In this article, we will look at 11 best undervalued stocks to buy now.
Value investing has long been an investors’ go-to strategy to come atop the broad market and pocket huge profits for themselves and their investors. Some of the world’s most influential and successful investors of all time such as Warren Buffett, Kenneth Fisher, Benjamin Graham, and Seth Klarman have employed, vouched for, and pioneered value investing strategies to acquire their fortunes.
Value Investing Legends
Benjamin Graham, now late, is officially dubbed as the “father of value investing”. He is applauded for his work in Security Analysis with David Dodd and The Intelligent Investor, both of which laid the groundwork for value investing instruments and tools widely used in stock valuations now. Warren Buffett, one of the world’s most successful value investors to date, has religiously followed the teachings of Benjamin Graham. As of 2022, Warren Buffett is worth $95.7 billion and is the fifth-wealthiest billionaire in the world. Warren Buffett has set the example for making fortunes from value investing strategies over the long term. During the entirety of his career, Mr. Buffet’s hedge fund has generated a median annual return of roughly 20.1% from 1965 to 2021, besting the S&P 500’s average annualized returns of 10.5%, including dividends, over the same period.
When To Own What: Growth Vs Value
Billionaire Kenneth Fisher has compared growth stocks to value stocks on multiple occasions and has laid the rationale of when to own what. Mr. Fisher spoke on the topic in a recent video he uploaded to his YouTube channel. Here is what he said:
“There’s a time when value does better, a time when growth does better. Typically early in a stock market cycle off the bottom, following a bear market, value stocks tend to lead. Typically late in a bull market, before it peaks, growth stocks tend to lead.”
However, Mr. Fisher believes that in the longer term both categories tend to perform the same as a consequence of shifts in supply overwhelming shifts in demand for either category, in the “very long term”.
Performance of Value Stocks: In Retrospect
A leading investment research company, Dimensional Fund Advisors, conducted a study that examined the returns of stocks belonging to growth and value categories between 1927 and 2021. Dimensional found that value stocks bested growth stocks by a median of 4.1% on an annualized basis in the US since 1927.
Some of the best value stocks that you can invest in right now are JPMorgan Chase & Co. (NYSE:JPM), Morgan Stanley (NYSE:MS), and Exxon Mobil Corporation (NYSE:XOM).
Our Methodology
For our list of 11 best undervalued stocks to buy now, we picked pure-play value stocks from the energy, financials, and industrials segments. We checked each stock’s trailing-twelve-month price-to-earnings ratios and narrowed down our selection to stocks that had a PE of less than 15. Moreover, we preferred stocks that had consensus buy-side ratings from expert financial analysts.
With each stock, we have mentioned the analyst rating and hedge fund sentiment, which we sourced from Insider Monkey’s database of approximately 900 hedge funds. The stocks are ranked in increasing number of hedge fund holders.
Best Undervalued Stocks to Buy Now
11. Marathon Oil Corporation (NYSE:MRO)
Number of Hedge Fund Holders: 43
PE Ratio as of June 24: 7.71
Marathon Oil Corporation (NYSE:MRO) is on the rise and is also trading well below its true value, which is why it is one of best undervalued stocks to buy now. As of June 24, the stock has returned 30.71% to investors year-to-date and has a PE ratio of 7.71.
Analysts are bullish on Marathon Oil Corporation. As of May 31, Mizuho analyst Vincent Lovaglio has a $38 price target and Buy rating on Marathon Oil Corporation. On June 14, Barclays analyst Jeanine Wai raised her price target on Marathon Oil Corporation to $37 from $30 and reiterated an Overweight rating, equivalent to Buy, on the shares.
At the end of Q1 2022, 43 hedge funds disclosed ownership of stakes in Marathon Oil Corporation. The total stakes of these hedge funds were worth $1.50 billion, up from $969.10 million a quarter ago with 40 positions. The hedge fund sentiment for the stock is positive.
As of March 31, Fisher Asset Management is the top shareholder in Marathon Oil Corporation with stakes worth $217.05 million.
Like JPMorgan Chase & Co., Morgan Stanley, and Exxon Mobil Corporation, Marathon Oil Corporation is an attractive undervalued stock option to consider investing in right now.
10. FedEx Corporation (NYSE:FDX)
Number of Hedge Fund Holders: 52
PE Ratio as of June 24: 12.75
On June 23, FedEx Corporation (NYSE:FDX) announced earnings for the fourth quarter of fiscal year 2022. The company reported a revenue of $24.40 billion, up 7.96% year over year, but missed estimates by $156.15 million. The company’s earnings per share came in at $6.87, short of expectations by $0.01. FedEx Corporation also guided to improved diluted EPS for the next year and said that it expects it to range between $22.45 and $24.45, above Wall Street forecasts of $22.40.
Shortly after the company’s earnings release, BofA analyst Ken Hoexter raised his price target on FedEx Corporation to $276 from $265 and reiterated a Buy rating on the shares. As of June 24, FedEx Corporation has a forward PE ratio of 12.75 and a dividend yield of 2.00%, which is why we included it in the 11 best undervalued stocks to buy now.
At the close of Q1 2022, 52 hedge funds were long FedEx Corporation with stakes worth $1.78 billion. Of these, $321.29 million were of Southeastern Asset Management, the largest shareholder in the company.
Here is Artisan Partners‘ view on FedEx Corporation. The investment management firm mentioned the company in their Q3 2021 investor letter and said:
“Our weakest Q3 performers included FedEx. Shares of FedEx, a global shipping and logistics firm, were held back by disappointing business results as labor cost headwinds and air network disruptions overshadowed solid top-line trends. We think the company should be able to overcome these near-term issues. Importantly, FedEx has strong pricing power as it operates in a consolidated global shipping industry. In September, the company announced it would increase its shipping rates by an average of 5.9% across most of its services, which is the first time in several years that its annual increase would exceed 5.0%. The industry’s renewed pricing discipline is a welcome change, reflecting a broader commitment to earn better returns on invested capital. FedEx is also closer to fully integrating TNT, a European-focused parcel company it acquired in 2016. The market is beginning to incorporate a higher probability FedEx will fully integrate TNT, which will provide a significant boost to profits. The stock now trades at a near-trough multiple of less than 12X 2022 earnings, so we added to our position on weakness.”
9. Chevron Corporation (NYSE:CVX)
Number of Hedge Fund Holders: 53
PE Ratio as of June 24: 13.69
Shares of Chevron Corporation (NYSE:CVX) are picking up in 2022. As of June 24, the stock has surged 22.15% year-to-date and is currently trading at $145.66 a share with a price-to-earnings ratio of 13.69. Chevron Corporation is therefore among our top undervalued energy stock picks to invest in now.
As of June 9 Manav Gupta, an analyst at Credit Suisse has a $202 price target and Outperform rating on Chevron Corporation. The stock is also one of Wells Fargo’s top recession stock picks from the energy sector.
Chevron Corporation is a young dividend company that has been growing its dividends for about 6 years now, with a 5-year CAGR of 5.07% and an annual payout ratio of 51.37%. As of June 24, the stock has a forward dividend yield of 3.99%.
Insider Monkey spotted 53 hedge funds bullish on Chevron Corporation at the close of Q1 2022. The total stakes of these hedge funds came in at $27.99 billion, up from $6.50 billion a quarter ago with 53 positions.
Berkshire Hathaway is betting big on Chevron Corporation. In the first quarter of 2022, Warren Buffett’s hedge fund raised its stakes in the oil giant by 317% bringing them to $25.91 billion and making Berkshire Hathaway the largest shareholder in the company.
ClearBridge Investments shared their insights on Chevron Corporation in their Q1 2022 investor letter, Here is what the firm said:
“The energy sector, which led a strong market in 2021, generated even more dramatic relative performance in the quarter, advancing 39% and leading the benchmark Russell 1000 Value Index. Years of restrained investment in the energy sector, combined with a strong post-pandemic recovery, contributed to the higher commodity prices. The upward pressure escalated with the Russian invasion of Ukraine. Our energy holding Chevron (NYSE:CVX) benefited from higher commodity prices and was among the top contributors to first-quarter performance.”
8. Builders FirstSource, Inc. (NASDAQ:BLDR)
Number of Hedge Fund Holders: 57
PE Ratio as of June 24: 4.74
As of June 24, Builders FirstSource, Inc. (NASDAQ:BLDR) has climbed 17.66% over the past twelve months and is currently trading at $52.76 with a PE ratio of 4.74. These are only some of the features that make it a compelling stock from the industrials sector for value investors.
In the first quarter of 2022, Builders FirstSource, Inc. repurchased over 3.5 million shares of its common stock for roughly $286 million. On May 9, the company’s board also authorized a new share repurchase program of $2 billion.
Analysts are bullish on Builders FirstSource, Inc. and the stock has received consensus Buy or equivalent ratings. On May 13, Wedbush analyst Jay McCanless raised his price target on Builders FirstSource, Inc. to $110 from $105 and reiterated an Outperform rating on the shares.
At the close of Q1 2022, 57 hedge funds held stakes in Builders FirstSource, Inc. valued at $1.87 billion. Of these, the majority stakes were of Coliseum Capital which raised its stakes in the company by 19% in Q1 2022, bringing them to $358.42 million.
Here is why you should consider investing in Builders FirstSource, Inc. according to Black Bear Value Partners, who mentioned the company in their Q1 2022 investor letter:
“Builders FirstSource is a supplier and manufacturer of building materials for professional homebuilders, subcontractors, remodelers, and consumers. Their products include factory-built roof and floor trusses, wall panels and stairs, vinyl windows and custom millwork.
The fundamental discussion about homebuilders applies to BLDR. As more homes are built across the country, there will be an increased need for scaled sourcing of products to homebuilders. There is a large amount of fragmentation in the supply chain which provides BLDR a long runway for acquisitions and realistic synergies.
The management team has been using their prodigious free cash flow to both acquire new businesses and buy in their stock. While I historically always liked their business, their historic high-debt levels gave me pause. They have right sized their balance sheet and are taking a very thoughtful view on capital allocation on behalf of shareholders.
BLDR should be able to generate $7-$10 a share in cash in the medium term with significant upside if they can scale through acquisition and/or further penetrate existing markets. We own it at a 11-15% free-cash flow yield so little growth is needed for us to compound value at high rates.”
7. ConocoPhillips (NYSE:COP)
Number of Hedge Fund Holders: 67
PE Ratio as of June 24: 9.45
The market seems to have overlooked ConocoPhillips, which is currently trading at $90.91 with a PE ratio of 9.45. As of June 24, the stock has returned 23.23% to investors since the beginning of 2022, which makes it an attractive undervalued stock to invest in now.
On June 14, Barclays analyst Jeanine Wai raised her price target on ConocoPhillips (NYSE:COP) to $142 from $132 and reiterated an Overweight rating, equivalent to Buy, on the shares.
On June 21, leading oil and gas company Exxon Mobil Corporation announced that it will be jointly developing QatarEnergy’s North Field East project with ConocoPhillips and other partners. The $29 billion project is expected to increase the state of Qatar’s LNG capacity to 110 million metric tons per year, up from its current capacity of 77 million.
67 hedge funds disclosed ownership of stakes in ConocoPhillips at the close of Q1 2022. The total stakes of these hedge funds amounted to $2.58 billion, up from $1.55 billion a quarter ago with 56 positions. The hedge fund sentiment for the stock is positive.
In Q1 2022, Diamond Hill Capital went long in ConocoPhillips and purchased over 7 million shares of the company. Diamond Hill Capital is the top shareholder in the company.
Here is what ClearBridge Investments had to say about ConocoPhillips in its Q1 2022 investor letter:
“The energy sector, which led a strong market in 2021, generated even more dramatic relative performance in the quarter, advancing 39% and leading the benchmark Russell 1000 Value Index. Years of restrained investment in the energy sector, combined with a strong post-pandemic recovery, contributed to the higher commodity prices. The upward pressure escalated with the Russian invasion of Ukraine. Our energy holdings ConocoPhillips (NYSE:COP) benefited from higher commodity prices and was among the top contributors to first-quarter performance.”
6. Occidental Petroleum Corporation (NYSE:OXY)
Number of Hedge Fund Holders: 67
PE Ratio as of June 24: 8.69
On June 23, Truist analyst Neal Dingmann raised his price target on Occidental Petroleum to a “street high” of $93 from $88 and reiterated a Buy rating on the shares, shortly after Warren Buffett’s Berkshire Hathaway reportedly purchased over 9.5 million additional shares of the company. Dingmann noted that he sees a high probability of the value investor purchasing the remaining shares of Occidental Petroleum Corporation (NYSE:OXY).
So far in 2022, Occidental Petroleum Corporation’s year-to-date returns are up 85.19%. As of June 24, the stock has a price-to-earnings ratio of 8.69, which makes now the time to invest in this undervalued energy stock.
Insider Monkey found 67 hedge funds that held stakes in Occidental Petroleum Corporation at the end of the first quarter of 2022. These funds held collective stakes of $12.61 billion in the company. This is compared to 58 hedge funds in the previous quarter with stakes of $3.86 billion.
As of March 31, Berkshire Hathaway is the top shareholder in Occidental Petroleum Corporation. After the fund’s recent purchase of an additional 9.5 million shares of the company, Berkshire Hathaway now owns one-third of Occidental Petroleum Corporation.
Some of the best undervalued stocks to buy now include Occidental Petroleum Corporation, JPMorgan Chase & Co., Morgan Stanley, and Exxon Mobil Corporation.
Smead Capital Management mentioned several companies in its Q3 2021 investor letter, one of which was Occidental Petroleum Corporation. Here is what the firm had to say:
“Oil stocks dominated our winners for the quarter. We showed that we have unlimited ability to tempt fate by buying into Occidental Petroleum (OXY) this year after it was our biggest loser of 2020. It gained 16.64% during the third quarter.”
5. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 83
PE Ratio as of June 24: 14.48
Since the beginning of 2022, Exxon Mobil Corporation has returned investors 36.76%. As of June 24, the stock has a price-to-earnings ratio of 14.48 and a forward dividend yield of 4.13%, factors that make it rank among our top 5 undervalued stock picks.
As of June 21, Credit Suisse analyst Manav Gupta has a $125 price target and buy-side Outperform rating on Exxon Mobil Corporation.
Hedge funds are raising their stakes in Exxon Mobil Corporation and the hedge fund sentiment around the stock is positive. At the end of Q1 2022, 83 hedge funds held stakes in the company which totaled $8.55 billion. Comparing this to Q4 2021, 71 hedge funds held stakes in the company which amounted to $5.38 billion.
As of March 31, GQG Partners is the most bullish hedge fund investor on Exxon Mobil Corporation. Rajiv Jain’s hedge fund has stakes worth $4.27 billion in the company.
Saturna Capital shared its insights on Exxon Mobil Corporation in the firm’s Q4 2021 investor letter. Here is what experts at Saturna Capital think:
“Few companies maintain their position at the top for more than a decade or two. One that did was Exxon, which appeared decennially from 1980 through 2010. In 2019 it was ranked 10th, but as of writing has dropped to 39th place.”
4. Morgan Stanley (NYSE:MS)
Number of Hedge Fund Holders: 61
PE Ratio as of June 24: 9.89
Morgan Stanley is among our top undervalued stock picks from the financial services sector. As of June 24, the stock has a PE ratio of 9.89 and a dividend yield of 3.75%. Morgan Stanley is proactive with M&A activity and on June 22, announced that its workplace solutions business, Morgan Stanley at Work, has successfully acquired American Financial Systems. With this move, Morgan Stanley anticipates delivering value to plan sponsors and their participants.
As of May 3, Oppenheimer analyst Chris Kotowski has a $111 price target and buy-side Outperform rating on Morgan Stanley.
Insider Monkey found 61 hedge funds bullish on Morgan Stanley at the close of Q1 2022. The total stakes of the hedge funds were valued at $3.25 billion.
As of March 31, Eagle Capital Management is the top shareholder in Morgan Stanley and holds stakes of $1.23 billion in the major bank.
Artisan Partners mentioned Morgan Stanley in its Q3 2021 investor letter, Here is what the firm said:
“MorganStanley, a leading global financial services company, came into the portfolio in late 2020 as a result of its purchase of E*TRADE. The acquisition is a great fit for Morgan Stanley’s wealth management platform and provides a considerable amount of non-interest-bearing deposit funding. James Gorman, chairman and CEO, has steadily derisked the business by adding less volatile fee streams to complement its leading positions in cyclical businesses such as advisory, equities and FICC (fixed income, currencies and commodities). We believe the company will prove its resiliency and value over the long term.”
3. Goldman Sachs Group, Inc. (NYSE:GS)
Number of Hedge Fund Holders: 71
PE Ratio as of June 24: 5.85
Insider Monkey spotted 71 hedge funds bullish on Goldman Sachs Group, Inc. (NYSE:GS) at the close of Q1 2022. These funds held collective stakes worth $4.59 billion in the company. Of these, $1.12 billion were of Eagle Capital Management, the largest shareholder in the company.
As of June 24, Goldman Sachs Group, Inc. has a forward dividend yield of 2.80%, a PE ratio of 5.85, and is trading at $302.75 a share, making now the time to buy the undervalued dividend-paying bank stock.
As of this May, Oppenheimer analyst Chris Kotowski has a $519 price target and Outperform rating on Goldman Sachs Group, Inc..
Ariel Investments, an investment management firm, mentioned Goldman Sachs Group, Inc. in its Q4 2021 investor letter. Here is what the firm said:
“Rising interest rates, after a surprisingly long period of low absolute rates and negative “real” rates, will create a headwind. While there has been much debate about the cause of these low rates, we believe the most important factor has been the $120 billion in monthly federal reserve open market bond purchases and the accumulation of an $8 trillion balance sheet. The former will end, and the latter will shrink. It is not just the Fed that has aggressively purchased bonds, bidding up prices and lowering yields. Bond traders and hedge fund managers have added to positions, confident that being on the same side as the Fed was the wise place to be. Now as the Fed is about to become a seller of bonds rather than a buyer, Wall Street’s “smart money” is likely to follow suit. Against this backdrop, fixed income securities and bond substitutes such as high dividend paying utilities and absolute return hedge funds are substantially overpriced and are not likely to produce attractive returns going forward.
This expectation of a reversion to the mean for interest rates helped 2021 performance, though not as much as we had hoped. The yield on the U.S. 10-year Treasury did indeed increase from +0.92% at the beginning of the year to +1.52% at year-end. An underreported story was the poor performance of bonds last year. The Barclays Aggregate Index declined -1.67% for the year ending December compared to a return of +28.71% for equities as measured by the S&P 500. Interest rates have continued to climb in 2022 with the 10-year Treasury at +1.79% as we go to print. This move higher in rates has contributed to our good, early start to 2022. The Goldman Sachs Group, Inc. (GS) jumped +47.59% for the year and +1.73% in the quarter.”
2. Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Holders: 93
PE Ratio as of June 24: 8.41
On June 24, Raymond James analyst David Long slashed his price target on Wells Fargo & Company to $50 from $60 but reiterated an Outperform rating on the shares. The analyst is bullish on the stock and sees near-term tailwinds fueling the profitability of Wells Fargo & Company which include accelerated loan growth, initiatives in multiyear expense rationalization, and increased asset sensitivity, among others.
As of June 24, Wells Fargo & Company has a PE ratio of 8.41 and is trading at $40.76 a share, which makes it rank high among the top undervalued stocks to buy now.
At the end of Q1 2022, 93 hedge funds were long Wells Fargo & Company with stakes worth $6.86 billion. This is compared to 94 positions in the previous quarter with stakes worth $6.11 billion.
As of March 31, Theleme Partners is the most prominent shareholder in Wells Fargo & Company with stakes of $884.71 million.
Here is what Davis Funds said about Wells Fargo & Company in its fourth-quarter 2021 investor letter:
“The absolute level of revenues and profits generated by such companies is in fact so large that most of the major financial holdings in the portfolio produce enough annual operating income individually that a number of them could, in theory, purchase several entire businesses among hundreds of choices within the S&P 1500 Index, using just a year’s cash earnings without dipping into capital. This is theoretical, as financial companies would not be in the business of buying healthcare or technology companies, for example, but we point out these facts to illustrate the sheer scale of the economics produced by single financial companies in a given year, which is often a multiple of the cash earnings yielded by companies in a host of other industries.
Given this cash-generation power, we are naturally drawn to what we believe are strong and profitable financial institutions when the price is right. Presently, we believe the valuations of our financial holdings are not only reasonable, but extremely compelling, and our portfolio composition reflects this view. Representative financial holdings in the Fund includes Wells Fargo.”
1. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 110
PE Ratio as of June 24: 8.67
At the close of Q1 2022, 110 hedge funds were bullish on JPMorgan Chase & Co. and held stakes of $5.05 billion in the major bank. Of these $1.05 billion was attributed to Ken Fisher’s hedge fund. Fisher Asset Management raised its stakes in JPMorgan Chase & Co. by 5% in the first quarter of 2022 and is the top hedge fund investor in the company.
As of this May, Societe Generale analyst Andrew Lim has a $150 price target and Buy rating on JPMorgan Chase & Co..
As of June 24, JPMorgan Chase & Co. has a PE ratio of 8.67 and a dividend yield of 3.54%.
Here is what ClearBridge Investments said about JPMorgan Chase & Co. in its Q4 2021 investor letter:
“Our energy and financials holdings kept pace in the 2021 rally. In financials, JPMorgan benefited from strong economic growth, a rise in Treasury yields, and a benign credit environment.”
You can also take a look at 10 Undervalued Dividend Kings To Buy In 2022 and 10 Undervalued Dividend Aristocrats to Buy in 2022.
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This article is originally published at Insider Monkey.
