In this article, we discuss the 5 best undervalued small-cap stocks according to hedge funds. If you want to read about some more undervalued stocks popular among hedge funds, go directly to 10 Best Undervalued Small-Cap Stocks According to Hedge Funds.
5. Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI)
Number of Hedge Fund Holders: 10
PE Ratio: 9.62
Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) is a New York-based real estate investment trust. The company has an impressive dividend history and has consistently handed out the payouts to shareholders for the past eleven years. On March 15, it declared a quarterly dividend of $0.35 per share, in line with previous. The forward yield was 10.37%. As inflation surges and interest rates rise, investors are actively searching for firms with solid fundamentals to ride the storm. Apollo offers a high income in this volatile environment.
Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) offers good value for money since it invests in mortgages that are secured by commercial properties. As these are floating-rate loans, these provide rising income in a high interest rates environment.
Among the hedge funds being tracked by Insider Monkey, Chicago-based firm Balyasny Asset Management is a leading shareholder in Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI) with 1.2 million shares worth more than $16 million.
At the end of the fourth quarter of 2021, 10 hedge funds in the database of Insider Monkey held stakes worth $27 million in Apollo Commercial Real Estate Finance, Inc. (NYSE:ARI), compared to 7 in the preceding quarter worth $7 million.
4. Victory Capital Holdings, Inc. (NASDAQ:VCTR)
Number of Hedge Fund Holders: 18
PE Ratio: 7.67
Victory Capital Holdings, Inc. (NASDAQ:VCTR) operates as an asset management firm. On March 10, the firm disclosed that assets under management (AUM) were $176 billion in late February, slipping by 0.5% month-on-month. Victory is another undervalued dividend pick. On February 10, the firm declared a quarterly dividend of $0.25 per share, an increase of more than 47% compared to the previous dividend of $0.17. The forward yield was close to 3%. In late December 2021, the firm had announced a $15 million share buyback program.
On February 15, RBC Capital analyst Kenneth Lee kept an Outperform rating on Victory Capital Holdings, Inc. (NASDAQ:VCTR) stock with a price target of $44, underlining that there were “”myriad growth opportunities” for the firm through scaling up recently acquired franchises as well as through future mergers and acquisitions.
Among the hedge funds being tracked by Insider Monkey, London-based investment firm Impax Asset Management is a leading shareholder in Victory Capital Holdings, Inc. (NASDAQ:VCTR) with 972,198 shares worth more than $35 million.
At the end of the fourth quarter of 2021, 18 hedge funds in the database of Insider Monkey held stakes worth $129 million in Victory Capital Holdings, Inc. (NASDAQ:VCTR), compared to 15 in the preceding quarter worth $77 million.
In its Q4 2021 investor letter, Gator Capital Management, an asset management firm, highlighted a few stocks and Victory Capital Holdings, Inc. (NASDAQ:VCTR) was one of them. Here is what the fund said:
“Although higher interest rates will benefit the Fund’s portfolio, we are making sure that the Fund is not simply a bet on higher rates. We have several large holdings with inexpensive valuations and catalysts unrelated to higher interest rates. Victory Capital Holdings, Inc. (NASDAQ:VCTR) is an asset manager making attractive acquisitions of smaller asset managers, trading at 6x earnings, and returning capital to shareholders through increased dividends and share repurchases.”
3. StepStone Group Inc. (NASDAQ:STEP)
Number of Hedge Fund Holders: 19
PE Ratio: 5.61
StepStone Group Inc. (NASDAQ:STEP) is a New York-based investment firm. On February 8, the firm posted earnings for the third fiscal quarter, reporting earnings per share of $0.83 and a revenue of more than $410 million, up 66% year-on-year and beating analyst expectations by $263 million. It also declared a quarterly dividend of $0.15 per share, in line with previous. The forward yield was 1.75%.
In late 2021, Evercore ISI analyst John Dunn had initiated coverage of StepStone Group Inc. (NASDAQ:STEP) stock with an Outperform rating and a price target of $48, highlighting that the firm was “well-positioned in the secularly-growing private markets space” given that it had a “more diverse, global and growing business” in relation to competitors.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Millennium Management is a leading shareholder in StepStone Group Inc. (NASDAQ:STEP) with 1 million shares worth more than $43 million.
At the end of the fourth quarter of 2021, 19 hedge funds in the database of Insider Monkey held stakes worth $113 million in StepStone Group Inc. (NASDAQ:STEP), compared to 13 in the previous quarter worth $60 million.
2. Vista Outdoor Inc. (NYSE:VSTO)
Number of Hedge Fund Holders: 25
PE Ratio: 4.95
Vista Outdoor Inc. (NYSE:VSTO) markets consumer products in the sports and recreation sector. The company is one of the largest players in the recreation market with ownership of around 39 renowned brands in the space. The total addressable market for recreation is around $100 billion. The shares have lots of room to grow as the company improves operational efficiencies and reduces the debt/EBITDA leverage. It is also improving FCF generation.
On February 4, Roth Capital analyst Matt Koranda kept a Buy rating on Vista Outdoor Inc. (NYSE:VSTO) stock with a price target of $57, backing the firm to benefit from a sustained ammo upcycle for the next few quarters.
At the end of the fourth quarter of 2021, 25 hedge funds in the database of Insider Monkey held stakes worth $460 million in Vista Outdoor Inc. (NYSE:VSTO), compared to 23 in the preceding quarter worth $407 million.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Gates Capital Management is a leading shareholder in Vista Outdoor Inc. (NYSE:VSTO) with 5.3 million shares worth more than $246 million.
In its Q2 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Vista Outdoor Inc. (NYSE:VSTO) was one of them. Here is what the fund said:
“Our Strategy outperformed with strong results from consumer discretionary stocks like Vista Outdoor Inc. (NYSE:VSTO). Vista Outdoor Inc. (NYSE:VSTO), a manufacturer of a wide range of products serving the outdoor sports and recreation markets, also performed well in the period on continued demand and growing margins.”
1. Genworth Financial, Inc. (NYSE:GNW)
Number of Hedge Fund Holders: 19
PE Ratio: 2.19
Genworth Financial, Inc. (NYSE:GNW) provides insurance products. The share price has not registered a significant upside since the company merged with China Oceanwide in 2016. However, this merger was terminated in January last year. Since then, the company has taken a slew of initiatives aimed at strengthening the balance sheet and improving profitability for the long-term aimed at growing dividend payouts and share repurchases.
On March 14, S&P Global upgraded the credit rating of Genworth Financial, Inc. (NYSE:GNW) to B+ from B.
Among the hedge funds being tracked by Insider Monkey, North Carolina-based investment firm Shah Capital Management is a leading shareholder in Genworth Financial, Inc. (NYSE:GNW) with 11.5 million shares worth more than $46 million.
At the end of the fourth quarter of 2021, 19 hedge funds in the database of Insider Monkey held stakes worth $128 million in Genworth Financial, Inc. (NYSE:GNW), compared to 23 in the preceding quarter worth $130 million.
In its Q4 2021 investor letter, Gator Capital Management, an asset management firm, highlighted a few stocks and Genworth Financial, Inc. (NYSE:GNW) was one of them. Here is what the fund said:
“We own positions in both Enact Holdings and its parent company, Genworth Financial, Inc. (NYSE:GNW). Enact is one of six mortgage insurance companies. Mortgage insurance is purchased by borrowers to protect lenders if the borrower defaults on their mortgage. The government mortgage agencies (“GSEs”) require mortgage insurance when the borrower has a down payment of less than 20% of the home’s purchase price. Usually, first-time homeowners are the largest users of mortgage insurance since they often have the most difficult time accumulating enough savings for a 20% down payment. We believe the demand for mortgage insurance will be strong, but the mortgage insurance companies’ stocks are priced as though future earnings will not grow.
Here is our investment thesis on Genworth Financial, Inc. (NYSE:GNW):
Genworth Financial
We also own shares of Enact’s parent company Genworth Financial. We think Genworth is more attractive than Enact. Here is our investment thesis on Genworth:
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Leveraged return on Enact – Genworth’s main asset is the 132 million shares of Enact it still holds. Genworth also has about $1 billion of net debt at its holding company, so it is a leveraged version of Enact. If Enact stock increases in value, Genworth should increase a greater percentage due to…” (Click here to see the full text)
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