In this article, we discuss the 10 undervalued stocks to buy according to billionaire Joel Greenblatt.
Value investing in an art best encapsulated by the strategies of veteran investors like Joel Greenblatt, the chief of Gotham Asset Management, a New York-based hedge fund that manages over $3 billion in equity assets. Started as Gotham Capital in 1985, the fund averaged an annual return of 30%, net of all fees, till 1994 before returning capital to shareholders and closing for outside investors till 2009. In the intervening period, Greenblatt also helped Michael Burry, of The Big Short fame, create his hedge fund Scion Capital.
Gotham Asset Management had specialized in spinoffs and other corporate restructurings. In 2010, the hedge fund started four value-focused mutual funds and raised $360 million for the purpose. By 2014, these funds managed over $1 billion, a testament to the value stock picking prowess of Greenblatt. The investor has, in addition to his responsibilities as a money manager, also had a successful career in academia. He has taught value investing classes at the prestigious Graduate School of Business at Columbia University.
Some of the top value holdings in the Gotham Asset Management portfolio at the end of December 2021 included Ford Motor Company (NYSE:F), Philip Morris International Inc. (NYSE:PM), and AT&T Inc. (NYSE:T), among others discussed in detail below.
Our Methodology
The stocks were picked from the fourth quarter regulatory filings of Gotham Asset Management. All the stocks listed below have a PE Ratio of less than 20.
Data from around 900 elite hedge funds tracked by Insider Monkey in the fourth quarter of 2021 was used to identify the number of hedge funds that hold stakes in each firm.
Joel Greenblatt of Gotham Asset Management
Undervalued Stocks to Buy According to Billionaire Joel Greenblatt
10. NRG Energy, Inc. (NYSE:NRG)
Number of Hedge Fund Holders: 28
PE Ratio: 4.30
NRG Energy, Inc. (NYSE:NRG) is an integrated power company. According to regulatory filings, Gotham Asset Management owned 271,587 shares in the firm at the end of December 2021 worth $11.7 million, representing 0.37% of the portfolio. The fund increased its stake in the power company by 6% between October and December compared to third quarter filings.
NRG Energy, Inc. (NYSE:NRG) has been in the Gotham portfolio, with one minor exception, since the second quarter of 2015. The fund purchased its first stake in the stock consisting of over 178,000 shares bought at an average price of $24.98 per share. The fund has added to its stake in the firm in three of the last four quarters.
At the end of the fourth quarter of 2021, 28 hedge funds in the database of Insider Monkey held stakes worth $1.8 billion in NRG Energy, Inc. (NYSE:NRG), compared to 34 the preceding quarter worth $1.9 billion.
Just like Ford Motor Company (NYSE:F), Philip Morris International Inc. (NYSE:PM), and AT&T Inc. (NYSE:T), NRG Energy, Inc. (NYSE:NRG) is one of the stocks that elite investors are flocking to amid rising inflation.
9. Marathon Petroleum Corporation (NYSE:MPC)
Number of Hedge Fund Holders: 41
PE Ratio: 5.56
Marathon Petroleum Corporation (NYSE:MPC) operates as a downstream energy firm. Latest 13F filings show that the hedge fund of Greenblatt owned 181,905 shares in the company at the end of the fourth quarter of 2021 worth $11.6 million, representing 0.37% of the portfolio. The fund slashed its stake in the energy firm by 3% during the fourth quarter compared to filings for the previous quarter.
Marathon Petroleum Corporation (NYSE:MPC) is a long-term holding of Greenblatt. It has been in the Gotham portfolio since early 2012. Back then, the fund had purchased just over 10,000 shares of the firm at an average price of $20.39 per share. The fund has reduced its stake in the firm in three of the last four quarters.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Elliott Management is a leading shareholder in Marathon Petroleum Corporation (NYSE:MPC) with 10.5 million shares worth more than $676 million.
In its Q4 2021 investor letter, Clark Street Value, an asset management firm, highlighted a few stocks and Marathon Petroleum Corporation (NYSE:MPC) was one of them. Here is what the fund said:
“During the worst of covid, I bought some LEAPs on Marathon Petroleum Corporation (NYSE:MPC) as a proxy for Par Pacific (PARR) since long dated options weren’t available on the later. Those Marathon Petroleum Corporation (NYSE:MPC) calls expire next month and I’ll take profits, with PARR I’ve reduced my position throughout the year and might sell the rest early next year, I’ve owned it for 6-7 years and it has gone nowhere, they haven’t touched the NOLs, just a difficult business that I probably don’t understand as well as I should.”
8. Verizon Communications Inc. (NYSE:VZ)
Number of Hedge Fund Holders: 63
PE Ratio: 9.80
Verizon Communications Inc. (NYSE:VZ) is a communications and technology firm. Securities filings reveal that the investment firm led by Greenblatt owned 207,816 shares in the company at the end of the fourth quarter of 2021 worth $10.7 million, representing 0.34% of the portfolio. The fund increased its stake in the communications firm by 23% between October and December compared to third quarter filings.
Since late 2010, Verizon Communications Inc. (NYSE:VZ) is a constant presence in the Gotham portfolio. The first stake of the fund in the stock consisted of just over 13,000 shares purchased at an average price of $33.22 per share. The share price has now jumped above $52. In three of the last four quarters, the fund had added to the stake it already had in the firm.
At the end of the fourth quarter of 2021, 63 hedge funds in the database of Insider Monkey held stakes worth $10.8 billion in Verizon Communications Inc. (NYSE:VZ), compared to 57 in the previous quarter worth $10.3 billion.
In its Q4 2021 investor letter, Weitz Investment Management, an asset management firm, highlighted a few stocks and Verizon Communications Inc. (NYSE:VZ) was one of them. Here is what the fund said:
“After several quarters of pandemic-induced outsized growth, new broadband connection growth has slowed for U.S. cable operators. This slower growth has coincided with a renewed push by competitors like Verizon Communications Inc. (NYSE:VZ) and AT&T to offer high-speed data (either via wireless connects or by building new fiber-optic networks).”
7. Caterpillar Inc. (NYSE:CAT)
Number of Hedge Fund Holders: 53
PE Ratio: 18.58
Caterpillar Inc. (NYSE:CAT) markets construction and mining equipment. Latest data shows that Gotham Asset Management owned 51,161 shares in the firm at the end of the fourth quarter of 2021 worth $10.5 million, representing 0.34% of the portfolio. The fund added to its previous stake in the firm by 47% in the fourth quarter.
Caterpillar Inc. (NYSE:CAT) has been in the Greenblatt portfolio since the second quarter of 2011. The fund first purchased its stake in the firm consisting of just 5,000 shares bought at an average price of $105.43 per share. The shares have now climbed above $200. The fund has added to its existing stake in the firm in the last four quarters consecutively.
Among the hedge funds being tracked by Insider Monkey, Washington-based firm Fisher Asset Management is a leading shareholder in Caterpillar Inc. (NYSE:CAT) with 7 million shares worth more than $1.4 billion.
In its Q2 2021 investor letter, Oakmark Funds, an asset management firm, highlighted a few stocks and Caterpillar Inc. (NYSE:CAT) was one of them. Here is what the fund said:
“Having followed the company closely for north of a decade, Caterpillar Inc. (NYSE:CAT) is a name we know well. For much of its history, the operating efficiency of the company left much to be desired, but its underlying competitive position was rarely in doubt. A series of actions over the past decade (e.g., LEAN implementation, improved service mix, optimized manufacturing footprint) helped to narrow the gap between Caterpillar’s potential and its realized results, driving material margin expansion and strong share price performance. In our view, the company remains among the highest quality industrials in the market, but its underlying business is cyclical, which can translate to large swings in both performance and investor sentiment over short time periods. Our ability to focus on the long-term, sustainable earnings power of a business (rather than getting distracted by near-term fluctuations) is our most significant edge when investing in cyclical businesses. Due to the inherent volatility in Caterpillar’s end markets and operating performance, we suspect we’ll have a future opportunity to own this high-quality business at a more attractive price once the cycle turns and today’s enthusiasm wears off.”
6. EOG Resources, Inc. (NYSE:EOG)
Number of Hedge Fund Holders: 51
PE Ratio: 15.06
EOG Resources, Inc. (NYSE:EOG) is a Texas-based oil and gas firm. At the end of the fourth quarter of 2021, Gotham Asset Management owned 118.036 shares in the company worth $10.4 million, representing 0.33% of the portfolio. The fund added to its stake in the firm by 20% in the fourth quarter compared to the third quarter.
Unlike other value plays, EOG Resources, Inc. (NYSE:EOG) is a relatively new addition to the Greenblatt portfolio, having featured in the portfolio since late 2018. The fund has added to its stake in the firm in all four quarters of 2021.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Harris Associates is a leading shareholder in EOG Resources, Inc. (NYSE:EOG) with 9.8 million shares worth more than $872 million.
Along with Ford Motor Company (NYSE:F), Philip Morris International Inc. (NYSE:PM), and AT&T Inc. (NYSE:T), EOG Resources, Inc. (NYSE:EOG) is one of the stocks that hedge funds are monitoring as interest rates rise.
In its Q4 2021 investor letter, Artisan Partners highlighted a few stocks and EOG Resources, Inc. (NYSE:EOG) was one of them. Here is what the fund said:
“EOG Resources, Inc. (NYSE:EOG), a US shale-focused E&P firm, has been a beneficiary of higher energy prices. The business enjoys a low-cost production position and a strong balance sheet which enabled EOG Resources, Inc. (NYSE:EOG) to increase production capabilities during the downturn. As energy prices recover and the industry adjusts to the new supply and demand dynamics, investors have begun to appreciate the earnings power of the business. EOG’s management focuses on return on invested capital and cash flow generation, which distinguishes it from most of the company’s competitors. We believe EOG’s high-quality management team and access to low-cost reserves are sustainable competitive advantages in a commodity industry.”
5. AT&T Inc. (NYSE:T)
Number of Hedge Fund Holders: 70
PE Ratio: 8.68
AT&T Inc. (NYSE:T) is a telecommunications, media, and technology firm. Regulatory filings show that Gotham Asset Management owned 411,045 shares in the company at the end of December 2021 worth $10.1 million, representing 0.32% of the portfolio. The fund increased its stake in the firm by 4% between October and December compared to third quarter filings.
AT&T Inc. (NYSE:T) has been in the Greenblatt portfolio since late 2012, with minor exceptions in 2016 and 2018. The first stake of the firm in the stock consisted of just 18,000 shares purchased at an average price of $34.70 per share. As inflation rises, the fund has been steadily piling into the stock, increasing its stake in the firm the past three quarters.
At the end of the fourth quarter of 2021, 70 hedge funds in the database of Insider Monkey held stakes worth $4.9 billion in AT&T Inc. (NYSE:T), compared to 66 in the preceding quarter worth $3.2 billion.
In its Q4 2021 investor letter, Weitz Investment Management, an asset management firm, highlighted a few stocks and AT&T Inc. (NYSE:T) was one of them. Here is what the fund said:
“After several quarters of pandemic-induced outsized growth, new broadband connection growth has slowed for U.S. cable operators. This slower growth has coincided with a renewed push by competitors like Verizon and AT&T Inc. (NYSE:T) to offer high-speed data (either via wireless connects or by building new fiber-optic networks).”
4. Philip Morris International Inc. (NYSE:PM)
Number of Hedge Fund Holders: 47
PE Ratio: 16.60
Philip Morris International Inc. (NYSE:PM) makes and sells nicotine products. According to the latest securities filings, the investment firm led by Greenblatt owned 102,323 shares in the company at the end of the fourth quarter of 2021 worth $9.7 million, representing 0.31% of the portfolio. The investment firm increased its stake in the tobacco giant by 24% in the fourth quarter compared to filings for the previous quarter.
Philip Morris International Inc. (NYSE:PM) is a long-term holding of Greenblatt. It has been in the Gotham portfolio since late 2010. Back then, the stake had consisted of just 6,000 shares bought at an average price of $58.50 per share. The share price has almost doubled in the years since.
Among the hedge funds being tracked by Insider Monkey, London-based investment firm Fundsmith LLP is a leading shareholder in Philip Morris International Inc. (NYSE:PM) with 20 million shares worth more than $1.9 billion.
In its Q2 2021 investor letter, Broyhill Asset Management highlighted a few stocks and Philip Morris International Inc. (NYSE:PM) was one of them. Here is what the fund said:
“Philip Morris International Inc. (NYSE:PM) shook off the prospects of a ban on menthol and a potential cap on nicotine and gained 23%. We shared our thoughts on these regulations during the quarter, which are available here.
PM Valuation. Philip Morris International Inc. (NYSE:PM) is up ~ 15% YTD and would have the most to gain under a nicotine cap. A cap would likely accelerate conversion to iQOS, which is 100% incremental for PM (PM also has zero exposure to combustible cigarettes in the U.S. and licenses its IQOS product for MO to distribute domestically). As such, the decline in PM was much more muted, with the stock hitting new 52 week highs a day after the Biden headline, driven by yesterday’s earnings release. It didn’t take long for investors to shift their attention back to fundamentals and the fundamentals here are best in class. In short, results beat estimates across the board (a recurring theme here), and management raised guidance for the full year (another recurring theme). IQOS continued to deliver impressive growth, recording continued market share gains on the heels of continued user acquisition growth, up 1.5M to 19.1M total users. Importantly, IQOS now represents nearly 30% of Philip Morris International Inc. (NYSE:PM) net revenues (management expects “smoke-free” products to represent more than half of their business by 2025, which should make the ESG folks happy), which is driving top-line growth and margin expansion. Hard to believe that they have created a product with higher margins than combustible cigarettes!! We expect PM operating margins to increase by 100bps – 200bps annually as IQOS continues to gain share. Philip Morris International Inc. (NYSE:PM) stock trades at ~ 15x today or 2/3 of the market’s multiple for a business likely to generate $35B in cash flow – or 25% of the market cap – in just the next three years. Over the last decade, shares have traded at an average multiple of 18x and within a range of ~ 14x – 22x (+/-1 standard deviation). The stock yields 5.1% at the current price, and we expect management to resume share purchases in the back half of this year.’”
3. Ford Motor Company (NYSE:F)
Number of Hedge Fund Holders: 53
PE Ratio: 3.74
Ford Motor Company (NYSE:F) is a Michigan-based automobile manufacturer. Latest data shows that Greenblatt’s fund owned 459,104 shares in the company at the end of December 2021 worth $9.5 million, representing 0.30% of the portfolio. The fund slightly increased its stake in the firm during the fourth quarter compared to third quarter filings.
Ford Motor Company (NYSE:F) has intermittently featured in the Gotham portfolio since the second quarter of 2015. Back then, the position consisted of 639,000 shares bought at an average price of $15.50. The share price has increased only moderately since then.
At the end of the fourth quarter of 2021, 53 hedge funds in the database of Insider Monkey held stakes worth $1.7 billion in Ford Motor Company (NYSE:F), compared to 51 in the preceding quarter worth $1.6 billion.
2. HP Inc. (NYSE:HPQ)
Number of Hedge Fund Holders: 39
PE Ratio: 6.40
HP Inc. (NYSE:HPQ) makes and sells personal computing devices. Regulatory filings reveal that Gotham Asset Management owned 251,115 shares in the company at the end of the fourth quarter of 2021 $9.4 million, representing 0.30% of the portfolio. The fund slashed its stake in the computing company by 23% in the fourth quarter.
Since late 2015, HP Inc. (NYSE:HPQ) has consistently featured in the Gotham portfolio. In three of the last four quarters, the fund has decreased its stake in the company, perhaps preparing the portfolio for rising inflation and interest rates. In 2015, the fund had purchased a stake in the firm at an average share price of $12.80. The shares have now jumped above $32.
Among the hedge funds being tracked by Insider Monkey, Boston-based investment firm Arrowstreet Capital is a leading shareholder in HP Inc. (NYSE:HPQ) with 14.6 million shares worth more than $533 million.
1. AutoZone, Inc. (NYSE:AZO)
Number of Hedge Fund Holders: 45
PE Ratio: 17.83
AutoZone, Inc. (NYSE:AZO) markets automotive replacement parts and accessories. 13F filings show that the hedge fund of Greenblatt owned 4,386 shares in the company at the end of the fourth quarter of 2021 worth $9.1 million, representing 0.29% of the portfolio. The fund increased its stake in the firm by 65% between October and December compared to third quarter data.
AutoZone, Inc. (NYSE:AZO) has been in the Gotham portfolio since late 2013. Back then, the stake consisted of just 14,000 shares purchased at an average price of $427 per share. The shares have now climbed above $1,900.
Among the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Citadel Investment Group is a leading shareholder in AutoZone, Inc. (NYSE:AZO) with 242,400 shares worth more than $508 million.
In its Q4 2021 investor letter, Weitz Investment Management, an asset management firm, highlighted a few stocks and AutoZone, Inc. (NYSE:AZO) was one of them. Here is what the fund said:
“The Fund’s investments in auto-related businesses were consistent top performers in 2021. Shortages of new vehicles have driven buyers into the used car market. AutoZone, Inc. (NYSE:AZO) has won new customers who need to maintain vehicles they now plan to own longer (and federal stimulus checks have given car owners some extra cash to spend on car maintenance).”
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Disclosure. None. 10 Undervalued Stocks to Buy According to Billionaire Joel Greenblatt is originally published on Insider Monkey.
