In this article, we discuss the 10 best undervalued stocks to buy now along with the expert opinion on the future growth prospects of the US economy.
Demographic Shifts and AI Innovation: A Bullish Case For the US Market
In the prior couple of years, experts and analysts were worried about a recession in the US and their best-case scenario was a soft landing. Experts are still predicting the latter. However, 2024 has proven to be quite a healthy year for the US stock market as it recently hit new highs on the back of technology stocks. Moreover, we also saw notable market broadening in the latest earnings season. However, Co-Founder and Head of Research at Fundstrat Global Advisors, Tom Lee is not just bullish on the current year but also sees the US stock market almost tripling by the end of the decade.
On June 26, Lee told CNBC that he believes the S&P 500 could reach 15,000, driven by a combination of demographic trends and technological advancements. He compared today’s market to past periods of rapid growth, such as the 1920s and the 1950s-1960s. He credits the potential surge to an increase in the population of prime-age adults (30 to 50 years old), which is now led by Millennials and Gen Z. As these generations enter their peak earning years, their borrowing and spending are set to increase, and they are going to take major life decisions which are expected to drive economic growth.
In addition to these demographic factors, Lee highlights the transformative impact of artificial intelligence (AI) on the economy. He believes that AI presents a significant opportunity for US technology companies, especially as it addresses a global labor shortage by converting labor costs into technological solutions, which would probably boost the US tech sector revenues. Furthermore, the US, with its leading technology sector, is well-positioned to attract substantial global investment, especially as we see that other regions like China and Germany face demographic and economic challenges.
Despite Tom Lee’s optimism, he acknowledged several risks to his bullish outlook. He said that a global recession could undermine growth, and the development of AI could also backfire or cause geopolitical instability. Additionally, there is the potential for the stock market to peak prematurely, forming a bubble.
Despite the risks, Tom Lee predicts an optimistic outlook for the US market in the current decade. Based on his insights, this could be an ideal time to invest in the market for the longer term. Keeping in mind that Lee predicts good things for the future of AI, you can take a look at the 10 Best Artificial Intelligence Stocks to Buy Under $10.
10 Best Undervalued Stocks To Buy Now
Our Methodology
For this article, we identified over 40 stocks that were considered undervalued by other financial media websites. From that list, we narrowed our choices to 10 stocks whose forward PE ratio was either equal to or below 15 or was below their industry average, as of June 24. We listed the stocks according to their hedge fund sentiment, which was taken from our database of 920 elite hedge funds as of Q1 of 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
10 Best Undervalued Stocks To Buy Now
10. Royalty Pharma plc (NASDAQ:RPRX)
Forward PE as of June 24: 7
Number of Hedge Fund Holders: 37
Royalty Pharma plc (NASDAQ:RPRX) buys biopharmaceutical royalties and funds innovations in the biopharma industry in the U.S. The company also identifies, evaluates, and acquires royalties on different biopharmaceutical therapies. According to our database, 37 hedge funds held stakes in the stock in the first quarter, with positions worth $1.27 billion. With a position valued at $348.816 million, Viking Global is the largest shareholder of the company, as of March 31.
On May 9, Royalty Pharma announced the acquisition of royalties and milestones on frexalimab owned by ImmuNext, Inc. for approximately $525 million. With this acquisition, Royalty Pharma will gain access to a promising next-generation immunology therapy developed by Sanofi (NASDAQ:SNY). Frexalimab is a second-generation anti-CD40 ligand monoclonal antibody and it is currently in advanced stages of development, with three Phase 3 clinical studies underway for multiple sclerosis (MS) and ongoing Phase 2 studies for systemic lupus erythematosus and Type 1 Diabetes.
The potential market for frexalimab is substantial as Sanofi projects non-risk-adjusted peak sales exceeding €5 billion across multiple diseases, including MS. In 2023, MS therapies alone generated approximately $25 billion in global sales which highlights an ideal opportunity for frexalimab if approved. From a financial perspective, Royalty Pharma stands to gain full royalties on frexalimab’s sales up to $2.0 billion per year. Beyond this threshold, they will share a portion of the royalties with ImmuNext shareholders. This approach allows Royalty Pharma to directly benefit from the success of frexalimab in the market. It ensures that it capitalizes on its commercial potential while also spreading risk through shared royalties for sales exceeding $2.0 billion annually.
With this acquisition, Royalty Pharma’s broad development-stage pipeline now comprises 15 therapies with blockbuster potential across various therapeutic areas. These therapies are supported by strong clinical data and partnerships with leading global marketers show the company’s ability to identify and capitalize on emerging biopharmaceutical innovations.
As of June 24, Royalty Pharma is trading at 7x its estimated 2024 earnings, a significant discount from its industry average of 21x. The company’s long-term growth catalysts and low valuation make quite a compelling bullish case for investors, making it one of the best-undervalued stocks to buy.
Patient Capital Management stated the following regarding Royalty Pharma plc (NASDAQ:RPRX) in its fourth quarter 2023 investor letter:
“We built up a position in Royalty Pharma plc (NASDAQ:RPRX) during the quarter. Royalty Pharma is the largest buyer of biopharmaceutical royalties. The stock traded down throughout 2023 hitting a low of $26.21 in October below its IPO price of $28 in 2020 despite revenue and earnings before interest, taxes, depreciation, and amortization (EBITDA) being materially higher. The company is in the business of buying royalties, originally funded by debt with profits recycled into new opportunities. As interest rates rose throughout the year, the stock came under pressure as fears of a smaller spread between royalty deal IRRs and the cost of capital hit the stock. This fear looks overblown with only 21% of current debt being variable and the majority of its fixed rate debt not due until after 2030. With an average cost of debt of 5% and 2023 deal internal rates of return (IRRs) averaging low teens, we believe the model still works. This environment has only served to grow the total addressable market. Run by a proven business leader, we believe the company can continue to invest at attractive spreads. Trading at just 8x earnings, we believe you are getting an attractive entry point to own a leader in the space.”
9. Globe Life Inc. (NYSE:GL)
Forward PE as of June 24: 7.1
Number of Hedge Fund Holders: 38
Globe Life Inc. (NYSE:GL) is a provider of many life and supplemental health insurance products, and annuities and it runs through Life Insurance, Supplemental Health Insurance, Annuities, and Investments segments. It takes the seventh spot on our list of best-undervalued stocks.
On April 11, Globe Life’s shares dropped by nearly 54% in one day when Fuzzy Panda Research published a report alleging that the company was involved in insurance fraud. However, the company’s response to the recent allegations has been proactive and transparent. The company immediately addressed the accusations from the Fuzzy Panda’s report and emphasized that they were misleading and pledged to provide a comprehensive answer. The initiation of an informal SEC inquiry and internal audits reflected management’s commitment to upholding governance standards and maintaining investor trust.
Nevertheless, this sudden drop in shares has created a probability of a very attractive entry point for investors as Globe Life is trading at an earnings multiple of slightly over 7x its 2024 earnings, compared to the life insurance industry’s average PE ratio of 12.9x. Since the massive sell-off, the company’s share price has recovered by over 70% as of June 24, which shows that the company is gaining back some investor confidence. Based on the consensus estimates of 11 analysts, the company stock has an upside of over 20% from its current levels.
In Q1, 38 hedge funds had investments in Globe Life Inc. (NYSE:GL), with positions worth $383.830 million.
8. Aptiv PLC (NYSE:APTV)
Forward PE as of June 24: 12
Number of Hedge Fund Holders: 38
Aptiv PLC (NYSE:APTV) is an Ireland-based designer, manufacturer, and seller of vehicle components and runs through Signal and Power Solutions, and Advanced Safety and User Experience segments. The stock was held by 38 hedge funds in the first quarter and the stakes amounted to $1.24 billion. Impax Asset Management is the top shareholder of the company and has a position worth $554.419 million as of Q1.
During Aptiv PLC’s (NYSE:APTV) Q1 2024 earnings call, Kevin Clark, the company’s Chairman and CEO, mentioned that the management is focused on improving the company’s capabilities within the software stack. Moreover, they are determined to expand revenue streams within industrial markets. The company sees significant acquisition activity throughout 2024, 2025, and the subsequent years.
With a forward price-to-earnings ratio of 12x, Aptiv is one of the cheapest stocks among its peer group. This sentiment is shared by Argus. On June 10, the firm reiterated a Buy rating on the company stock with a $123 price target, which shows an over 80% upside to Aptiv’s current price on June 24. The firm said that the recent dip in the stock’s price presents a buying opportunity. It further added that even though Aptiv has lowered its long-term growth projections to 6%-8% from the previous 8%-10% due to slower adoption of electric vehicles by customers, Argus believes that the company still has substantial potential to achieve above-average earnings growth in the coming years.
Aptiv management’s commitment to returning capital to the shareholders boosts confidence in the profitability of the stock, making it one of our most undervalued stocks. Clark discussed the company’s share repurchase program as he said:
“Lastly, we continue to believe that our stock is undervalued and presents an attractive opportunity to return capital to shareholders. As such, we’re doubling our share repurchase target from $750 million to $1.5 billion during 2024. In summary, our conviction regarding the strength of our competitive position and the long-term value of our business is as high as ever, and we remain committed to delivering value to our shareholders.”
Ariel Investments stated the following regarding Aptiv PLC (NYSE:APTV) in its first quarter 2024 investor letter:
“We added Aptiv PLC (NYSE:APTV)) which designs and manufactures vehicle components and provides electrical/electronic and active safety technology solutions to the global automotive and commercial vehicle markets. We believe the secular trend of electrification and digitization within the automobile industry, coupled with the expansion of Chinese original equipment manufacturers (OEMs), will accelerate demand and drive long-term growth. Additionally, we anticipate APTV will grow earnings per share over the near term through its divestiture of the autonomous driving joint venture, Motional. In our view, the name is currently trading at a significant discount relative to our estimate of intrinsic value.”
7. PulteGroup, Inc. (NYSE:PHM)
Forward PE as of June 24: 11.6
Number of Hedge Fund Holders: 39
PulteGroup, Inc. (NYSE:PHM) is a Georgia-based company that is primarily focused on acquiring and developing land and constructing housing on said lands. It is one of the largest homebuilders in the United States. At the end of Q1, 39 hedge fund managers were long on PulteGroup, Inc. (NYSE:PHM), with stakes worth $1.67 billion according to Insider Monkey’s database. As of March 31, Greenhaven Associates is the most dominant shareholder in the company and has a position worth $684.014 million.
PulteGroup, Inc. (NYSE:PHM) has consistently demonstrated its commitment to strategic expansion and operational enhancement. Since 2021, the company’s operating teams have allocated approximately $14 billion towards land acquisition and development initiatives and plans to further invest $5 billion throughout 2024. Importantly, the first-quarter land spend is according to the company’s annual target, as the company remains committed to achieving annual unit volume growth ranging from 5% to 10%.
Moreover, an important aspect of PulteGroup, Inc.’s strategy lies in its land management practices, with 51% of its land holdings structured through options. The company aims to increase this metric to 70%. This strategy involves using land options, which are agreements that give the company the right, but not the obligation, to purchase land at a later date. By utilizing options instead of outright purchasing land, the company reduces the capital required upfront which decreases the capital intensity of the company’s land portfolio. This flexibility not only reduces financial risks but also helps PulteGroup to streamline its operational efficiency by selectively going after economically viable development projects.
Should you buy PHM at current prices? The stock is trading at a forward PE of 8.6, a 43% discount to its sector. PHM is attractive at current levels considering analysts expect the company’s earnings to grow by 11% this year. The stock has gained 35% over the past 12 months and the Street-median price target implies a further upside of 18%, as of June.
6. Arch Capital Group Ltd. (NASDAQ:ACGL)
Forward PE as of June 24: 11.4
Number of Hedge Fund Holders: 45
Arch Capital Group Ltd. (NASDAQ:ACGL) is a Bermuda-based company that offers insurance, reinsurance, and mortgage insurance products. The company is trading at a forward PE of 11.4x. The Street-high estimate of $120 represents an over 20% upside to Arch Capital’s stock from June 24 levels. The company takes the fifth position on our list of best-undervalued stocks to buy.
Arch Capital’s strength lies in its strategically diversified revenue avenues, which contribute to its resilience in the insurance market. The insurance segment accounts for 36% of its premiums and offers a wide range of products, including property, casualty, and specialized lines like professional indemnity and medical liability. This diversification not only spreads risk but also ensures consistent revenue sources and reduces the impact of market fluctuations on the company’s earnings.
The reinsurance segment makes up 58% of premiums. The segment has shown remarkable growth with a significant 41% increase year-over-year. This growth shows Arch’s expertise in underwriting and also at seizing market opportunities. By providing reinsurance to other insurers, the company further diversifies its income sources while leveraging its underwriting capability to capitalize on evolving market conditions. These two strengths put Arch Capital in a favorable light in the competitive insurance landscape.
Moreover, Arch Capital’s recent acquisition of Allianz’s US middle market and entertainment businesses allows it to increase its presence in the $100 billion-plus US middle market. This strategic diversification aligns with the company’s goal to capitalize on diverse revenue sources.
In the first quarter, 45 hedge funds had stakes in Arch Capital Group Ltd. (NASDAQ:ACGL), with total positions worth $1.55 billion. As of March 31, Egerton Capital Limited is the most prominent shareholder in the company with a stake worth $314.38 million.
Artisan Value Fund stated the following regarding Arch Capital Group Ltd. (NASDAQ:ACGL) in its first quarter 2024 investor letter:
“Turning back to positive performers, other winners were Arch Capital Group Ltd. (NASDAQ:ACGL) and Airbus. Arch, a global reinsurer, has experienced strong growth over the past year as reinsurance markets have been in an upswing in terms of pricing and premium growth, while rising interest rates boosted net interest income. Additionally, margins benefited from lower acquisition costs, better expense management and reduced catastrophe losses. In its mortgage insurance business, high interest rates are a headwind to top-line growth but a tailwind for margins. Arch is an industry leader capably managed by a long-tenured team that has achieved an enviable underwriting record while at the same time seeking opportunistic growth. It has shown discipline in pulling back from writing business when pricing is soft, patiently waiting for turns in the cycle to put its strong capital position to work.”
5. Baidu, Inc. (NASDAQ:BIDU)
Forward PE as of June 24: 7.94
Number of Hedge Fund Holders: 48
Baidu, Inc. (NASDAQ:BIDU) provides internet search services and products in China, including the Baidu App, Baidu Search, Baidu Wiki, Baidu Experience, Baidu Post, and more. The stock was part of 48 funds’ portfolios and the total stake value was $1.427 billion in the first quarter. As of March 31, Alkeon Capital Management is the biggest shareholder in the company and has a position worth $240.764 million. Baidu is the 4th best-undervalued stock to buy on our list.
Baidu (NASDAQ:BIDU) is making a transition from an internet-centric business to an AI-first business. At the group’s Q1 2024 earnings call, management highlighted its focus on improving its large language model (LLM), ERNIE. Baidu is aggressively promoting ERNIE in both its consumer (mobile ecosystem and other customer-oriented products) and business (AI cloud, autonomous driving, and robotaxi) segments to enhance user experience, increase advertiser return on investment (ROI), and enable developers to create efficient applications. Despite challenges in its legacy business, Baidu remains confident that AI will drive long-term revenue and profit growth. Baidu is building a strong ecosystem around ERNIE that aims to incorporate millions of applications developed by a diverse community of enterprise and individual developers.
In addition to LLMs, Baidu is also working on autonomous driving technology. The market for autonomous driving systems is expected to grow at a compound annual growth rate of 32% over the next 6 years and reach nearly $39 billion by 2030 (as per estimates by Fortune Business Insights). Baidu will benefit from this high-growth market as its autonomous ride-hailing service, Apollo Go, continues to gain popularity. Apollo Go offered about 826,000 rides in the first quarter, up 25% year-over-year. The service is progressing toward unit economics breakeven, meaning that each ride will generate enough revenue to cover its costs, especially in Wuhan. In Wuhan, it operates 24/7 and plans to deploy the sixth-generation Robotaxi, RT6.
According to analysts, Baidu is trading at an attractive valuation with a forward PE ratio of 7.94, compared to an industry average of 12.32. Over the last 3 three months, based on consensus estimates of 19 analysts, the company stock is a Strong Buy, and their average price target of $150 shows an upside of nearly 70%, as of June 24.
Ariel Global Fund stated the following regarding Baidu, Inc. (NASDAQ:BIDU) in its first quarter 2024 investor letter:
“Alternatively, several positions weighed on performance. China’s internet search and online community leader, Baidu, Inc. traded lower alongside Chinese equities as intensifying problems in China weighed on investor sentiment during the period. The company continues to invest heavily in Artificial Intelligence (AI) and recently launched its generative AI, Ernie Bot, aimed at rivaling Open AI’s ChatGPT. While monetization of the new technology is largely dependent on regulatory review, we think Baidu should continue to experience margin improvement with the ongoing implementation of efficiency and profitability initiatives. While some investors remain on the sidelines due to uncertainty surrounding China’s economic growth, government regulations, and the political rhetoric towards Taiwan, we remain enthusiastic about Baidu’s longer-term opportunity for revenue growth and margin expansion across internet search, cloud, autonomous driving, artificial intelligence and online video.”
4. WESCO International, Inc. (NYSE:WCC)
Forward PE as of June 24: 10.6x
Number of Hedge Fund Holders: 50
WESCO International, Inc. (NYSE:WCC) offers business-to-business distribution, logistics services, and supply chain solutions and operates through Electrical & Electronic Solutions, Communications & Security Solutions, and Utility and Broadband Solutions segments.
WESCO’s focus on strengthening its balance sheet and cash flow are some of its key growth catalysts. The company made significant strides in reducing its net debt by improving its financial leverage to 2.6x EBITDA, which is close to its target range of 1.5 to 2.5 times. Over the twelve months ending March 31, 2024, the company generated over $1.4 billion in free cash flow and showed its ability to convert net income into cash flow effectively. Despite supply chain disruptions in recent years, WESCO’s strategic investments in working capital have begun to normalize and are contributing to its strong cash flow performance.
Moreover, WESCO has raised its full-year free cash flow outlook to between $800 million and $1 billion, surpassing 100% of adjusted net income at the midpoint. This increased cash flow guidance provides the company the flexibility for further share repurchases, debt reduction, or even strategic mergers and acquisitions.
In the first quarter of 2024, WESCO experienced margin pressures due to reduced supplier volume rebates and unfavorable inventory adjustments. However, the recent decline in its stock price has made the company’s valuations significantly favorable, compared to its peers. WESCO is trading at a forward PE of 10.6x as of June 24 compared to its peer average of 20x and the current industry average of 24.5x. In conclusion, despite the pressures faced by the company, it could experience some significant growth catalysts over the longer term and its current valuation could provide an entry point to new investors.
In the first quarter, 50 hedge funds held positions in the stock worth $2.12 billion. As of Q1, Leonard Green & Partners is the top investor in the company and has a position worth $1.1 billion.
Diamond Hill Capital stated the following regarding WESCO International, Inc. (NYSE:WCC) in its first quarter 2024 investor letter:
“Among our bottom individual contributors in Q1 were WESCO International, Inc. (NYSE:WCC) and Extra Space Storage. Leading industrial distributor WESCO (WCC) has experienced choppier results as the initial benefits from its Anixter merger have moderated and a cyclical showdown has highlighted some execution missteps. However, we believe that over the long term, WCC can leverage its significant scale to take market share and improve margins. The company is also well-positioned to benefit from several secular tailwinds, including electrification and re-shoring, among others.”
3. PDD Holdings Inc. (NASDAQ:PDD)
Forward PE as of June 24: 11.6
Number of Hedge Fund Holders: 76
PDD Holdings Inc. (NASDAQ:PDD) is a global commerce group with a diverse portfolio of businesses. Two of its main ventures are Pinduoduo and Temu. Pinduoduo is an e-commerce platform that offers a number of products, including agricultural produce, apparel, shoes, bags, food and beverages, electronic appliances, and furniture along with many other products. Temu is an online marketplace that offers heavily discounted consumer goods.
PDD Holdings Inc. is making significant investments to enhance its global business. The company is improving supply chain efficiency by rolling out tailored fulfillment solutions in different markets and welcoming quality merchants worldwide. It is also investing in legal and compliance capabilities to create a safe and trustworthy shopping environment and conducting forward-looking research into laws and regulations in its operating markets.
Additionally, PDD Holdings Inc. (NASDAQ:PDD) is investing in technology and operations to improve overall user experience, which allows it to cater to the diverse needs and quality standards of global users. These investments are expected to bring more value to consumers and merchants, which will increase the platform’s recognition and acceptance in local communities.
PDD is one of the best undervalued stocks to buy as analysts expect a year-over-year EPS growth of 84%. The company is trading at a forward price-to-earnings ratio of 11.6x, nearly at a 25% discount to its sector median, and Wall Street analysts imply a 43% upside to PDD stock at current levels on June 24.
As of March 31, 76 hedge funds had stakes worth $5.8 billion in PDD Holdings Inc. (NASDAQ:PDD). Hillhouse Capital Management is the company’s largest shareholder with 11.8 million shares worth $1.37 billion.
Baron Emerging Markets Fund stated the following regarding PDD Holdings Inc. (NASDAQ:PDD) in its fourth quarter 2023 investor letter:
“We added to our digitization theme by building a position in PDD Holdings Inc. (NASDAQ:PDD), a leading Chinese e-commerce platform. Founded in 2015, the company has emerged as China’s second largest e-commerce player, capturing approximately 20% market share. In our view, PDD’s competitive moat lies in its team purchase model that facilitates bulk buying through direct partnerships with manufacturers, thereby eliminating intermediaries (e.g., distributors and middlemen) and lowering costs. Key factors driving the company’s meteoric growth include rising consumer demand for affordable products in China amid an economic slowdown, small-scale merchants seeking alternatives to Alibaba, and superior management execution. PDD’s revenue growth outpaces gross merchandize value growth owing to rising take rates as merchants aggressively compete for consumer traffic on the platform. In our view, PDD should continue to gain market share given its dominance in the value-for-money segment, growing affordable branded product offerings, and high operational efficiency. We believe the company’s growth will be further supported by the recent launch of its international e-commerce platform, Temu, which has become one of the fastest growing apps globally. Leveraging China’s excess manufacturing capacity, Temu has strong negotiating power with domestic suppliers and attracts global consumers with competitively priced products. Temu’s recent initiatives to improve unit economics, coupled with achieving variable breakeven in the sizable U.S. market, showcase management’s skill and commitment to sustained growth. We expect PDD to at least double its earnings and free cash flow in the next three years, with the potential for continued compounding thereafter.”
2. QUALCOMM Incorporated (NASDAQ:QCOM)
Forward PE as of June 24: 20
Number of Hedge Fund Holders: 78
QUALCOMM Incorporated (NASDAQ:QCOM) is an American telecom equipment and semiconductor company headquartered in California. The company operates in a variety of high-growth markets including smartphones and autonomous vehicles and makes chips for companies like Samsung, Huawei, BMW, and Toyota. In the first quarter, 78 hedge funds held positions in the company and their stakes amounted to $4.6 billion. As of March 31, Matrix Capital Management is the most significant shareholder in the company and has a position worth $1.17 billion.
QUALCOMM Incorporated’s (NASDAQ:QCOM) handset business is thriving, especially with the strong performance of the company’s third-generation Snapdragon platforms built for high-end smartphones. Revenues from Chinese OEMs grew by over 40% in the first half of fiscal 2024, showing a strong demand beyond its major customers like Samsung and Huawei.
QUALCOMM Incorporated’s (NASDAQ:QCOM) diversification strategy is bearing fruit, particularly in the automotive and IoT segments. The company’s automotive business has experienced a significant 35% year-over-year revenue increase, which is mainly credited to its Snapdragon Digital Chassis, its suite of technologies that supports advanced driver-assistance systems, autonomous driving, and enhanced in-car experience. The company’s design-win pipeline in the automotive sector has expanded significantly and is now valued at approximately $45 billion which shows strong market confidence and a steady flow of future business. The company is also expanding its presence in the IoT market and is introducing innovative products tailored for applications in robots, drones, and industrial handheld devices.
QCOM is trading at 20 times its 2024 earnings estimate, which is a 14% discount to its sector median. On June 21, Tigress Financial’s analyst, Ivan Feinseth raised his price target on the company stock to $270 from $238 and kept a Buy rating. Feinseth expects the company to benefit from increased AI capabilities and processing power in handheld devices. Overall, analysts hold a consensus Buy opinion on QUALCOMM Incorporated.
ClearBridge Investments stated the following regarding QUALCOMM Incorporated (NASDAQ:QCOM) in its first quarter 2024 investor letter:
“Another theme of that era was mobile telephony. QUALCOMM Incorporated (NASDAQ:QCOM) soared over 2,600% in 1999 on a very similar premise as Nvidia is seeing now — it was the brains behind the secular trend, so whoever won, Qualcomm would participate. The theme was spot on, the company was perfectly positioned, and it went on to perform massively well. From 1999 to 2023, Qualcomm’s sales rose more than 9x and EBITDA 12x, very impressive long-term growth rates. Investors who held the stock during that period, however, received a total return of only 154%, underperforming the 410% return of the S&P 500 Index.”
1. PayPal Holdings, Inc. (NASDAQ:PYPL)
Forward PE as of June 24: 15
Number of Hedge Fund Holders: 82
PayPal Holdings, Inc. (NASDAQ:PYPL) is a prominent digital payments company that facilitates online money transfers. Over the recent years, the company has fallen out of favor for several analysts due to competition concerns and some suboptimal capital allocation decisions by the previous CEO. However, things seem to be turning around under its new CEO, Alex Chriss. Alex Chriss and the CFO, Jamie Miller provided an optimistic outlook for the company based on recent performance and strategic initiatives at the company’s latest earnings call. PayPal Holdings, Inc.’s strong Q1 performance, strategic focus on innovation, market expansion, and operational efficiency, along with positive financial metrics and strategic investments could make the company attractive to investors. In addition, the company is down over 80% from its all-time high, which brings it to an attractive valuation.
PayPal’s latest strategic initiatives toward market expansion could also be beneficial for investors. PayPal Holdings, Inc.’s PayPal Complete Payments (PPCP) platform is gaining momentum and is now available in over 34 countries, including recent expansions to Canada, the U.K., and 20 European markets. With approximately 7% of the small and medium-sized business (SMB) volume already on PPCP, the platform is set to enhance merchant and consumer experiences through improved branded checkout integration.
On top of that, Venmo continues to be a key growth driver for PayPal Holdings, Inc. (NASDAQ:PYPL), with a 21% year-over-year increase in consumers using the Venmo debit card. The focus on increasing balance-funded P2P senders, which grew by 17% in Q1, contributes to overall transaction margin dollar growth. Additionally, PayPal is reinvigorating its remittance business, Xoom, by refining products and implementing a customizable pricing model, as it aims to reverse the negative revenue trajectory.
PayPal Holdings, Inc. (NASDAQ:PYPL) is trading at 15 times its forward earnings, a 55% discount to its historical 5-year average. We said that Cramer recommends Holding PYPL, in our article about Jim Cramer’s Latest Portfolio, but analysts hold a consensus Buy opinion. The company is expected to grow its EPS by 11% this year, and when considering its new product growth strategy and upcoming catalysts, PYPL is worth looking further into at current levels.
PayPal Holdings, Inc. (NASDAQ:PYPL) was part of 82 hedge funds’ portfolios in the first quarter with a total stake value of $4.2 billion. Citadel Investment Group is the biggest shareholder in the company and has a position worth $581.145 million as of Q1.
ClearBridge All Cap Growth Strategy stated the following regarding PayPal Holdings, Inc. (NASDAQ:PYPL) in its first quarter 2024 investor letter:
“We were also active in adding to stable bucket investments PayPal Holdings, Inc. (NASDAQ:PYPL) and UnitedHealth Group where negative near-term sentiment led to more attractive risk/reward profiles. We added to electronic payments provider PayPal as we have growing confidence that new CEO Alex Chriss’s strategic focus areas can improve the company’s performance, particularly in the key branded business.”
While we acknowledge the potential of PayPal (NASDAQ:PYPL) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than NVIDIA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
Read Next: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These 10 Stocks in June.
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