppenheimer said in a note that value stocks will gain more traction in 2023 as tech stocks continue to feel margin pressure.
The euphoric rise of technology stocks after the pandemic gave way to speculative buying. Investors were willing to pay a premium for loss-making tech companies whose profits lie far into the future. But as the market began to correct itself, investors grew more wary about tech stocks and were unable to develop a stomach for huge risks. The Bloomberg report also quoted several experts who think value stocks will be preferred over tech plays in the months to come. For example, Bank of America Corp.’s Savita Subramanian said, according to the report, that investors should “avoid crowded parts of the stock market, including big tech.”
Morgan Stanley strategist Michael Wilson also reportedly warned that profit margins at tech companies are likely to take a hit this year.
Investors are now preferring value stocks with strong fundamentals and profitable businesses. Many of the popular value stocks also pay dividends. As you will see in this article, financial, energy and healthcare dominate this space. On the other hand, value investors are continuing to avoid tech stocks that are loss-making and don’t have strong growth prospects in the short term. However, major tech stocks, like Meta Platforms, are on the radar of value investors since tech companies of this scale are offering attractive entry points for investors, according to some analysts. More on that later in the article. First, let’s see our methodology for this article.
Our Methodology
For this article, we scoured the top holdings of Vanguard Value ETF (VTV) and picked stocks that have PE ratios of less than 18 as of January 26. The result was a long list of stocks. We then picked 15 of these stocks that have the highest number of hedge funds having stakes in them as of the end of the third quarter. For that we used Insider Monkey’s premium database of 920 hedge funds. That means the stocks mentioned in this article are some of the most popular undervalued value stocks among elite hedge funds.
The list is ranked in ascending order of the number of hedge funds having stakes in these companies.
Most Undervalued Value Stocks To Buy According To Hedge Funds
15. 3M Company (NYSE:MMM)
Number of Hedge Fund Holders: 49
3M Company (NYSE:MMM) is one of the most undervalued value stocks to buy according to hedge funds. A total of 49 hedge funds tracked by Insider Monkey reported having stakes in 3M Company (NYSE:MMM) at the end of the September quarter.
14. Morgan Stanley (NYSE:MS)
Number of Hedge Fund Holders: 52
Morgan Stanley (NYSE:MS) ranks 14th in our list of the most undervalued value stocks to buy according to hedge funds. Morgan Stanley (NYSE:MS) has upped its dividends consistently for over a decade now. Morgan Stanley (NYSE:MS)’s dividend yield as of January 26 stands at over 3% while its PE ratio is 15.68. Earlier in January, Morgan Stanley (NYSE:MS) declared a quarterly dividend of $0.775 per share, in line with previous. Forward dividend yield at the time came in at 3.38%.
As of the end of the third quarter, 52 hedge funds tracked by Insider Monkey reported having stakes in Morgan Stanley (NYSE:MS), compared to 58 funds in the previous quarter. The total value of these stakes was $3.3 billion.
Here is what Madison Dividend Income Fund has to say about Morgan Stanley (NYSE:MS) in its Q3 2022 investor letter:
“This quarter we are highlighting Morgan Stanley (NYSE:MS) as a relative yield example in the Financial sector. MS is a leading investment bank and wealth management firm with approximately $5 trillion of client assets under management. It merged Citigroup’s Smith Barney business into its own wealth management business after the 2008 recession/financial crisis, which resulted in a more stable business model. Recent acquisitions of asset manager Eaton Vance and E-Trade provide additional stability and higher returns on capital. We believe MS has a sustainable competitive advantage due to its size and scale, global reach, strong reputation, and financial distribution capabilities. Importantly for a financial institution, it is in good financial health as key leverage ratios including common equity Tier 1 ratio, Tier 1 capital ratio, Tier 1 leverage ratio, and supplementary leverage ratio were all well above required minimums at the end of 2021.
Our thesis on MS is that its wealth management business will continue to become a larger part of the overall company, which will increase overall margins and return on equity (ROE). Wealth management and asset management are less cyclical than investment banking, and often generate higher margins and provide better stability of financial results. For example, the addition of Smith Barney added significant scale and boosted wealth management operating margins from below 10% into the mid-20%s over the past several years while also increasing returns on equity. Looking ahead, we believe the company will benefit from rising asset prices and higher interest rates, should they happen over time…” (Click here to see the full text)
13. EOG Resources, Inc. (NYSE:EOG)
Number of Hedge Fund Holders: 52
Energy company EOG Resources, Inc. (NYSE:EOG) is one of the best undervalued value stocks to buy according to hedge funds. EOG Resources, Inc. (NYSE:EOG) has a PE ratio of 10.68 as of January 26. EOG Resources, Inc. (NYSE:EOG) is a dividend-paying company, with a dividend yield of 2.43% as of January 26.
A total of 52 hedge funds tracked by Insider Monkey had stakes in EOG Resources, Inc. (NYSE:EOG) at the end of the September quarter.
12. Verizon Communications Inc. (NYSE:VZ)
Number of Hedge Fund Holders: 62
Verizon Communications Inc. (NYSE:VZ) is one of the most stable companies out there. Verizon Communications Inc. (NYSE:VZ) has increased its dividend consistently for the last 16 years. The telecom giant posted 1.43 million retail postpaid net adds for the fourth quarter. This marked Verizon Communications Inc. (NYSE:VZ)’s best single quarter in seven years. Postpaid phone net adds came in at 217,000 in the period. For 2023, Verizon Communications Inc. (NYSE:VZ) expects its EPS to be in the range of $4.55-$4.85. Earnings before interest, taxes, depreciation and amortization is expected to be $47 billion-$48.5 billion.
As of the end of the September quarter of 2022, the biggest stakeholder of Verizon Communications Inc. (NYSE:VZ) was Ken Griffin’s Citadel Investment Group which owns a $200.4 million stake.
11. ConocoPhillips (NYSE:COP)
Number of Hedge Fund Holders: 64
With a dividend yield of over 4%, ConocoPhillips (NYSE:COP) is among the most sought-after stocks these days as investors look to pile into solid dividend plays for certainty and steady income. ConocoPhillips (NYSE:COP) has gained about 40% over the past 12 months. Still, its PE ratio stands at 8.9 as of January 27.
As of the end of the third quarter, 77 hedge funds tracked by Insider Monkey reported having stakes in ConocoPhillips (NYSE:COP). The total value of these stakes was about $5 billion. The biggest stakeholder of ConocoPhillips (NYSE:COP) was Ken Fisher’s Fisher Asset Management, with a $709 million stake.
10. Chevron Corporation (NYSE:CVX)
Number of Hedge Fund Holders: 66
Oil giant Chevron (NYSE:CVX)’s shares shot up on January 26 after the company revealed plans to buy back about $75 billion worth of its shares. Chevron (NYSE:CVX) also upped its quarterly dividend by a whopping 6%. The news comes as investors flock to dividend-paying value stocks like Chevron (NYSE:CVX) to park their cash amid recession fears. Hedge funds also love Chevron shares. As of the end of the third quarter of 2022, 66 hedge funds reported owning stakes in Chevron (NYSE:CVX). At the end of the second quarter, that metric was 59. This shows that the hedge fund sentiment around the stock is positive.
Commenting on (NYSE:CVX)’s share buyback announcement, Bank of America’s Doug Leggate said Chevron (NYSE:CVX)’s buyback plan “acknowledges a balance sheet headed towards zero net debt and speaks to the balancing act this management has navigated between capital discipline and sustainable dividend growth.”
9. Intel Corporation (NASDAQ:INTC)
Number of Hedge Fund Holders: 69
A total of 69 hedge funds tracked by Insider Monkey reported owning stakes in Intel (NASDAQ:INTC) as of the end of the third quarter, compared to 65 funds in the previous quarter.
Intel (NASDAQ:INTC) shares dived more than 6% on January 26 after the company’s Q4 results missed estimates and Q1 guidance also pointed to further weakness in Intel (NASDAQ:INTC) business. In the first quarter, Intel (NASDAQ:INTC) expects to lose $0.15 per share, excluding one-time items. Revenue is expected to be between $10.5 billion and $11.5 billion.
8. The Goldman Sachs Group, Inc. (NYSE:GS)
Number of Hedge Fund Holders: 69
The Goldman Sachs Group, Inc. (NYSE:GS) is an attractive value stock. The Goldman Sachs Group, Inc. (NYSE:GS) has a dividend yield of about 2.8% as of January 26. Of the 920 hedge funds in Insider Monkey’s database, 69 hedge funds have stakes in The Goldman Sachs Group, Inc. (NYSE:GS).
Earlier this month, Wells Fargo Securities analyst Mike Mayo said The Goldman Sachs Group, Inc. (NYSE:GS) “is probably stalled near term.” The analyst was referring to the reports which said the Federal Reserve started an investigation into the investment bank’s consumer business.
7. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 75
Exxon Mobil (NYSE:XOM) is one of the most undervalued value stocks to buy according to hedge funds. Of the 920 hedge funds tracked by Insider Monkey as of the end of the third quarter of 2022, 75 hedge funds had stakes in (NYSE:XOM), compared to 72 funds in the previous quarter. The total value of these stakes was $5.5 billion. The biggest stakeholder of Exxon Mobil (NYSE:XOM) was Rajiv Jain’s GQG Partners, with a $3 billion stake.
Earlier in January, Exxon Mobil (NYSE:XOM) announced it will increase gasoline and diesel production at its Beaumont, Texas, refinery, according to a Reuters report.
6. Pfizer Inc. (NYSE:PFE)
Number of Hedge Fund Holders: 77
Pfizer Inc. (NYSE:PFE) is one of the most popular value stocks among the elite hedge funds tracked by Insider Monkey. As of the end of the September quarter, 77 funds reported having stakes in Pfizer Inc. (NYSE:PFE), compared to 70 funds in the previous quarter. The total worth of these stakes was about $2.4 billion. The biggest stakeholder of Pfizer Inc. (NYSE:PFE) in this period was Cliff Asness’ AQR Capital Management which had a $468 million stake in Pfizer Inc. (NYSE:PFE).
Recently, the FDA said it has not seen an increased stroke risk linked to Pfizer-BioNTech’s COVID shots for seniors.
5. Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Holders: 77
Wells Fargo & Company (NYSE:WFC) is yet another bank stock in our list of the most undervalued value stocks to buy according to hedge funds. Earlier this month, the bank announced a quarterly dividend of $0.30 per share. Forward dividend yield at the time came in at 2.68%. The dividend is payable on March 1.
Wells Fargo & Company (NYSE:WFC) stock was recently downgraded by Jefferies analyst Ken Usdin after the company posted fourth-quarter results. The analyst said positive news from the operating cost front was offset by lower earnings power.
4. Citigroup Inc. (NYSE:C)
Number of Hedge Fund Holders: 85
Insider Monkey’s database of 920 hedge funds shows 85 hedge funds had stakes in Citigroup Inc. (NYSE:C) at the end of the third quarter of 2022. The biggest stakeholder of Citigroup Inc. (NYSE:C) was Warren Buffett’s Berkshire Hathaway, which had a $2.3 billion stake in the company. The second biggest stakeholder in Citigroup Inc. (NYSE:C) was Natixis Global Asset Management’s Harris Associates, with a $958 million stake.
3. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 97
Of the 920 hedge funds tracked by Insider Monkey, 97 hedge funds reported owning stakes in Bank of America Corporation (NYSE:BAC). This makes Bank of America Corporation (NYSE:BAC) one of the most popular value stocks according to the smart money. Bank of America Corporation (NYSE:BAC) has a PE ratio of 11.1 as of January 27. Bank of America Corporation (NYSE:BAC) joins the list of major companies facing the heat of tough economic conditions. It was reported by Bloomberg earlier this month that Bank of America Corporation (NYSE:BAC)’s top management has asked its managers to stop hiring except for crucial roles as the company looks to cut costs. The hiring freeze is expected to remain effective until at least the first half of the year or until the economy begins to turn the corner.
2. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 110
One of the biggest banks in the world, JPMorgan Chase & Co. (NYSE:JPM) ranks 2nd in our list of the most undervalued value stocks to buy according to hedge funds. Of the 920 hedge funds tracked by Insider Monkey, 110 funds had stakes in JPMorgan Chase & Co. (NYSE:JPM) as of the end of the third quarter. The total value of these stakes was $6.4 billion. The biggest stakeholder of JPMorgan Chase & Co. (NYSE:JPM) among the elite hedge funds was Ken Fisher’s Fisher Asset Management, with an $821 million stake.
Earlier in January, JPMorgan Chase (NYSE:JPM) CEO Jamie Dimon said in an interview with CNBC that the Federal Reserve could continue to increase interest rates amid stubbornly high inflation. Dimon said that he thinks rates are “probably going to go higher than 5%.” He thinks there’s a “lot of underlying inflation, which won’t go away quick.”
1. Meta Platforms, Inc. (NASDAQ:META)
Number of Hedge Fund Holders: 177
Meta Platforms, Inc. (NASDAQ:META) shares shot up about 4% on January 26 after a Wall Street Journal report said Meta Platforms, Inc. (NASDAQ:META) will pay BuzzFeed millions of dollars to generate content for Facebook platform. Meta Platforms, Inc. (NASDAQ:META) is investing heavily to reinvigorate growth on its platform as it faces several challenges such as slowing growth of Instagram and Facebook and tough competition from TikTok. Earlier in January, Michael Nathanson of MoffettNathanson said Meta Platforms, Inc. (NASDAQ:META) and Google present “really attractive” entry points for investors. The analyst thinks people are overblowing the fears regarding the ads industry. He thinks the challenges in the ads industry are cyclical in nature.
Rowan Street Capital made the following comment about Meta Platforms, Inc. (NASDAQ:META) in its Q4 2022 investor letter:
“Meta Platforms, Inc. (NASDAQ:META) Stock declined -64% in 2022, while their revenues fell just -2% and earnings per share (EPS) declined -37% due to a ramp-up in investment expenses, which we have covered to a great extent in our recent write-up on META). Meta is our second biggest holding in the fund and one that has been a significant detractor from performance in 2022. We published a write-up back in November: Does a $750 billion decline in Meta’s market cap make sense? We strongly encourage you to read it if you have not had a chance to do so. We expect our META holding to be a solid contributor to the fund’s performance over the next several years as well.”
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Disclosure: None. 15 Most Undervalued Value Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.
