Billionaires Are Betting on These Five Under-$10 Stocks

Novice and green investors usually look at the price of a stock and judge its growth potential through that; a stock priced at $100 seems a lot more expensive than a stock priced at $5. In percentage terms, one can double his or her money if a $10-stock jumps to a value of $20, but can only gain 10% if a $100-stock reaches a value of $110.

Most stock market participants tend to think that a stock priced below $5 per share has nowhere to go but up. This erroneous thinking might point to attractive investment opportunities on some occasions, but more often than not this thinking will yield disappointing results. In fact, companies with $5-stocks tend to be risky. These companies might have heavy debt loads or might have other risk factors associated with them. But that doesn’t imply that there aren’t any good or even safe low-priced stocks out there in the market.

For that reason, Insider Monkey decided to compile a list of five under $10-stocks favored by the billionaire hedge fund managers followed by our team. Multi-billion-dollar hedge fund vehicles spend a great deal of money on the search for and research of investment opportunities in the small-cap space, which makes us believe that the pool of low-priced stocks included in their portfolios hold great potential.

At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details).

#5. Huntington Bancshares Incorporated (NASDAQ:HBAN)

– Billionaires With Long Positions (as of June 30): 6

– Aggregate Value of Billionaires’ Holdings (as of June 30): $133.34 Million

There were six billionaire hedge fund managers in our system with long positions in Huntington Bancshares Incorporated (NASDAQ:HBAN) at the end of the April-to-June period, compared to seven recorded at the end of the March quarter. The overall value of those long positions decreased by 26% quarter-over-quarter to $133.34 million, partly reflecting a 5% drop in the value of Huntington’s shares. The multi-state diversified regional bank holding company has seen the value of its shares plunge by 10% since the beginning of 2016. In mid-August, Huntington Bancshares completed the $3.4 billion cash-and-stock acquisition of Ohio-based diversified financial services company FirstMerit Corp. Under the terms of the deal, first announced in January, each shareholder of FirstMerit received 1.72 shares of Huntington and $5.00 in cash for each share of FirstMerit. The freshly-acquired company had around 366 banking offices and 400 ATM locations in Ohio, Michigan, Wisconsin, Illinois, and Pennsylvania at the time of the announcement of the acquisition. David Harding’s Winton Capital Management cut its stake in Huntington Bancshares Incorporated (NASDAQ:HBAN) by 27% during the second quarter to 3.75 million shares.

On the following two pages of this article, we’ll look at four other low-cost stocks favored by billionaire investors.

#4. Regions Financial Corp (NYSE:RF)

– Billionaires With Long Positions (as of June 30): 6

– Aggregate Value of Billionaires’ Holdings (as of June 30): $150.21 Million

The number of billionaire money managers with stakes in Regions Financial Corp (NYSE:RF) decreased to six from seven during the second quarter of 2016. Similarly, the aggregate value of those stakes dropped by around 4% quarter-over-quarter to $150.21 million despite a gain of 9% in the value of Regions Financial’s shares during that time. The shares of the Alabama-based financial holding company, which operates in the South, Midwest and Texas, are up by 2% thus far in 2016. In mid-August, analysts at Bernstein downgraded Regions Financial to ‘Market Perform’ from ‘Outperform’, citing improved valuation. Moreover, Bernstein analysts, who have a price target of $9.50 on Regions, believe banks will be impacted by an eventual downturn in credit metrics. Bernstein also cited reduced expectations that the Federal Reserve will increase interest rates in the near-term, though more-recent indicators suggest that may not be correct. Richard S. Pzena’s Pzena Investment Management was the owner of 30.40 million shares of Regions Financial Corp (NYSE:RF) at the end of the June quarter.

#3. Brocade Communications Systems Inc. (NASDAQ:BRCD)

– Billionaires With Long Positions (as of June 30): 6

– Aggregate Value of Billionaires’ Holdings (as of June 30): $332.30 Million

There were six billionaire money managers followed by Insider Monkey invested in Brocade Communications Systems Inc. (NASDAQ:BRCD) both at the end of the first and second quarters of 2016. However, the overall value of billionaires’ equity investments in Brocade rose by nearly 8% quarter-over-quarter to $332.30 million in the second quarter, despite a 12% decrease in the value of Brocade’s shares during the period. Hence, some billionaires increased their exposure to the supplier of networking hardware, software and services during the June quarter. In an attempt to strengthen its Internet Protocol Networking product portfolio, Brocade completed the acquisition of Ruckus in late-May, adding Ruckus’ wireless products and services to its networking solutions. In late-August, analysts at BMO Capital Markets upped their price target on Brocade to $10 from $9 and reiterated their ‘Market Perform’ rating on the company after Brocade beat bottom- and top-line results in the previous quarter, partially owing to the aforementioned acquisition. Brocade shares are down by a little less than 1% so far in 2016. Ken Griffin’s Citadel Advisors reported ownership of 11.40 million shares of Brocade Communications Systems Inc. (NASDAQ:BRCD) through the latest round of 13F filings.

#2. ENSCO PLC (NYSE:ESV)

– Billionaires With Long Positions (as of June 30): 7

– Aggregate Value of Billionaires’ Holdings (as of June 30): $252.09 Million

ENSCO PLC (NYSE:ESV) received more attention from the billionaire hedge fund managers tracked by Insider Monkey during the three months ended June 30, as the number of billionaires invested in Ensco spiked to seven from four quarter-over-quarter. Correspondingly, the overall value of those billionaires’ stakes in Ensco rose to $252.09 million from a mere $93.26 million recorded at the end of the first quarter, even though the company’s shares lost 6% in the June quarter. The provider of offshore contract drilling services has seen its market cap plunge by 52% since the start of the year. Ensco owns and operates an offshore drilling rig fleet consisting of 57 rigs, as well as having four additional rigs under construction. The company reported revenue of $910 million for the second quarter, down from $1.06 billion posted a year earlier. The decrease primarily reflects a decline in reported utilization to 61% from 76% recorded in the second quarter of 2015. Adage Capital Management, founded by Phillip Gross and Robert Atchinson, owns 4.62 million shares of ENSCO PLC (NYSE:ESV) as of June 30.

#1. MGIC Investment Corp. (NYSE:MTG)

– Billionaires With Long Positions (as of June 30): 9

– Aggregate Value of Billionaires’ Holdings (as of June 30): $332.12 Million

MGIC Investment Corp. (NYSE:MTG) was the most popular under $10-stock among the billionaire money managers followed by our team at the end of the June quarter. The number of billionaires with equity stakes in MGIC Investment rose to nine from five during the quarter, whereas the overall value of those stakes fell by 14% quarter-over-quarter to $332.12 million. The 14% decrease was due to a 22% fall in the value of MGIC’s shares in the second quarter, though they’ve since rebounded to have gain 26% in the past three months. MGIC Investment, the nation’s oldest insurer, appears to be well-positioned to benefit from “a supercycle for mortgage credit that seems unlikely to be derailed by a recession,” according to a Barclays analyst. Kerr Neilson’s Platinum Asset Management has 10.10 million shares of MGIC Investment Corp. (NYSE:MTG) among its holdings as of the end of the second quarter.

Disclosure: None