Billionaires are some of the savviest investors on the planet today. Not only do investors such as Warren Buffett or Carl Ichan have great track records and elite investing intelligence, but also they have many of the world’s smartest minds working for them too. With their Ivy-League degrees and high IQs, many analysts who work for billionaires know things before the CEO knows them. In this article, we will take a closer look at five undervalued stocks that billionaire investors are in love with, including Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), eBay Inc (NASDAQ:EBAY), Citigroup Inc (NYSE:C), and Pfizer Inc. (NYSE:PFE).
Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by 52 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. 48.6% gain for the S&P 500 Index (see the details here). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).
#5 Pfizer Inc. (NYSE:PFE)
– Number of Billionaire Investors (as of September 30): 15
– Total Value of Holdings: $2.76 billion
Pfizer Inc. (NYSE:PFE) is one of the largest healthcare companies in the world. The company manufactures and markets numerous blockbuster drugs, such as Lyrica, Celebrex, and Norvasc and has a pipeline of promising drug candidates, including Palbociclib, PF-06290510, and PF-06425090, all of which have a billion-dollar-a-year potential. Many billionaires like the stock because Pfizer trades at a discount 13.55 times forward earnings estimates and pays a 3.5% dividend. Pfizer should also have increasing free cash flows, as it recently announced an impending $160 billion merger with Dublin-based drug maker Allergan, which will lower Pfizer’s tax rate substantially. Billionaire Cliff Asness’ AQR Capital Management is one of the shareholders of Pfizer, with his firm holding 16.92 million shares at the end of September.
#4 Citigroup Inc (NYSE:C)
– Number of Billionaire Investors (as of September 30): 16
– Total Value of Holdings (as of September 30): $2.20 billion
A total of 16 billionaires, including Ken Fisher of Fisher Asset Management are bullish on Citigroup Inc (NYSE:C) because the bank is ‘stupid cheap’. Not only do shares trade at 8.9 times forward earnings, but they also trade substantially under the bank’s tangible book value of around $59 per share. Many investors are optimistic as the dollar headwinds will eventually subside and the Federal Reserve’s recent 0.25 percentage points interest rate hike will increase the bank’s net interest margin and return on equity. At some point Citigroup will have the Fed’s permission to buy back a lot of stock and pay an attractive dividend, and when that time comes, its stock will trade substantially higher than it is trading for today.