In this article, we discuss the 11 best cheap stocks to buy, according to billionaire Dalio.
In a LinkedIn post published on September 15, billionaire hedge fund manager Ray Dalio shared his outlook on the macroeconomic situation. Mr. Dalio thinks that the equity market will suffer a decline of 20% from current levels as the Federal Reserve will increase the benchmark interest rate towards 4.5% to control inflation that is presently hovering around a four-decade high.
The founder of Bridgewater Associates thinks that the increase in interest rate will bring down the growth of private sector credit, reducing private sector spending and contracting the economy.
While Mr. Dalio has a stake in popular big-cap companies like The Procter & Gamble Company (NYSE:PG), The Coca-Cola Company (NYSE:KO), and Alphabet Inc. (NASDAQ:GOOG) as of Q2, he also has some of the best cheap stocks in his portfolio that are expected to yield strong returns once the economy booms.
Ray Dalio of Bridgewater Associates
Our Methodology
We have picked these 11 cheap stocks from the second quarter portfolio of Ray Dalio’s Bridgewater Associates. We have shortlisted stocks that are trading below $15 per share as of September 28.
Best Cheap Stocks To Buy According To Billionaire Dalio
11. Southwestern Energy Company (NYSE:SWN)
Stock Price: $6.33
Ray Dalio’s Bridgewater Associates’ Holdings: $7.47 million
Percentage of Ray Dalio’s Bridgewater Associates’ Portfolio: 0.03%
Number of Hedge Fund Holders: 47
Southwestern Energy Company (NYSE:SWN) is a Texas-based corporation involved in the exploration and production (E&P) of natural gas.
In a research note issued on September 21, Paul Diamond at Citi increased the price target on Southwestern Energy Company (NYSE:SWN) from $8 to $10 and maintained a Buy rating on the stock. The analyst sees more clarity about the operational landscape of the industry in 2023 and anticipates strong operational performance in the coming quarters. Furthermore, Diamond believes that Southwestern Energy Company’s (NYSE:SWN) current pricing levels will sustain healthy free cash flow generation that would translate into capital gains. Experts think that Southwestern Energy Company (NYSE:SWN) has a prudent capital allocation strategy and a high level of financial flexibility. Bridgewater Associates re-initiated a position in Southwestern Energy Company (NYSE:SWN) during Q2 2022 with over 1.1 million shares, making it one of the best cheap stocks to buy according to Dalio.
Greenlight Capital discussed its outlook on Southwestern Energy Company (NYSE:SWN) in its Q1 2022 investor letter. Here’s what the firm said:
“SWN is the second largest producer of natural gas in the U.S. The company is well-situated to satisfy growing domestic and export demand. Over the short, medium and long term, Europe now intends to reduce its reliance on Russian energy and increase its use of U.S. LNG. Based on its 2021 year-end reserves – which assumed a $3.60/MMBtu long-term natural gas price – SWN has a PV-104 value of $13.83 per share. By the end of the first quarter, the U.S. natural gas 5-year forward curve averaged $4.28/MMBtu, while international seaborne LNG was close to $20/MMBtu. Over the intermediate term, with the benefit of substantial global investment in infrastructure, we expect prices for U.S. and international natural gas to converge. We acquired our shares at an average price of $6.58. SWN shares ended the quarter at $7.17.”
10. 360 DigiTech, Inc. (NASDAQ:QFIN)
Stock Price: $13.20
Ray Dalio’s Bridgewater Associates’ Holdings: $7.67 million
Percentage of Ray Dalio’s Bridgewater Associates’ Portfolio: 0.03%
Number of Hedge Fund Holders: 7
360 DigiTech, Inc. (NASDAQ:QFIN) is a Shanghai, China-based fintech company.
The company is a provider of a digital line of credit for consumers that is often availed to supplement credit card debts. In 95% of the applications, the platform automatically makes the decision, and when a loan is approved, the borrower is given access to the funds within five minutes. Experts have a bullish take on 360 DigiTech, Inc. (NASDAQ:QFIN) stock as the stability of the regulatory environment of the Chinese fintech industry is increasing with every passing day. The market considers 360 DigiTech, Inc. (NASDAQ:QFIN) a leader in the fintech industry based on its competitive advantage in capital, financial licenses, and technology. Due to its strong positioning, the company is expected to observe an increase in its market share. 360 DigiTech, Inc.’s (NASDAQ:QFIN) bright long-term prospects have led hedge funds to consider it amongst the best cheap stocks to buy.
Tiger Pacific Capital was the leading hedge fund investor in 360 DigiTech, Inc. (NASDAQ:QFIN) during Q2 2022.
9. TAL Education Group (NYSE:TAL)
Stock Price: $4.95
Ray Dalio’s Bridgewater Associates’ Holdings: $8.39 million
Percentage of Ray Dalio’s Bridgewater Associates’ Portfolio: 0.04%
Number of Hedge Fund Holders: 17
TAL Education Group (NYSE:TAL) is a Beijing, China-based provider of smart learning solutions. The company is working on leveraging technology to enhance the educational experience of students belonging to diversified age groups in the K-12 segment.
The Chinese education segment has over 160 million students spread across 207,000 schools, reflecting a large addressable market for TAL Education Group (NYSE:TAL). The Chinese government is taking initiatives to support the education sector aggressively. Furthermore, the risk of TAL Education Group (NYSE:TAL) being delisted from the NYSE is almost out of the way now, with a deal between the US and Chinese authorities near completion. The deal will allow US accounting firms to review the records of Chinese entities listed on the NYSE in Hong Kong. The development was termed “a regulatory breakthrough” by Goldman Sachs.
TAL Education Group (NYSE:TAL) has rallied over 25% since the start of the year, in comparison to the SPDR S&P 500 ETF Trust’s decline of 16% during the same period.
8. The Goodyear Tire & Rubber Company (NYSE:GT)
Stock Price: $11.15
Ray Dalio’s Bridgewater Associates’ Holdings: $9.04 million
Percentage of Ray Dalio’s Bridgewater Associates’ Portfolio: 0.04%
Number of Hedge Fund Holders: 30
The Goodyear Tire & Rubber Company (NYSE:GT) is an Akron, Ohio-based leading tire manufacturing company founded in 1898. The company has a presence in 23 countries through its 54 manufacturing facilities and a headcount of over 72,000 employees.
The Goodyear Tire & Rubber Company (NYSE:GT) is fundamentally strong and is well-positioned to benefit from an increase in EV investment. Investment levels in the EV sector are expected to reach an all-time high in 2022 and give a boost to the demand for The Goodyear Tire & Rubber Company’s (NYSE:GT) products.
Furthermore, with the acquisition of Cooper Tires, The Goodyear Tire & Rubber Company (NYSE:GT) owns a 25% market share of the replacement tire market now. Through this venture, The Goodyear Tire & Rubber Company (NYSE:GT) is aiming to capitalize on the increase in aging cars in the US. During these uncertain economic conditions, consumers are expected to prefer spending on their current vehicles instead of replacing them, playing in favor of The Goodyear Tire & Rubber Company (NYSE:GT). The company’s strong growth plans make it one of the best cheap stocks to buy.
7. SLM Corporation (NASDAQ:SLM)
Stock Price: $14.24
Ray Dalio’s Bridgewater Associates’ Holdings: $9.18 million
Percentage of Ray Dalio’s Bridgewater Associates’ Portfolio: 0.04%
Number of Hedge Fund Holders: 21
SLM Corporation (NASDAQ:SLM) is a Newark, Delaware-based provider and originator of US government-backed and private student loans. More popularly known as Sallie Mae, it is one of the cornerstones of the American financial system.
On September 28, David Chiaverini at Wedbush resumed coverage on SLM Corporation (NASDAQ:SLM) stock with an Outperform rating and a target price of $17. The target price reflects a potential upside of over 19% from the closing price as of September 28. The analyst highlighted the high market share of 56% for student loan originations as a key driver for a positive outlook on SLM Corporation (NASDAQ:SLM). Furthermore, the average FICO score for these loans stands at 750, which reflects the high quality of borrowers in the company’s loan portfolio.
Besides being one of the best cheap stocks in Dalio’s portfolio, 20 other hedge funds also held a stake in SLM Corporation (NASDAQ:SLM) as of Q2 2022.
6. WisdomTree Investments, Inc. (NASDAQ:WETF)
Stock Price: $4.87
Ray Dalio’s Bridgewater Associates’ Holdings: $11.16 million
Percentage of Ray Dalio’s Bridgewater Associates’ Portfolio: 0.05%
Number of Hedge Fund Holders: 18
WisdomTree Investments, Inc. (NASDAQ:WETF) is a New York-based sponsor of exchange-traded funds (ETFs), exchange-traded products (ETPs), and an asset manager.
WisdomTree Investments, Inc. (NASDAQ:WETF) has distinguished itself as a major ETF provider in the US after launching its first ETF in June 2006 with an asset under management (AUM) of over $70.5 billion. Given the downward bias for the broker and asset management segment due to the macroeconomic-related headwinds, experts believe that the current weakness provides an attractive long-term entry opportunity into WisdomTree Investments, Inc. (NASDAQ:WETF) stock.
WisdomTree Investments, Inc. (NASDAQ:WETF) has also undergone a transitioning process. The company has become the first leading firm to adopt blockchain-enabled technology to manage one of its funds either on the Ethereum or Stellar crypto network.
In addition to investing in some of the best cheap stocks like WisdomTree Investments, Inc. (NASDAQ:WETF), Dalio also has a stake in notable companies like The Procter & Gamble Company (NYSE:PG), The Coca-Cola Company (NYSE:KO), and Alphabet Inc. (NASDAQ:GOOG) as of Q2 2022.
5. Cleveland-Cliffs Inc. (NYSE:CLF)
Stock Price: $13.98
Ray Dalio’s Bridgewater Associates’ Holdings: $11.46 million
Percentage of Ray Dalio’s Bridgewater Associates’ Portfolio: 0.05%
Number of Hedge Fund Holders: 29
Cleveland-Cliffs Inc. (NYSE:CLF) is an Ohio-based integrated steel producer that has the distinction of being the biggest manufacturer of flat-rolled steel in North America.
Cleveland-Cliffs Inc. (NYSE:CLF) is working on becoming more sustainable as it intends to lower its carbon emissions by 25% by the end of this decade. In a research note issued to investors on September 28, David Coleman at Argus assigned Cleveland-Cliffs Inc. (NYSE:CLF) stock a target price of $23 with a Buy rating. The analyst highlighted that the company’s stock price had declined substantially due to the weak economic outlook causing metal prices to plummet globally. However, despite the grim outlook, Coleman sees solid profitability for Cleveland-Cliffs Inc. (NYSE:CLF) in 2023.
Analysts think Cleveland-Cliffs Inc. (NYSE:CLF) is trading at a discount to its fair value and should be valued around at least 7x NTM EBITDA. This would translate into a market capitalization of $14.9 billion, 90% higher than the current levels. The company’s fundamentals have made it one of the best cheap stocks in Dalio’s Q2 portfolio.
Of the 895 hedge funds in Insider Monkey’s database, 29 funds held a stake in Cleveland-Cliffs Inc. (NYSE:CLF) as of Q2 2022.
4. Tencent Music Entertainment Group (NYSE:TME)
Stock Price: $4.15
Ray Dalio’s Bridgewater Associates’ Holdings: $15.15 million
Percentage of Ray Dalio’s Bridgewater Associates’ Portfolio: 0.06%
Number of Hedge Fund Holders: 14
Tencent Music Entertainment Group (NYSE:TME) is a Shenzhen-based provider of music streaming services to the Chinese market. The company has over 800 million users across its platforms like Kugou Music, Kuwo Music, QQ Music, and WeSing.
On August 31, Tencent Music Entertainment Group (NYSE:TME) entered into a partnership with Billboard. The deal aims to leverage the technology of Tencent Music and combine it with the global brand power of Billboard to promote Chinese music across the world. Tencent Music Entertainment Group (NYSE:TME) has been aggressively working on reducing its content costs. The company has reworked its agreement with some of the music labels and brought down its expenses related to bandwidth and storage capability. These developments are expected to result in an expansion of Tencent Music Entertainment Group’s (NYSE:TME) gross profit margin.
Here’s what Bireme Capital said about Tencent Music Entertainment Group (NYSE:TME) in its Q4 2021 investor letter:
“We initiated one material long position during Q4, in a Chinese company called Tencent Music (TME).
One of the largest positions of the since-imploded Archegos fund, TME has fallen from $20 in Jan 2021 to less than $7 today, implying an enterprise value (net of cash) of less than $8b. We think this is extremely cheap for the dominant online music platform in China that currently generates $5b in revenue and $570m of trailing net profits.
With over 800m users across its many apps, Tencent Music is the primary way that people in China interact with online music. Today, the majority of revenue comes from virtual gifts sent to streamers in its “Social Entertainment” segment, which has grown revenue from $300m in 2016 to $2.9b in 2020. Within this segment, the most popular app is WeSing, a karaoke app with hundreds of millions of users in China. While competition from platforms such as Douyin (the Chinese version of TikTok) is increasing, WeSing continues to generate substantial profits for TME.”
3. Vipshop Holdings Limited (NYSE:VIPS)
Stock Price: $8.70
Ray Dalio’s Bridgewater Associates’ Holdings: $21.48 million
Percentage of Ray Dalio’s Bridgewater Associates’ Portfolio: 0.09%
Number of Hedge Fund Holders: 22
Vipshop Holdings Limited (NYSE:VIPS) is a Guangzhou, China-based online discount retailer that caters to the demand of the Chinese market.
On August 22, Ashley Xu at Credit Suisse upgraded Vipshop Holdings Limited’s (NYSE:VIPS) stock from a Neutral to an Outperform rating and increased the target price from $10.30 to $12. The analyst anticipates healthy bottom-line growth for the company as revenue begins to improve. Vipshop Holdings Limited (NYSE:VIPS) is also expected to benefit from effective cost controls. The analyst highlighted that Vipshop Holdings Limited (NYSE:VIPS) has stopped issuing self-subsidized coupons and made its cost structures efficient. All these factors would improve the company’s profit margins. Furthermore, the share buyback is expected to increase the EPS outlook for Vipshop Holdings Limited (NYSE:VIPS) and result in upward revisions by analysts.
Oakmark Funds presented its stance on Vipshop Holdings Limited (NYSE:VIPS) in its Q3 2021 investor letter. Here’s what the firm said:
“Vipshop Holdings ADR (China) offers a differentiated value proposition to its customers via its online product sales and distributions services. We like that the business model is asset-light due to inventory being predominantly on consignment and logistics outsourced to a third party. We believe the company should generate meaningful free cash flow moving forward.”
2. Warner Bros. Discovery, Inc. (NASDAQ:WBD)
Stock Price: $11.79
Ray Dalio’s Bridgewater Associates’ Holdings: $29.71 million
Percentage of Ray Dalio’s Bridgewater Associates’ Portfolio: 0.13%
Number of Hedge Fund Holders: 68
Warner Bros. Discovery, Inc. (NASDAQ:WBD) is a New York-based mass entertainment and media conglomerate.
Warner Bros. Discovery, Inc.’s (NASDAQ:WBD) HBO Max finished the most recent quarter with a subscriber base of 92.1 million users. The leading streaming platform currently has a presence in 61 countries and intends to enter 190 countries by 2026. This would mean that the company would see its subscribers grow significantly in the future.
Experts believe that Warner Bros. Discovery, Inc. (NASDAQ:WBD) stock is trading at a very cheap valuation as compared to the multiples of Netflix, Inc. (NASDAQ:NFLX) and the Walt Disney Company (NYSE:DIS). Warner Bros. Discovery, Inc.’s (NASDAQ:WBD) valuation is expected to double in the next 12 months from current levels. The growth outlook merits the inclusion of Warner Bros. Discovery, Inc. (NASDAQ:WBD) as one of the best cheap stocks in Dalio’s portfolio.
Here’s what Distillate Capital Partners LLC said about Warner Bros. Discovery, Inc. (NASDAQ:WBD) in its Q2 2022 investor letter:
“Warner Bros. Discovery was the next largest position added to the portfolio and came after a nearly-50% price decline in the quarter. Consequently, the stock offers a mid-teens free cash flow yield and is expected to earn nearly half of its enterprise value in free cash over the next three years.”
1. Ford Motor Company (NYSE:F)
Stock Price: $12.18
Ray Dalio’s Bridgewater Associates’ Holdings: $51.43 million
Percentage of Ray Dalio’s Bridgewater Associates’ Portfolio: 0.22%
Number of Hedge Fund Holders: 46
Ford Motor Company (NYSE:F) is a Detroit, Michigan-based manufacturer of automobiles.
Baron Funds shared its outlook on Ford Motor Company (NYSE:F) in its Q1 2022 investor letter. Here’s what the firm said:
“Ford (NYSE:F) is another example of typical industrial manufacturing business executive mindsets. The April 18, 2022, Bloomberg Businessweek cover story features Ford CEO Jim Farley behind the wheel of an electrified Ford F-150 Lightning. The article is titled, “Hey Elon, THIS is a truck.” I thought the article was terrific. One idea especially stood out to me. Since the F-150 is such a popular vehicle, it “argued for a gradual approach to electrification. Essentially the company retrofitted an existing F-150 with an electric powertrain rather than develop an entirely new truck.” No all-in financial and operation bet by this company on electrification.”
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