In this article, we will take a look at the 5 undervalued mid-cap stocks to buy. To see more such companies, go directly to 11 Undervalued Mid-Cap Stocks To Buy.
5. Allison Transmission Holdings, Inc. (NYSE:ALSN)
PE Ratio: 8.34
Number of Hedge Funds Having Stakes in the Company: 26
Allison Transmission is an Indiana-based company that makes transmission and propulsion systems for vehicles. It ranks 5th in our list of 12 undervalued mid-cap stocks to buy now. Allison Transmission is also a dividend-paying stock. In November, Allison Transmission Holdings, Inc. (NYSE:ALSN) announced a $0.21/share quarterly dividend. Forward yield at the time came in at 1.95%. Allison Transmission Holdings, Inc. (NYSE:ALSN) on January 12 announced that it partnered with Nikola (NASDAQ:NKLA) to test its Class 8 battery-electric vehicle (or BEV) and hydrogen fuel cell electric vehicle (or FCEV).
As of the end of the third quarter, 26 hedge funds tracked by Insider Monkey reported having stakes in Allison Transmission Holdings, Inc. (NYSE:ALSN). The total value of these stakes was $361 million. The biggest stakeholder of Allison Transmission Holdings, Inc. (NYSE:ALSN) was Natixis Global Asset Management’s Harris Associates, which owns a $173 million stake in Allison Transmission Holdings, Inc. (NYSE:ALSN).
4. Murphy Oil Corporation (NYSE:MUR)
PE Ratio: 7.05
Number of Hedge Funds Having Stakes in the Company: 31
Murphy Oil is a Fortune 500 company that has a PE ratio of 7 and a dividend yield of 2.4%, as of January 12. The stock was upgraded in December by JPMorgan. The investment firm’s analysts led by Arun Jayaram said in a note to investors that oil companies with conventional assets could benefit in a macro environment with execution and inventory related concerns for U.S. shale operations. For 2023, JPMorgan’s model for Murphy Oil Corporation (NYSE:MUR) expects oil production growth of 14%, which would result in EBITDA growth of 3% and adjusted free cash flow growth of 15% Y/Y.
As of the end of the third quarter, 31 hedge funds tracked by Insider Monkey reported having stakes in Murphy Oil Corporation (NYSE:MUR). The total value of these stakes was $283 million. Ken Griffin’s Citadel Investment Group is the biggest stakeholder of Murphy Oil Corporation (NYSE:MUR) with a $57.2 million stake.
3. The Chemours Company (NYSE:CC)
PE Ratio: 5.93
Number of Hedge Funds Having Stakes in the Company: 36
Ranking 3rd in our list of undervalued mid-cap stocks to buy is Chemours, the Delaware-based chemicals company that is amongst the largest energy players in the world. Chemours has a 3% dividend yield as of January 12. Over the past six months the stock has gained about 4% in value. Bank of America earlier this month upgraded the stock to Buy from Neutral, citing optimism in the market following China’s decision to reopen its economy. Despite its solid business the stock remains undervalued amid risks related to the global macro environment, since chemical companies like Chemours are considered cyclical.
During the third quarter, The Chemours Company (NYSE:CC)’s adjusted earnings and revenue surpassed estimates. Its net income came in at $1.52 per share, compared to $0.25 per share compared to the comparable quarter last year.
2. Asbury Automotive Group, Inc. (NYSE:ABG)
PE Ratio: 5.51
Number of Hedge Funds Having Stakes in the Company: 34
Asbury is a George-based car dealership company that continues to post robust financial performance despite a challenging macro environment that is affecting the automotive industry. In the third quarter of 2022, Asbury Automotive Group, Inc. (NYSE:ABG)’s revenue came in at $3.87 billion, which showed a 61% growth when compared to the comparable quarter last year. Asbury Automotive Group, Inc. (NYSE:ABG) in the past made a series of acquisitions and expansion initiatives that are now showing their results.
For the third quarter, adjusted EPS came in at $9.23, beating the estimates by $0.01.
Hedge fund sentiment for the stock is positive. As of the end of the third quarter, 34 hedge funds tracked by Insider Monkey reported having stakes in Asbury Automotive Group, Inc. (NYSE:ABG), compared to 27 funds in the previous quarter. The biggest stakeholder of Asbury Automotive Group, Inc. (NYSE:ABG) was Lauren Taylor Wolfe’s Impactive Capital, which owns a $333 million stake in Asbury Automotive Group, Inc. (NYSE:ABG). Famous value investor David Abrams also has a $320 million stake in the firm.
Bonhoeffer Capital Management made the following comment about Asbury Automotive Group, Inc. (NYSE:ABG) in its Q3 2022 investor letter:
“One of our holdings in the distribution theme is Asbury Automotive Group, Inc. (NYSE:ABG), an automobile dealership firm. Asbury’s growth model is through same-store sales growth (4% per year), internet distribution (10% per year), and synergistic M&A (5% per year). These are enhanced by opportunistic operational leverage from scale and share repurchases (5% annual growth). Over the past 10 years, Asbury’s net income margins are up 120% with a 5x increase in revenues. These factors should lead to about a 20% EPS growth going forward. Ashtead has had 19% and 31% EPS growth over the past five and 10 years, respectively.
As can be seen below, a large portion of future growth is based upon the growth of internet sales. Both Asbury and Lithia have internet strategies which capture a younger demographic who do not visit dealerships with the same frequency as older folks. Asbury, through its online platform Clicklane, has found internet purchasers have very little overlap with existing customers; 95% are new customers. Asbury’s strategy is to target customers who are within 20 miles of an existing Asbury location vs. online only competitors (like Carvana) and Lithia. Asbury has had a per-store growth rate of 67% over the last year and only sells cars online in about 60% of its current footprint. This growth rate will decline going forward as the markets mature, but it will be bolstered as Clicklane is rolled out to the remaining 40% of Asbury’s footprint…” (Click here to read the full text)
1. XPO, Inc. (NYSE:XPO)
PE Ratio: 4.96
Number of Hedge Funds Having Stakes in the Company: 37
XPO is an American transportation and logistics company. The stock has gained about 30% in value over the past six months. Its PE ratio stands at 4.9 as of January 12. A total of 37 hedge funds tracked by Insider Monkey reported having stakes in XPO, Inc. (NYSE:XPO) as of the end of the third quarter.
In December, XPO said it does not plan to divest its European business in the near term.
Here is what Argosy Investors has to say about XPO Logistics, Inc. (NYSE:XPO) in its Q1 2022 investor letter:
“XPO experienced once-in-a-generation demand for its LTL and brokerage services during an extremely tight freight market, and we are already beginning to see weakness in the freight market. We sold in advance of what we expect to be some weakness in the LTL market.”
You can also take a peek at Top Stocks in Each Sector and Dow 30 Stocks List 2022.
