雅虎香港財經 15 Most Undervalued Quality Stocks To Buy According To Hedge Funds
In this article, we discuss 15 most undervalued quality stocks to buy according to hedge funds. If you want to see more stocks in this selection, 5 Most Undervalued Quality Stocks To Buy According To Hedge Funds.
Quality stocks usually have little debt, steady earnings, regular growth in assets, and effective leadership. Investors can identify these types of stocks by analyzing financial indicators such as return on equity, debt-to-equity ratio, and earnings volatility. Jeffrey Kleintop, chief global investment strategist at Charles Schwab, joined CNBC’s ‘Squawk on the Street’ on November 14, 2022. The analyst said the markets have already priced in a modest recession in earnings and 2023 could see high dollar strength, China reopening, and inflation peaking as consumer spending rises in China and the rest of the world. He believes in this situation, investors should pick up higher quality stocks.
On August 16, 2022, Liz Ann Sonders of Charles Schwab told CNBC that investors should seek factors such as positive earnings revisions, profitability, strong free cash flow, and healthy balance sheets with high cash and low debt when approaching the market in the presently volatile macro environment. She also advised investors to exit from market segments that have low returns and pile into sectors that have higher returns.
Investors can also check out 11 Best Quality Stocks To Buy, 10 Best Stocks in Each Sector, and 11 Best Sectors To Invest In for a well-rounded market outlook. Some of the most undervalued quality stocks to buy according to hedge funds include Exxon Mobil Corporation (NYSE:XOM), Freeport-McMoRan Inc. (NYSE:FCX), and Cisco Systems, Inc. (NASDAQ:CSCO).
Our Methodology
For this article, we explored Vanguard U.S. Quality Factor ETF (BATS:VFQY), which has 552 stocks in its portfolio. We picked the top 50 holdings of the ETF and then selected 15 of these with PE ratios less than 18, which is the market's PE ratio.
Then, we sorted the selected stocks by hedge fund sentiment, which was assessed from Insider Monkey’s database of holdings of 920 elite hedge funds tracked as of the end of the third quarter of 2022.
Photo by Adam Nowakowski on Unsplash
Most Undervalued Quality Stocks To Buy According To Hedge Funds
15. OneMain Holdings, Inc. (NYSE:OMF)
Number of Hedge Fund Holders: 31
P/E Ratio as of January 25: 5.39
OneMain Holdings, Inc. (NYSE:OMF) was founded in 1912 and is based in Evansville, Indiana. It is a financial service holding company that engages in the consumer finance and insurance businesses. On January 13, JMP Securities analyst David Scharf maintained an Outperform rating on OneMain Holdings, Inc. (NYSE:OMF) but lowered the price target on the shares from $54 to $49. He believes that despite macro uncertainty and inflation, the strong trend towards more digital lending and payments remains intact and dominant for a significant portion of consumer lending and PaymentTech coverage. The analyst added that near-term drivers for the group may not change in the first half of the year, but it's time for investors to dive into where they want to be "early."
According to Insider Monkey’s Q3 data, Glenn Greenberg’s Brave Warrior Capital is the largest position holder in OneMain Holdings, Inc. (NYSE:OMF), with 5.38 million shares worth $158.85 million. Overall, 31 hedge funds were bullish on the stock at the end of September 2022.
Like Exxon Mobil Corporation (NYSE:XOM), Freeport-McMoRan Inc. (NYSE:FCX), and Cisco Systems, Inc. (NASDAQ:CSCO), OneMain Holdings, Inc. (NYSE:OMF) is one of the most undervalued quality stocks to buy according to hedge funds.
Here is what ClearBridge Investments Small Cap Strategy has to say about OneMain Holdings, Inc. (NYSE:OMF) in its Q3 2022 investor letter:
“We also seized the opportunity to add OneMain (NYSE:OMF), in the financials sector, to the portfolio. A consumer finance company with a focus on personal loans to customers who have limited access to traditional lenders, OneMain’s stock has suffered from the perception that a recession would result in significant credit losses particularly at the lower quality end of the spectrum.
While we did see a slight uptick in credit loss rates during the quarter, the rebound is off historic and exceptionally low levels. OneMain maintains strong credit spreads, great returns and a management team composed of efficient operators with extensive experience in navigating the consumer credit market during recessions, making it an excellent addition to the portfolio.”
14. Ameriprise Financial, Inc. (NYSE:AMP)
Number of Hedge Fund Holders: 35
P/E Ratio as of January 25: 14.27
Ameriprise Financial, Inc. (NYSE:AMP) is a Minnesota-based company that provides financial products and services to individual and institutional clients in the United States and internationally. It operates through four segments – Advice & Wealth Management, Asset Management, Retirement & Protection Solutions, and Corporate & Other. On December 18, Keefe Bruyette analyst Ryan Krueger downgraded Ameriprise Financial, Inc. (NYSE:AMP) to Market Perform from Outperform with an unchanged price target of $325. The analyst is neutral on life insurance stocks going into 2023 following their 2022 outperformance.
According to Insider Monkey’s data, Ameriprise Financial, Inc. (NYSE:AMP) was part of 35 hedge fund portfolios at the end of Q3 2022, compared to 34 in the prior quarter. Andreas Halvorsen’s Viking Global is the largest position holder in the company, with 1.80 million shares worth $454.5 million. Ameriprise Financial, Inc. (NYSE:AMP) is one of the most undervalued quality stocks to buy according to smart investors.
13. Hologic, Inc. (NASDAQ:HOLX)
Number of Hedge Fund Holders: 36
P/E Ratio as of January 25: 15.93
Hologic, Inc. (NASDAQ:HOLX) is a Massachusetts-based company that develops, manufactures, and supplies diagnostics products, medical imaging systems, and surgical products for women's health worldwide. It operates through four segments – Diagnostics, Breast Health, GYN Surgical, and Skeletal Health. Hologic, Inc. (NASDAQ:HOLX) is one of the most undervalued quality stocks to consider. On January 9, the company said it expects to report Q1 total revenues of nearly $1.074 billion, versus a consensus of $970.3 million.
On January 24, Mizuho analyst Anthony Petrone raised the price target on Hologic, Inc. (NASDAQ:HOLX) from $77 to $90 and kept a Buy rating on the shares. The analyst updated his medtech and diagnostics models ahead of Q4 earnings season to reflect feedback from a recent conference and ongoing hospital/physician channel checks. The general tone suggested that the elevated respiratory viral volumes did not impact inpatient volumes, although some pockets of weakness did emerge in outpatient elective procedures, the analyst wrote in a research note.
According to Insider Monkey’s third quarter database, Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital is the largest position holder in Hologic, Inc. (NASDAQ:HOLX), with nearly 4 million shares worth $255.7 million.
12. Cognizant Technology Solutions Corporation (NASDAQ:CTSH)
Number of Hedge Fund Holders: 39
P/E Ratio as of January 25: 14.21
Cognizant Technology Solutions Corporation (NASDAQ:CTSH) is a New Jersey-based professional services company that provides consulting, technology, and outsourcing services in North America, Europe, and internationally. It operates through four segments – Financial Services, Healthcare, Products and Resources, and Communications, Media and Technology. Cognizant Technology Solutions Corporation (NASDAQ:CTSH) is one of the most undervalued quality stocks to monitor.
On January 23, Cognizant Technology Solutions Corporation (NASDAQ:CTSH) announced that it is set to acquire the UK-based IoT software engineering services company, Mobica. The acquisition is expected to enhance Cognizant Technology Solutions Corporation (NASDAQ:CTSH)’s abilities in engineering embedded software for IoT. The acquisition is expected to close in February 2023.
UBS analyst Rayna Kumar raised the firm's price target on Cognizant Technology Solutions Corporation (NASDAQ:CTSH) to $68 from $62 on January 15, while keeping a Neutral rating on the shares. The analyst cited the recent appointment of Ravi Kumar S as the new CEO of Cognizant, effective January 12, 2023, with the former CEO, Brian Humphries remaining with the company as a special advisor until March 15, 2023.
According to Insider Monkey’s data, 39 hedge funds were long Cognizant Technology Solutions Corporation (NASDAQ:CTSH) at the end of September 2022, compared to 36 funds in the prior quarter. Richard S. Pzena’s Pzena Investment Management is the largest position holder in the company, with 14.25 million shares worth $818.80 million.
11. Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN)
Number of Hedge Fund Holders: 43
P/E Ratio as of January 25: 15.74
Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) is a New York-based company that discovers, invents, develops, manufactures, and commercializes different medicines worldwide. On January 20, JPMorgan analyst Chris Schott upgraded Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN)’s rating to Overweight from Neutral with a price target of $850 in anticipation of several important catalysts expected in 2023. He expects the company's Dupixent to perform above consensus estimates and sees 8mg Eylea as a "best in class therapy" that can significantly extend the company's U.S. AMD franchise, the analyst wrote in a note to investors. It is one of the most undervalued quality stocks to invest in according to elite hedge funds.
According to Insider Monkey’s Q3 data, 43 hedge funds were bullish on Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN), compared to 44 funds in the prior quarter. Cliff Asness’ AQR Capital Management is a prominent stakeholder of the company, with 430,301 shares worth $296.4 million.
Bronte Capital made the following comment about Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) in its Q3 2022 investor letter:
“There have been some bright spots in our long book. Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN), a major position and a stock we wrote up in our June 2021 letter, has been one of the best performing stocks in the S&P 500 this year. Alas it has not been enough to offset some of our weaker stocks, let alone our overweight exposure to the UK (and Europe) which have suffered from both stock and currency weakness. We do not think we are bad at picking stocks on the long side and hope – reasonably we think – for better relative results in the future. Prior to COVID, our longs were markedly better than the index. Unfortunately, if you look at our long book this quarter and since the onset of the COVID pandemic, there is scant evidence that we have added any value by picking stocks to go long.”
10. Moderna, Inc. (NASDAQ:MRNA)
Number of Hedge Fund Holders: 44
P/E Ratio as of January 25: 6.82
Moderna, Inc. (NASDAQ:MRNA) is a Massachusetts-based company that specializes in identifying, developing, and commercializing messenger RNA therapeutics and vaccines to treat a range of conditions including infectious diseases, cancer-related conditions, rare illnesses, heart conditions, and autoimmune diseases. Moderna, Inc. (NASDAQ:MRNA) is one of the most undervalued quality stocks to buy according to hedge funds. On January 17, Moderna, Inc. (NASDAQ:MRNA) announced that a late-stage trial of its investigational respiratory syncytial virus (RSV) vaccine candidate met its main efficacy goals.
On January 18, Chardan analyst Geulah Livshits raised the price target on Moderna, Inc. (NASDAQ:MRNA) to $208 from $191 and maintained a Neutral rating on the shares after the company reported that its RSV vaccine mRNA-1345 has met the main objectives in an interim evaluation of the phase III ConquerRSV trial on older adults. Moderna, Inc. (NASDAQ:MRNA) plans to seek regulatory approval in H1 2023 and also plans to share the data at an upcoming scientific conference and submit it for peer-review publication, as per the analyst.
According to Insider Monkey’s data, 44 hedge funds were long Moderna, Inc. (NASDAQ:MRNA) at the end of September 2022, and Patrick Degorce’s Theleme Partners is the biggest stakeholder of the company, with 6 million shares worth $710 million.
Here is what Baron Funds said about Moderna, Inc. (NASDAQ:MRNA) in its Q3 2022 investor letter:
“Within biotechnology, underperformance of Moderna, Inc. (NASDAQ:MRNA) and lower exposure to this better performing sub-industry weighed the most on relative performance. Shares of Moderna, a leader in the emerging field of mRNA-based vaccines and therapeutics, declined due to increasing uncertainty around what a booster market could look like as COVID shifts away from pandemic status and becomes an increasingly commercial market rather than government funded.”
9. American International Group, Inc. (NYSE:AIG)
Number of Hedge Fund Holders: 48
P/E Ratio as of January 25: 3.75
American International Group, Inc. (NYSE:AIG) is a New York-based company that offers insurance products for commercial, institutional, and individual customers in North America and internationally. On January 19, BMO Capital analyst Michael Zaremski initiated coverage of American International Group, Inc. (NYSE:AIG) with a Market Perform rating and a price target of $64. The analyst noted that American International Group, Inc. (NYSE:AIG) has "refilled its reserves cookie jar" enough during the Q4 2019-Q2 2022 hard pricing market, which is significant given ongoing concerns over policies written under previous AIG management teams.
According to Insider Monkey’s data, 48 hedge funds were bullish on American International Group, Inc. (NYSE:AIG) at the end of the third quarter of 2022, compared to 44 funds in the prior quarter. Harris Associates is the largest stakeholder of the company, with 22.5 million shares worth $1 billion. American International Group, Inc. (NYSE:AIG) is one of the most undervalued quality stocks to invest in according to hedge funds.
Diamond Hill Capital made the following comment about American International Group, Inc. (NYSE:AIG) in its Q3 2022 investor letter:
“Also among our bottom contributors were health care products manufacturer Abbott Labs, global pharmaceutical company Pfizer, media and technology giant Alphabet, and insurance company American International Group, Inc. (NYSE:AIG).
AIG reported strong Q2 earnings, but volatile capital markets led to delays in the IPO of the company’s life and retirement business and concerns about the quality of the company’s investment portfolio. We continue to believe AIG has one of the best management teams in the industry, and they’ve been executing well on turning the business around and improving underwriting and expense control.”
8. Pioneer Natural Resources Company (NYSE:PXD)
Number of Hedge Fund Holders: 49
P/E Ratio as of January 25: 8.32
Pioneer Natural Resources Company (NYSE:PXD) operates as an independent oil and gas exploration and production company in the United States. On October 28, the company said it will seek to raise productivity levels in 2023 by reshuffling its drilling portfolio to target wells with potentially higher returns. Pioneer Natural Resources Company (NYSE:PXD) is one of the most undervalued quality stocks to monitor.
On January 24, Wells Fargo analyst Roger Read initiated coverage of Pioneer Natural Resources Company (NYSE:PXD) with an Underweight rating and a $225 price target. The analyst cited a combination of premium valuation and well performance risks for the rating, and suggested that while management expects well productivity trends to improve this year, it may not be immediately clear if or when this change will occur.
According to Insider Monkey’s data, Pioneer Natural Resources Company (NYSE:PXD) was part of 49 hedge fund portfolios at the end of September 2022, compared to 56 in the prior quarter. Donald Yacktman’s Yacktman Asset Management is a significant stakeholder of the company, with 686,869 shares worth $148.7 million.
Here is what Carillon Scout Mid Cap Fund has to say about Pioneer Natural Resources Company (NYSE:PXD) in its Q1 2022 investor letter:
“Pioneer Natural Resources (NYSE:PXD) performed well in a strong energy sector. Pioneer stood out recently with a pledge to return a large majority of free cash flow to share owners through dividends and stock buybacks, and ended hedging to give share owners more earnings and dividend potential should oil and gas prices continue to rise.”
7. Devon Energy Corporation (NYSE:DVN)
Number of Hedge Fund Holders: 51
P/E Ratio as of January 25: 6.72
Devon Energy Corporation (NYSE:DVN) is an independent energy company engaged in the exploration, development, and production of oil, natural gas, and natural gas liquids in the United States. On January 24, Wells Fargo analyst Roger Read initiated coverage of Devon Energy Corporation (NYSE:DVN) with an Equal Weight rating and a $70 price target. The analyst noted that the company's recent acquisitions and existing resource base support its goal of annual production growth of up to 5% per year. The analyst also observed that more of the company's free cash flow should be directed towards the share repurchase program in order to improve per share metrics over time.
According to Insider Monkey’s data, 51 hedge funds were long Devon Energy Corporation (NYSE:DVN) at the end of September 2022, compared to 57 funds in the last quarter. Rajiv Jain’s GQG Partners is the biggest stakeholder of the company, with 10.6 million shares valued at $642 million.
In its Q2 2022 investor letter, GoodHeaven Capital Management, an asset management firm, highlighted a few stocks and Devon Energy Corporation (NYSE:DVN) was one of them. Here is what the fund said:
“Our biggest dollar gainer within this period was Devon Energy Corporation (NYSE:DVN), a position which emanated from a takeover in early 2021 of our long-time holding WPX Energy. We are sitting on a material (unrealized) gain from our cost and are now receiving material dividends thanks to Devon’s thoughtful fixed/variable dividend policy. Energy is now a hot sector for investors but we have had material exposure for a long time. We remember a bit too well $40 oil, NEGATIVELY PRICED front-month oil contract, and what it’s like to own a company with leverage and negative free cash flow during such periods. Our desire to have our biggest portfolio exposures be high-return, growing, reasonably predictable and moderately levered companies led us to reduce our Devon exposure in the past. When the recent facts and circumstances for the industry changed and appeared supportive of healthy oil prices, we decided to maintain a sizable holding and more recently added to the position. At Devon’s Q1 dividend rate, which is most variable in nature, the shares now yield approximately 10% and our yield on our average cost is materially higher. In addition, we maintain additional energy exposure through our long-term (and successful) holding in Hess Midstream and less directly through TerraVest and Berkshire Hathaway’s energy investments.”
6. EOG Resources, Inc. (NYSE:EOG)
Number of Hedge Fund Holders: 52
P/E Ratio as of January 25: 10.33
EOG Resources, Inc. (NYSE:EOG) was incorporated in 1985 and is headquartered in Houston, Texas. The company explores for, develops, produces, and markets crude oil, natural gas, and natural gas liquids. Its key producing areas are in New Mexico, Texas, and the Republic of Trinidad and Tobago. On November 3, EOG Resources, Inc. (NYSE:EOG) declared a $0.825 per share quarterly dividend, a 10% increase from its prior dividend of $0.750. The dividend is distributable on January 31, to shareholders of record on January 17. The company also declared a special dividend of $1.50 per share, which was paid on December 30.
On January 24, Wells Fargo analyst Roger Read initiated coverage of EOG Resources, Inc. (NYSE:EOG) with an Overweight rating and a $167 price target. The company is committed to give back at least 60% of annual free cash flow to its shareholders via regular and special dividends, the analyst wrote in a research note to investors. Additionally, the analyst estimates that EOG Resources, Inc. (NYSE:EOG)’s earnings per share for 2023 and 2024 will be 12% and 6% higher respectively than the industry's predictions.
According to Insider Monkey’s third quarter database, Harris Associates is the biggest stakeholder of EOG Resources, Inc. (NYSE:EOG), with over 7 million shares worth $787.4 million. In addition to Exxon Mobil Corporation (NYSE:XOM), Freeport-McMoRan Inc. (NYSE:FCX), and Cisco Systems, Inc. (NASDAQ:CSCO), EOG Resources, Inc. (NYSE:EOG) is one of the most undervalued quality stocks according to elite investors.
Here is what Oakmark Select Fund has to say about EOG Resources, Inc. (NYSE:EOG) in its Q1 2022 investor letter:
“EOG Resources (NYSE:EOG) (+36%), was among our top contributors in the quarter as oil prices rallied due to tight supplies, which were then exacerbated by the Russian invasion of Ukraine. Although their share prices have increased considerably, both companies still look quite undervalued even using longer term oil prices in the $65-70 dollar range. Meanwhile, if times are good over the next couple of years, we expect these companies to return significant percentages of their market caps to shareholders.”
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Disclosure: None. 15 Most Undervalued Quality Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.
