In this article, we will take a look at the 15 most undervalued small-cap stocks to buy according to hedge funds.
Small-cap stocks suffer when financial markets are facing turbulence because investors tend to flee riskier stocks towards safer, large-cap companies. However, it’s an open secret that not all small-cap companies are risky. There are always immense opportunities for investors in the small-cap world. A WSJ article last year pointed to the trend in the investing world where investors were piling into cheap and undervalued small-cap stocks amid the broader market turmoil. While it is hard to predict when the next rotation will kick off, investors say some small-cap stocks have fallen so far that they now look inexpensive, compared with shares of larger companies.
The WSJ report, published in June 2022, quoted Jason Pride, chief investment officer of private wealth at Glenmede, who thinks small caps had “fallen too hard.” The analyst at the time had an Overweight rating for small-cap stocks
Our Methodology
For this article we scanned Insider Monkey’s database of 920 hedge funds’ stock holdings and picked the top 15 small-cap stocks that have PE ratios of less than 15. These are some of the most popular undervalued small-cap stocks to buy according to elite money managers. PE ratios mentioned in this article are as of January 30.
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Most Undervalued Small-Cap Stocks To Buy According To Hedge Funds
15. Banco BBVA Argentina S.A. (NYSE:BBAR)
Number of Hedge Fund Holders: 7
Banco BBVA Argentina S.A. (NYSE:BBAR) is a financial services company based in Argentina. Banco BBVA Argentina S.A. (NYSE:BBAR) is a dividend payer, with a yield of about 0.76% as of January 30. Insider Monkey’s database of 920 hedge fund holdings shows that 7 hedge funds had stakes in Banco BBVA Argentina S.A. (NYSE:BBAR) at the end of the September quarter. The most notable of these hedge funds was Peter Rathjens, Bruce Clarke and John Campbell’s Arrowstreet Capital was $2.71 million.
In November, Banco BBVA Argentina S.A. (NYSE:BBAR) posted its third-quarter results. Banco BBVA Argentina S.A. (NYSE:BBAR)’s adjusted EPS in the period came in at AR$48.17. Operating income in the quarter totaled $48.4 billion, a 24% growth when compared to the previous quarter.
14. Park National Corporation (NYSE:PRK)
Number of Hedge Fund Holders: 8
Ohio-based Park National Corporation (NYSE:PRK) is a banking company. Park National Corporation (NYSE:PRK) is trading at a PE ratio of 13.40 as of January 30. A total of 8 hedge funds tracked by Insider Monkey reported having stakes in Park National Corporation (NYSE:PRK) at the end of the third quarter of 2022. The total value of these shares was $4.1 million. The biggest stakeholder of Park National Corporation (NYSE:PRK) was Ken Griffin’s Citadel Investment Group which owns a $1.4 million stake in the company.
This small-cap stock is under pressure after Park National Corporation (NYSE:PRK) posted weak quarterly results earlier in January. For the fourth quarter of 2022, Park National Corporation (NYSE:PRK)’s adjusted EPS came in at $1.94, missing estimates by $0.32. Revenue in the quarter jumped about 8.5% to a total $119.75 million, missing estimates by $3.51 million.
13. Heartland Financial USA, Inc. (NASDAQ:HTLF)
Number of Hedge Fund Holders: 8
Heartland Financial USA, Inc. (NASDAQ:HTLF) has a dividend yield of over 2.5% as of January 30. As of the end of the third quarter, 8 hedge funds had stakes in Heartland Financial USA, Inc. (NASDAQ:HTLF). The total value of these stakes was about $14 million.
In January, Heartland Financial USA, Inc. (NASDAQ:HTLF) upped its quarterly dividend by a whopping 7% when the company declared a quarterly dividend of $0.30 per share. The dividend is payable on February 28.
12. Enterprise Financial Services Corp. (NASDAQ:EFSC)
Number of Hedge Fund Holders: 11
Yet another financial services company in our list of the most undervalued small-cap stocks to buy according to hedge funds, Enterprise Financial Services Corp (NASDAQ:EFSC) has a PE ratio of 9.76 and a dividend yield of 1.93 as of January 30.
11 hedge funds have stakes in Enterprise Financial Services Corp (NASDAQ:EFSC) as of the end of the third quarter of 2022.
11. Vector Group Ltd. (NYSE:VGR)
Number of Hedge Fund Holders: 16
Vector Group Ltd. (NYSE:VGR) is a holding company with several businesses. This small-cap stock has 16 hedge funds invested in it, as of the end of the third quarter. The net worth of these hedge funds’ stakes at the end of the third quarter of last year was about $92 million. Vector Group Ltd. (NYSE:VGR) is also a high dividend small-cap stock. In November last year, Vector Group Ltd. (NYSE:VGR) announced a dividend of $0.20 per share. Forward dividend yield at the time came in at 7.35%. The dividend was payable on December 20 to shareholders of record as of December 9.
The biggest hedge fund stakeholder of Vector Group Ltd. (NYSE:VGR) at the end of the September quarter was Jim Simons’s Renaissance Technologies which had a $69 million stake in Vector Group Ltd. (NYSE:VGR).
10. Renasant Corporation (NASDAQ:RNST)
Number of Hedge Fund Holders: 16
Renasant Corporation (NASDAQ:RNST) is a Missouri-based bank holding company. As of the end of the third quarter, 16 hedge funds out of the 920 funds had stakes in Renasant Corporation (NASDAQ:RNST). The total value of these stakes was about $49 million.
Renasant Corporation (NASDAQ:RNST) is also a dividend payer. In November, Renasant Corporation (NASDAQ:RNST) announced quarterly dividend of $0.22 per share. Forward dividend yield at the time came in at 2.2%.
9. ArcBest Corporation (NASDAQ:ARCB)
Number of Hedge Fund Holders: 18
Transportation company ArcBest Corporation (NASDAQ:ARCB) ranks 9th in our list of the most undervalued small-cap stocks to buy according to hedge funds. Insider Monkey’s database of elite hedge funds shows that 18 hedge funds had stakes in ArcBest Corporation (NASDAQ:ARCB) at the end of the third quarter of 2022. The net worth of these shares was about $85 million. The biggest stakeholder of ArcBest Corporation (NASDAQ:ARCB) was Jim Simons’ Renaissance Technologies which owns a $26.3 million stake in the company.
ArcBest Corporation (NASDAQ:ARCB) has a strong balance sheet and operating revenue. ArcBest Corporation (NASDAQ:ARCB) also pays dividends to its shareholders. As of the end of the third quarter, ArcBest Corporation (NASDAQ:ARCB)’s market share reached 6.3%, up from 4.9% in the comparative quarter.
8. Century Communities, Inc. (NYSE:CCS)
Number of Hedge Fund Holders: 18
Century Communities, Inc. (NYSE:CCS) ranks 8th in our list of the most undervalued small-cap stocks to buy according to hedge funds. Century Communities, Inc. (NYSE:CCS) is operating in the homebuilding industry. In December, Century Communities, Inc. (NYSE:CCS) was rated as Outperform by Wedbush. Century Communities, Inc. (NYSE:CCS) believes “a favorable rate environment in 2023 should support owning affordable builders that can deliver homes in a timely fashion.”
A total of 18 hedge funds tracked by Insider Monkey had stakes in Century Communities, Inc. (NYSE:CCS) at the end of the third quarter.
Here is what Diamond Hill Capital Management specifically said about Century Communities, Inc. (NYSE:CCS):
“Recent share price weakness in homebuilder Century Communities, Inc. (NYSE:CCS) gave us an opportunity to initiate a holding at what we believe is an attractive discount to intrinsic value. This is a company we know well from prior experience — it operates in a number of large US markets, including Atlanta, Denver and Las Vegas. CCS sells homes across a range of prices, but over time it has increased focus on entry-level homes, where demand is highest. The direction of the housing market is an open question, but we have confidence in CCS’s strong management team which has experience in managing opportunistically in prior cycles.”
7. Pactiv Evergreen Inc. (NASDAQ:PTVE)
Number of Hedge Fund Holders: 19
Pactiv Evergreen Inc. (NASDAQ:PTVE) is an Illinois-based company that operates in the packaging industry. This small-cap undervalued stock in our list is also a dividend payer. It has a dividend yield of over 3.5% as of January 30. In November, Pactiv Evergreen Inc. (NASDAQ:PTVE) posted third-quarter results. Its GAAP EPS in the third quarter came in at $0.98, beating estimates by $0.83. Revenue in the quarter jumped 15% to total $1.61 billion, beating estimates by $130 million.
As of the end of the third quarter, 19 hedge funds tracked by Insider Monkey had stakes in Pactiv Evergreen Inc. (NASDAQ:PTVE). The total value of these stakes was $233.4 million. The biggest stakeholder of Pactiv Evergreen Inc. (NASDAQ:PTVE) was David Rosen’s Rubric Capital Management which had a $38 million stake in the company.
6. Masonite International Corporation (NYSE:DOOR)
Number of Hedge Fund Holders: 19
Masonite International Corporation (NYSE:DOOR) makes and sells doors for interior and exterior settings. Masonite International Corporation (NYSE:DOOR) has a PE ratio of 12.8. Insider Monkey’s database of 920 hedge funds’ holdings shows that 19 hedge funds had stakes in Masonite International Corporation (NYSE:DOOR) at the end of the third quarter. The net worth of these stakes was $233 million.
In December, Masonite International Corporation (NYSE:DOOR) revealed a restructuring plan to increase efficiency and cut costs. Masonite International Corporation (NYSE:DOOR) said its plan includes restructuring actions across Masonite’s (DOOR) North American residential and architectural segments. Masonite International Corporation (NYSE:DOOR) said this plan could be completed by the end of fiscal 2023. The move could result in annual cash savings of about $15 million to $20 million.
5. NMI Holdings, Inc. (NASDAQ:NMIH)
Number of Hedge Fund Holders: 21
NMI Holdings, Inc. (NASDAQ:NMIH) is a mortgage guaranty insurance services company. In November, NMI Holdings, Inc. (NASDAQ:NMIH) posted its third quarter results. NMI Holdings, Inc. (NASDAQ:NMIH)’s adjusted EPS in the third quarter totaled $0.90, beating estimates by $0.09. Revenue in the quarter came in at $130.58 million, which showed a 5.3% growth on a YoY basis. However, revenue missed estimates by $4.84 million.
A total of 21 hedge funds out of the 920 funds tracked by Insider Monkey reported owning stakes in NMI Holdings, Inc. (NASDAQ:NMIH) at the end of the third quarter. The total value of these stakes was $153 million.
In December, investment firm BTIG analyst Eric Hagen downgraded NMI Holdings, Inc. (NASDAQ:NMIH), along with several other mortgage stocks, to Neutral amid higher interest rates. The analyst, however, noted that NMI Holdings, Inc. (NASDAQ:NMIH) can deliver “one of the strongest ROEs” in 2023.
4. Winnebago Industries, Inc. (NYSE:WGO)
Number of Hedge Fund Holders: 23
Winnebago Industries, Inc. (NYSE:WGO) is a recreational vehicles company. Winnebago Industries, Inc. (NYSE:WGO) could be under pressure in the short term as RV sales dip during recessions but analysts believe Winnebago Industries, Inc. (NYSE:WGO) has several long-term growth catalysts. In December, Winnebago Industries (NYSE:WGO) beat estimates for the first quarter revenue and EPS. However, Winnebago Industries, Inc. (NYSE:WGO) said it could face a challenging period in 2023.
3. Warrior Met Coal, Inc. (NYSE:HCC)
Number of Hedge Fund Holders: 24
Warrior Met Coal, Inc. (NYSE:HCC) is an Alabama-based coal company that is trading at a PE ratio of 2.8 as of January 30. Warrior Met Coal, Inc. (NYSE:HCC) has gained about 20% over the past six months. Warrior Met Coal, Inc. (NYSE:HCC) also has a dividend yield of 0.65%. Of the 920 hedge funds tracked by Insider Monkey at the end of the third quarter, 24 funds had stakes in Warrior Met Coal, Inc. (NYSE:HCC). The total value of these stakes was $225 million. The biggest stakeholder in Warrior Met Coal, Inc. (NYSE:HCC) was Jim Simons’ Renaissance Technologies which owns a $45 million stake in the company. The second biggest stakeholder of Warrior Met Coal, Inc. (NYSE:HCC) was Martin Whitman’s Third Avenue Management with a $39 million stake.
2. Delek US Holdings, Inc. (NYSE:DK)
Number of Hedge Fund Holders: 27
Delek US Holdings, Inc. (NYSE:DK) is one of the most notable downstream companies in the US. Delek US Holdings, Inc. (NYSE:DK) has strong refining operations as well. It has the capacity to refine a total of 302,000 barrels of crude oil per day across its four refineries in Texas and other states. Delek US Holdings, Inc. (NYSE:DK) has a dividend yield of over 3.5% as of January 30.
As of the end of the third quarter of 2022, 27 hedge funds had stakes in Delek US Holdings, Inc. (NYSE:DK).
1. CONSOL Energy Inc. (NYSE:CEIX)
Number of Hedge Fund Holders: 31
CONSOL Energy Inc. (NYSE:CEIX) has gained a whopping 162% over the past year. CONSOL Energy Inc. (NYSE:CEIX) is still trading at an attractive valuation. It is also a high dividend energy stock. CONSOL Energy Inc. (NYSE:CEIX)’s dividend yield stands at over 7% as January 30. The biggest growth catalyst for CONSOL Energy Inc. (NYSE:CEIX) is the rising demand of coal all over the world. Coal came back into the limelight as countries struggled to meet their energy demand following the geopolitical crisis in Europe. Analysts think coal will continue to remain in demand in 2023 and beyond.
CONSOL Energy Inc. (NYSE:CEIX) is also popular among smart money. Of the 920 hedge funds tracked by Insider Monkey, 31 hedge funds had stakes in CONSOL Energy Inc. (NYSE:CEIX) at the end of the third quarter, significantly up from 23 funds in the previous quarter.
Greenlight Capital made the following comment about CONSOL Energy Inc. (NYSE:CEIX) in its Q3 2022 investor letter:
“CONSOL Energy Inc. (NYSE:CEIX) shares rose from $49.38 to $64.32. As we wrote last quarter, we expect the company to generate approximately $50 per share in after-tax free cash flow by the end of 2023. The company paid its first dividend of $1 per share in August and also announced a policy of distributing at least 35% of its free cash flow to its shareholders. We would emphasize the “at least” part and see room for the percentage to expand as the cash flows materialize. Coal markets have remained quite strong and visibility is improving, such that 2024 looks to us like another strong year.”
You can also take a peek at Top 20 Financial Cities in the World and 15 Countries with the Largest Refining Capacity.
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Disclosure: None. 15 Most Undervalued Small-Cap Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.
