In this article, we will look at 9 value stocks to buy in 2022 according to David Abrams.
David Abrams started his investment career under the wing of billionaire investing legend Seth Klarman, the hedge fund manager of Baupost Group. After shadowing and learning Klarman’s ways, Mr. Abrams founded his hedge fund Abrams Capital Management in 1999. David Abrams was and still is a staunch value investor and is noted for buying shares in beaten-down, depressed companies and holding on to his positions for months without placing a trade. He has made a fortune for himself and his investors using his team of three investment analysts and a small back-office staff. Mr. Abrams approves all trades personally. The value investing legend has reportedly said:
I guess I would say to this that, a little bit different from Howard [Marks], I’ve actually never seen people be successful over a long period of time without being value investors. To me, it’s sort of like the E equals mc squared of money and investing. That all things equal, the lower the price of something you have both less risk and more return.
Abrams Capital Management’s Past Performance
David Abrams is an introvert and has rarely stepped into the spotlight, but has still managed to become a prominent figure in the hedge fund industry due to his investment strategies and hedge fund returns. Mr. Abrams’ hedge fund generated a median 15% return on an annualized basis from 1999 to 2014, triple that of the S&P 500’s comparable returns, including dividends, over the same period.
Abrams Capital Management: Recent Performance & Latest Portfolio
In the first quarter of 2020, Abrams Capital Management returned 43.78% quarter-on-quarter. These returns sank in the first quarter of 2021 when Mr. Abrams’ fund posted quarter-on-quarter returns of 13.54%. Moving on to the first quarter of 2022, Abrams Capital Management’s returns are down to a negative 10.24%, compared to the fund’s returns in Q1 2021.
As previously mentioned, David Abrams is known for sticking with a static portfolio for months, with little to no movements. In the first quarter of 2022, Abrams Capital Management purchased additional shares in 2 companies and reduced its stakes in one of its holdings. The fund currently holds stakes in 18 companies which include mostly value stocks, but some prominent growth stocks as well such as Alphabet Inc. (NASDAQ:GOOG) and Meta Platforms, Inc. (NASDAQ:FB).
Abrams Capital Management has a top 10 holdings concentration of roughly 80% and has the majority of its investments concentrated in the Consumer Discretionary, Industrials, Information Technology, and Communications segments. Some of David Abrams’ top 10 holdings are Lithia Motors, Inc. (NYSE:LAD), Alphabet Inc. (NASDAQ:GOOG), and Meta Platforms, Inc. (NASDAQ:FB). As of March 31, David Abrams manages more than $4.28 billion in 13F securities through Abrams Capital Management.
David Abrams of Abrams Capital Management
Our Methodology
To determine the 9 value stocks to buy in 2022 according to David Abrams, we reviewed Abrams Capital Management’s 13F portfolio at the close of the first quarter of 2022. We checked each company’s price-to-earnings ratio and narrowed our selection to pure-play value stocks with a forward PE ratio of less than 15. We have ranked these stocks in increasing order of Abrams Capital Management’s stake in them.
Along with each stock we have included the analyst rating and hedge fund sentiment, which we sourced from Insider Monkey’s database which tracks roughly 900 elite hedge funds as of the first quarter of 2022.
Value Stocks to Buy in 2022 According to David Abrams
9. O-I Glass, Inc. (NYSE:OI)
Abrams Capital Management’s Stake Value: $91,392,000
Percentage of Abrams Capital Management’s 13F Portfolio: 2.13
Number of Hedge Fund Holders: 23
PE Ratio as of June 17: 7.02
O-I Glass, Inc. (NYSE:OI) manufactures and sells glass containers to food and beverage manufacturers primarily in the Americas, Europe, and the Asia Pacific. The company produces glass containers for alcoholic beverages, including beer, flavored malt beverages, spirits, and wine. On June 10, Deutsche Bank analyst Kyle White raised his price target on O-I Glass, Inc. (NYSE:OI) to $16 from $14 and reiterated a Hold rating on the shares.
On June 7, O-I Glass, Inc. (NYSE:OI) raised its Q2 adjusted earnings per share guidance to exceed $0.65, up from the prior guidance ranging between $0.55 and $0.60. Wall Street consensus for the company’s Q2 adjusted EPS sits at $0.58.
David Abrams has been holding on to O-I Glass, Inc. (NYSE:OI) since the fourth quarter of 2019 and as of March 31, has a stake of $91.39 million in the company. The investment covers 2.13% of Abrams Capital Management’s 13F portfolio and as of June 17, the stock has a forward PE ratio of 7.02, making it rank among the top value stocks to buy according to David Abrams.
By the end of Q1 2022, 23 hedge funds were long O-I Glass, Inc. (NYSE:OI) with stakes worth $227.42 million. This is compared to 28 positions in the previous quarter with stakes of $178.74 million.
In addition to maintaining his position in O-I Glass, Inc. (NYSE:OI), David Abrams has maintained his positions in Lithia Motors, Inc. (NYSE:LAD), Alphabet Inc. (NASDAQ:GOOG), and Meta Platforms, Inc. (NASDAQ:FB), which are ranked among his hedge fund’s top 10 holdings.
8. Tempur Sealy International Inc. (NYSE:TPX)
Abrams Capital Management’s Stake Value: $100,512,000
Percentage of Abrams Capital Management’s 13F Portfolio: 2.34%
Number of Hedge Fund Holders: 31
PE Ratio as of June 17: 6.62
Tempur Sealy International, Inc. (NYSE:TPX) designs, manufactures, markets, and distributes bedding products in the United States and internationally. In addition to being undervalued, Tempur Sealy International, Inc. (NYSE:TPX) is also a dividend payer. As of June 17, the stock has a forward PE ratio of 6.62 and a trailing twelve-month dividend yield of 1.79%.
This April, Tempur Sealy International, Inc. (NYSE:TPX) released earnings for the fiscal first quarter of 2022. The company reported a revenue of $1.24 billion, up 18.75% year over year, and ahead of expectations by $36.48 million. Moreover, the company registered an EPS of $0.69 and outperformed consensus by $0.09.
On June 1, Piper Sandler analyst Peter Keith downgraded Tempur Sealy International, Inc. (NYSE:TPX) to Neutral from Overweight and also lowered his price target to $28 from $36.
As of March 31, Abrams Capital Management’s stake in Tempur Sealy International, Inc. (NYSE:TPX) sits at $100.51 million. The investment covers 2.34% of David Abrams’ investment portfolio.
At the end of Q1 2022, 31 hedge funds were long Tempur Sealy International, Inc. (NYSE:TPX) with stakes worth $591.96 million. This is compared to 40 positions in the previous quarter with stakes of $1.02 billion.
7. Camping World Holdings, Inc. (NYSE:CWH)
Abrams Capital Management’s Stake Value: $142,791,000
Percentage of Abrams Capital Management’s 13F Portfolio: 3.33%
Number of Hedge Fund Holders: 16
PE Ratio as of June 17: 4.59
Camping World Holdings, Inc. (NYSE:CWH) retails recreational vehicles and related products and services. The company operates through two business segments: Good Sam Services & Plans, and RV & Outdoor Retail. At the close of Q1 2022, 16 hedge funds were bullish on Camping World Holdings, Inc. (NYSE:CWH) with stakes worth $359.94 million. This is compared to 22 hedge funds in the preceding quarter with stakes of $386.56 million.
Camping World Holdings, Inc. (NYSE:CWH) is actively exploring M&A opportunities and working on expanding its operations. On May 23 the company announced plans to acquire Richardson’s RV Centers. Under the terms of the agreement Camping World Holdings, Inc. (NYSE:CWH) will acquire eight locations in California and Indiana which include five dealership locations, one future dealership location, and two parts and service centers. Then, on June 14, Camping World Holdings, Inc. (NYSE:CWH) announced its plans to acquire Anthem RV, an RV dealership located in Phoenix, Arizona.
As of May 5, Baird analyst Craig Kennison has a $35 price target and Outperform rating on Camping World Holdings, Inc. (NYSE:CWH).
On May 19, it was reported in a regulatory filing that Kent Schickli, director at Camping World Holdings, Inc. (NYSE:CWH) bought 10,000 shares of common stock on May 17 in a total transaction valued at $0.284 million.
As of March 31, Abrams Capital Management owns over 5.1 million shares of Camping World Holdings, Inc. (NYSE:CWH), which amounts to a stake of $142.79 million. The investment covers 3.33% of David Abrams’ 13F portfolio and as of June 17, the stock has a forward PE of 4.59, which makes it one of the best value stock picks of legendary value investor David Abrams.
6. Kinder Morgan, Inc. (NYSE:KMI)
Abrams Capital Management’s Stake Value: $235,925,000
Percentage of Abrams Capital Management’s 13F Portfolio: 5.5%
Number of Hedge Fund Holders: 40
PE Ratio as of June 17: 13.99
Kinder Morgan, Inc. (NYSE:KMI) operates as an energy infrastructure company in North America through four business segments: Natural Gas Pipelines, Products Pipelines, Terminals, and CO2. On June 14, Wells Fargo named the Kinder Morgan, Inc. (NYSE:KMI) among the energy stocks that were a part of the bank’s “recession stock portfolio”.
On May 2, Truist analyst Neal Dingmann assumed coverage of Kinder Morgan, Inc. (NYSE:KMI) with a Buy rating and a $22 price target.
As of March 31, Abrams Capital Management’s stake in Kinder Morgan, Inc. (NYSE:KMI) is valued at $235.92 million. The investment covers 5.5% of the fund’s 13F portfolio. Moreover, as of June 17, Kinder Morgan, Inc. (NYSE:KMI) has a forward PE ratio of 13.99 and a dividend yield of 6.92%, which makes it an undervalued dividend stock to buy in 2022 according to value investor David Abrams.
At the end of Q1 2022, 40 hedge funds were bullish on Kinder Morgan, Inc. (NYSE:KMI) with stakes worth $1.34 billion. This is compared to 39 positions in the previous quarter with stakes worth $998.85 million. The hedge fund sentiment for the stock is positive.
5. Energy Transfer L.P. (NYSE:ET)
Abrams Capital Management’s Stake Value: $247,571,000
Percentage of Abrams Capital Management’s 13F Portfolio: 5.77%
Number of Hedge Fund Holders: 31
PE Ratio as of June 17: 6.63
At the close of Q1 2022, 31 hedge funds held stakes in Energy Transfer L.P. (NYSE:ET) worth $699.43 million. This is compared to 36 positions in the preceding quarter with stakes worth $635.60 million.
As of April 26, Morgan Stanley analyst Robert Kad has a $12 price target and an Overweight rating on Energy Transfer L.P. (NYSE:ET). On May 4, Energy Transfer L.P. (NYSE:ET) released earnings for the fiscal first quarter of 2022. The company registered an EPS of $0.37 and beat estimates by $0.05. Moreover, the company’s revenue came in at $20.49 billion, up 20.57% year over year, ahead of expectations by $1.70 billion.
As of March 31, Abrams Capital Management’s stake in Energy Transfer L.P. (NYSE:ET) is valued at $247.57 million. The investment covers 5.77% of David Abram’s 13F portfolio. As of June 17, the stock has a forward PE ratio of 6.63 and a dividend yield of 8.14%, which makes it an undervalued dividend stock to buy according to value investor David Abrams.
4. Willis Towers Watson Public Limited Company (NASDAQ:WTW)
Abrams Capital Management’s Stake Value: $252,459,000
Percentage of Abrams Capital Management’s 13F Portfolio: 5.89%
Number of Hedge Fund Holders: 49
PE Ratio as of June 17: 14.31
Willis Towers Watson Public Limited Company (NASDAQ:WTW) operates as an advisory, broking, and solutions company worldwide. The company operates through two primary segments: Health, Wealth & Career, and Risk & Broking. At the end of Q1 2022, Abrams Capital Management’s stake in the company was valued at $252.45 million, which covers 5.89% of the fund’s investment portfolio. As of June 17, the stock has a forward yield of 14.31, and is therefore ranked high among David Abrams’ value stock picks.
As of April 11, BofA analyst Joshua Shanker has a $245 price target and an Underperform rating on Willis Towers Watson Public Limited Company (NASDAQ:WTW).
On May 26, Willis Towers Watson Public Limited Company (NASDAQ:WTW) increased its existing share repurchase authority by $1 billion, in addition to the roughly $1.3 billion remaining on the current open-ended repurchase authority.
At the close of Q1 2022, 49 hedge funds were bullish on Willis Towers Watson Public Limited Company (NASDAQ:WTW) with stakes worth $2.18 billion. This is compared to 66 positions in the preceding quarter with stakes worth $4.00 billion.
Here is what Artisan Partners, a high-value-added investment management firm, had to say about Willis Towers Watson Public Limited Company (NASDAQ:WTW) in its ‘Artisan International Value Fund’ fourth-quarter 2021 investor letter:
“During the quarter, we made meaningful new investments in two UK domiciled companies, (one of which is) Willis Towers Watson (WTW). Long-term investors will recognize Willis Towers Watson since it was in the portfolio from 2018 to early 2021. We exited that investment after WTW agreed to merge with Aon. Unfortunately for WTW and Aon, that proposed merger was rejected by the US Department of Justice in July 2021. In fact, there is significant market power in this industry, which is what makes it a great business. That market power is exerted not with the insurance brokers’ corporate customers, but with their suppliers (insurance underwriters). We were surprised at Aon’s attempted merger, and our concerns regarding antitrust approval encouraged us to sell.
WTW operates two businesses: insurance brokerage and HR consulting. Both are market-leading with attractive financial profiles and mostly recurring revenue streams. Despite these strengths, WTW operates with lower margins versus peers. The margin opportunity is most pronounced in the insurance brokerage business. Management has slowly increased the insurance brokerage margin over time, but a large gap remains with best-in-class peers like Marsh & McLennan and AJ Gallagher. Management presented a plan to increase the insurance brokerage business’s margins 5% by year-end 2024. This plan follows the outline other insurance brokers have previously used to increase their margins—giving us confidence the targets are achievable.
The merger’s demise brought a new and experienced CEO, a new CFO and a refreshed shareholder-aligned board of directors. In addition, the merger’s cancellation transformed the company’s financial
position. As part of the agreement, Aon paid WTW a $1 billion “break fee.” WTW also sold a re-insurance brokerage business for $3.25 billion along with the potential to earn $750 million through an earnout agreement. With the proceeds, WTW expects to repurchase approximately $4 billion of stock between the second half of 2021 and the end of 2022. With existing cash on hand and cash generation over the next three years, we estimate the company can return another $6 billion to shareholders through dividends and share repurchases representing over 20% of today’s market capitalization. We forecast earnings of approximately $20 per share in 2024—a price to earnings (P/E) ratio of 11.5X. We believe that valuation significantly undervalues this high-quality business.”
3. AMERCO (NASDAQ:UHAL)
Abrams Capital Management’s Stake Value: $252,456,000
Percentage of Abrams Capital Management’s 13F Portfolio: 5.89%
Number of Hedge Fund Holders: 29
PE Ratio as of June 17: 7.97
AMERCO (NASDAQ:UHAL) operates as a do-it-yourself moving and storage operator for household and commercial goods in the United States and Canada. At the close of Q1 2022, Abrams Capital Management’s stake in the company was valued at $252.45 million, and as of June 17, the stock has a trailing-twelve-month PE ratio of 5.89 which places it among the top 3 value stocks to buy according to David Abrams.
On May 25, AMERCO (NASDAQ:UHAL) announced earnings for the fourth quarter of fiscal year 2022. The company reported earnings per share of $4.42, missing expectations by $2.96. The company’s revenue for the quarter came in at $1.20 billion, up 13.06% year over year, but missed expectations by $37.86 million.
At the end of Q1 2022, 29 hedge funds held stakes in AMERCO (NASDAQ:UHAL) which were valued at $937.71 million. This is compared to 29 positions in the preceding quarter with stakes worth $964.95 million.
Third Avenue Management, an investment management firm, recently published its “Real Estate Value Fund” first-quarter 2022 investor letter, in which it mentioned AMERCO (NASDAQ:UHAL). Here is what the firm had to say:
“Held in the Fund since 2018, AMERCO is widely recognized as the leader in self-moving in North America through its U-Haul subsidiary where it has an unrivaled network with approximately 176,000 trucks, 126,000 trailers, and 46,000 towing devices available across more than 23,000 locations. What is not as widely recognized, in Fund Management’s opinion, is that the company’s forward thinking management team has also spent the last decade assembling one of the largest self-storage portfolios in North America-not only solidifying the “moat” around its core business but also creating substantial value in the process.
Due to these efforts, AMERCO owned and managed more than 73 million square feet of self-storage facilities at the end of the 2021, placing it as the third largest owner of such properties in the US. Notwithstanding, the company does not seem to get much (if any) recognition for this transformation. To wit, if one were to apply the implied price per square foot for AMERCO’s closest comparable on the self-storage side of the business (e.g., Life Storage), they would arrive at an implied value for its impossible-to-replicate self-moving business of basically $0- despite it generating more than $1.0 billion of operating profits per year more recently, implying $7-8 billion of value based upon comparables within the rental segment.
This disconnect does not seem to be lost on Chairman and CEO Edward Shoen (who owns 42.7% of the company’s stock along with beneficiaries). In fact, in response to a question about the price-to-value discrepancy during the company’s most recent quarterly conference call, he remarked that “it’s a question that is regularly discussed at the board level” and that “hopefully we’ll have some news for you before the year is out.” In the meantime, AMERCO is not only continuing to self-finance the expansion of its self-storage portfolio with more than 7 million square feet of projects in development, but the company is also expanding its “U-Box” offering as it gains further market share in the portable storage and moving segment.”
2. Asbury Automotive Group, Inc. (NYSE:ABG)
Abrams Capital Management’s Stake Value: $339,338,000
Percentage of Abrams Capital Management’s 13F Portfolio: 7.92%
Number of Hedge Fund Holders: 29
PE Ratio as of June 17: 4.66
Asbury Automotive Group, Inc. (NYSE:ABG) operates as an automotive retailer in the United States. The company offers a range of automotive products and services, including, new and used vehicles, vehicle repair and maintenance services, replacement parts, and collision repair services. As of April 7, JPMorgan analyst Rajat Gupta has a $200 price target and a Neutral rating on Asbury Automotive Group, Inc. (NYSE:ABG).
As of March 31, Abrams Capital Management owns over 2.11 million shares of Asbury Automotive Group, Inc. (NYSE:ABG) which amounts to a stake of $339.33 million. The investment covers 7.92% of the fund’s 13F portfolio. As of June 17, Asbury Automotive Group, Inc. (NYSE:ABG) has a forward PE ratio of 4.66, which makes it an undervalued stock to buy now according to David Abrams.
Insider Monkey found 29 hedge funds long Asbury Automotive Group, Inc. (NYSE:ABG) at the end of Q1 2022. The total stakes of these funds in the company were valued at $926.11 million, down from $1.04 billion in the prior quarter with 32 positions.
Here is what LRT Capital Management, an investment management firm, had to say about Asbury Automotive Group, Inc. (NYSE:ABG) in its first-quarter 2022 investor letter:
“Asbury Automotive Group is one of the largest automotive retailers in the United States. It operates 90 dealerships consisting of 112 franchises and 25 collision repair centers. The company’s stores offer new and used vehicles, parts, and service, as well as finance and insurance (F&I) products. Franchise agreements controlled by automotive manufactures and state laws create an environment of tightly controlled market entry and restricted competition.
The dealership industry is highly fragmented with 93.5% of dealers having only between 1-5 locations according to data from 2020. In fact, dealers with over 50 locations account for only 0.1% of the industry – a testament to the huge opportunity for consolidation that lies ahead. Industry dynamics, including the rising complexity of automobiles and the need for omnichannel distribution are favoring better capitalized and larger dealer groups. We believe Asbury Automotive Group has several distinct advantages, particularly its highly profitable parts and service business, its overexposure to the luxury vehicle business, which carriers the best margins, and its Clicklane omnichannel strategy. Asbury’s management has also been acting in the best interests of its shareholders by allocating capital towards acquiring dealerships to aggressively expand its business, and occasionally repurchasing stock when attractive acquisitions targets could not be found.
ABG is not a fast-growing SaaS business, but when paying a valuation of ¼ of the overall stock market, one does not need to make heroic assumptions about the future to enjoy strong returns as shareholders. We believe that over the next several years, Asbury will continue to acquire dealerships, occasionally buyback stock and invest to improve its digital shopping experience. We wrote about Asbury in detail in our August 2021 Investor Letter.”
1. Lithia Motors, Inc. (NYSE:LAD)
Abrams Capital Management’s Stake Value: $705,603,000
Percentage of Abrams Capital Management’s 13F Portfolio: 16.46%
Number of Hedge Fund Holders: 46
PE Ratio as of June 17: 5.76
Lithia Motors, Inc. (NYSE:LAD) operates as an automotive retailer in the United States. The company operates through three primary segments: Domestic, Import, and Luxury. On April 20, Lithia Motors, Inc. (NYSE:LAD) reported earnings for the fiscal first quarter of 2022. The company reported earnings per share of $11.96, exceeding expectations by $1.62. The company’s revenue for the quarter came in at $6.71 billion, up 54.39% year over year, ahead of expectations by $363.33 million.
As of April 21, Guggenheim analyst Ali Faghri has a $578 price target and a Buy rating on Lithia Motors, Inc. (NYSE:LAD). The analyst also named the stock a “Best Idea”.
As of March 31, Abrams Capital Management’s stake in Lithia Motors, Inc. (NYSE:LAD) is valued at $705.60 million. It is the top 13F holding of the hedge fund and covers 16.46% of David Abrams’ 13F portfolio. As of June 17, Lithia Motors, Inc. (NYSE:LAD) has a forward PE ratio of 5.76, which makes it one of David Abrams’ top value stock picks.
At the end of the first quarter of 2022, 46 hedge funds were bullish on Lithia Motors, Inc. (NYSE:LAD) with stakes worth $2.55 billion. This is compared to 56 positions in the previous quarter with stakes worth $2.62 billion.
Here is what Oakmark Funds had to say about Lithia Motors, Inc. (NYSE:LAD) in its “Oakmark Select Fund” first-quarter 2022 investor letter:
“As is typical during periods of significant volatility, we added a new name to the portfolio. Lithia Motors (NYSE:LAD) is the largest franchised auto dealer group in the United States. The company has a long history of creating shareholder value through best-in-class operations and consistent acquisitions of smaller dealers at attractive returns. There is a long runway for management to continue creating value through such acquisitions. Management believes this will drive earnings per share to more than $50 by 2025, even as car prices return to pre-pandemic levels. Meanwhile, Lithia has a significant opportunity to further accelerate growth through Driveway, its online auto retailing platform. We believe Lithia’s existing nationwide infrastructure provides Driveway with significant competitive advantages in e-commerce, which smaller dealers will struggle to replicate. Driveway is not generating any earnings today, but it could become a major contributor over the next five to seven years. With the stock priced at less than 7x management’s 2025 EPS target and with substantial future growth potential from Driveway, we believe Lithia shares are a bargain today.”
You can also take a look at 10 Best Value Stocks To Buy Now According To Howard Marks and 12 Best Value Dividend Stocks to Buy Now.
Follow Insider Monkey on Twitter
Suggested Articles:
- 10 Best Value Stocks To Buy Now
- 15 Best Undervalued Stocks to Buy Now
- Value Investor Bill Miller’s Top 10 Stock Picks
Disclose. None. 9 Value Stocks to Buy in 2022 According to David Abrams is originally published on Insider Monkey.
