In this article we will take a look at the 10 best value stocks to invest in right now according to billionaire Abrams. You can skip our detailed analysis of Abrams’ history, investment philosophy, and hedge fund performance, and go directly to 5 Best Value Stocks to Invest in Right Now According to Billionaire David Abrams.
David Abrams, who oversees Abrams Capital Management, is a follower of Benjamin Graham’s value investing approach. He also diversifies his portfolio in foreign equity securities, illiquid investments and debt. Abrams Capital Management has outperformed the market index to deliver an average return of 15% in the first 15 years since inception. Its impressive performance is primarily due to to Abrams’ ability to pinpoint the best value stocks that deliver growth for his company. In this article we will take a look at Abrams’ Q1’2021 portfolio and see some of the best stocks his fund is holding.
Most of Abrams’ hedge fund’s top 10 holdings delivered robust gains in their share price over the last several months. Abrams noted in one of his statements that it can take years for his company to observe a stock before deciding to invest in it. He believes that exercising patience is the key to success in the market. Abrams Capital Management was founded in 1999 and has so far grown into one of the best value investing hedge funds, earning Abrams a lot of admiration as one of the best value investors. That’s why it’s worth taking a look at the best value stocks to invest in right now based on Abrams’ portfolio.
Abrams Capital Management fund value as of Q1 2021 was $4.44 billion. Facebook, Inc. (NASDAQ: FB) is one of the companies in its portfolio. Facebook shares are up 35% over the last 12 months. Facebook, Inc. (NASDAQ: FB) is seeing a lot of activity from the hedge funds lately. According to its latest 13F filing, Gabriel Plotkin’s Melvin Capital Management cut its stake in Facebook by 75% in the first quarter of 2021, still ending the period with $300 million worth of Facebook shares. Facebook, Inc. (NASDAQ: FB) is about to launch its digital payment project, Diem. The latter will consist of a blockchain-based system and the Diem stablecoin, which will be registered and distributed under the U.S. Department of the Treasury’s guidance. Facebook, Inc. (NASDAQ: FB) also announced that Workplace now has 7 million paid subscribers, and Truist Securities upgraded its price target from $350 to $400.
Alphabet Inc. (NASDAQ: GOOG), part of Abrams Capital Management’s portfolio, is also proving to be a profitable investment by Abrams. Alphabet Inc. (NASDAQ: GOOG) shares have gained 61% over the last 12 months. Alphabet Inc. (NASDAQ: GOOG) recently signed a partnership with The Western Union Company (NYSE: WU). The deal marks Alphabet Inc. (NASDAQ: GOOG)’s entry into the money transfer industry. Alphabet Inc. (NASDAQ: GOOG) also secured an agreement to provide Google Cloud services to Starlink and SpaceX. Google Cloud will also provide analytics and other services to PayPal Holdings, Inc. (NASDAQ: PYPL) as transactions continue to grow.
Abrams Capital sold its entire stake in Bristol-Myers Squibb Company (NYSE: BMY) in Q1 2021. The pharmaceutical giant recently announced that its product Onureg received an approval recommendation from the European Medicines Agency’s Committee for Medicinal Products for Human Use (CHMP). Bristol-Myers Squibb Company (NYSE: BMY) reported strong sales growth on account of its pipeline expansion. Bristol-Myers Squibb Company (NYSE: BMY) recently announced plans to present research findings that demonstrate the ability of its developmental products to improve outcomes and achieve long-term survival in patients suffering from various blood disorders and cancers.
David Abrams of Abrams Capital Management
Abrams is an exception in an industry reeling from losses. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Let’s start out list of the best value stocks to invest in right now based on billionaire Abrams’ Q1 portfolio.
10. Willis Towers Watson Public Limited Company (NASDAQ: WLTW)
Stake Value: $250,395,000
Percentage of David Abrams’ 13F Portfolio: 5.63%
Number of Hedge Fund Holders: 66
Willis Towers Watson Public Limited Company (NASDAQ: WLTW) is a U.S-based advisory that offers its services globally. The company recently announced the roll-out of its newest radar update called Radar 4.11. It features improvements designed to facilitate a better user experience, more functionality, and better performance with more flexibility and faster processing. Earlier in February, Raymond James’ analyst C. Gregory Peters upgraded the stock to “Strong Buy” from “Outperform. The price target set is $280. Willis Towers Watson Public Limited Company (NASDAQ: WLTW) ranks 10th in the list of best value stocks to invest in right now based on billionaire Abrams’ Q1 portfolio.
Willis Towers plans to sell some of its assets to Arthur J. Gallagher & Co. (NYSE: AJG). It also has plans to launch a public offering of 9 million common stock shares with the option of an extra 1.35 million shares.
Willis Towers Watson Public Limited Company (NASDAQ: WLTW) Q1 2021 financials revealed a $2.6 billion revenue figure after a 5% gain. The quarterly earnings per share was $5.63, which was 140% higher than its Q1 2020 EPS. Fitch Ratings has a positive watch rating on the stock, largely thanks to the Aon acquisition. Like Alphabet Inc. (NASDAQ: GOOG) and Facebook, Inc. (NASDAQ: FB), Willis Towers Watson is one of the best stocks in Abrams Capital’s portfolio.
9. PG&E Corporation (NYSE: PCG)
Stake Value: $266,344,000
Percentage of David Abrams’ 13F Portfolio: 5.99%
Number of Hedge Fund Holders: 66
PG&E Corporation (NYSE: PCG) facilitates the delivery of gas and electricity in Central and Northern California. It ranks 9th in the list of best value stocks to invest in right now based on billionaire Abrams Q1 portfolio.
PG&E Corporation (NYSE: PCG) estimates that the cost of damages claims from fires caused by its powerlines will be in excess of $1.1 billion. PG&E Corporation (NYSE: PCG) recently signed a definitive agreement with its subsidiary SBA Communications Corporation (NASDAQ: SBAC), facilitating the attachment of electrical equipment on utility structures, including transmission towers. More than 700 towers are involved as part of the agreement, and the licenses involved will generate $973 million.
PG&E Corporation (NYSE: PCG) income in Q1 2021 was $120 million, or $0.06 per share, which is notably lower than the $371 million, or $0.57 per share income reported Q1 2020. The company recently revealed the California Public Utilities Commission’s approval to securitize costs worth $7.5 billion associated with the fires in 2017. If the company’s financing order is approved, it can issue recovery bonds worth as much as $7.5 billion. Earlier this month Wells Fargo upgraded the stock to “Overweight” setting the price target at $15.50.
GoodHaven Capital Management, in their Q4 2020 investor letter, mentioned PG&E Corporation (NYSE: PCG). Here is what the fund said:
“During the period we purchased a new holding – PG&E Corporation – the California based utility (PCG). We expect that contrarian special situations will continue to (opportunistically) be an important part of the portfolio. After all, we bought PCG – which has filed Ch. 11 twice related to prior exposure to wildfire liabilities and staggering mismanagement – right in the middle of California’s recent heavy wildfire season. Our thinking here is that the reorganized utility has new regulatory protections that significantly reduces wildfire liability exposure, an above average rate growth profile and potentially much better management – they were searching for a new CEO when we made our investment. We purchased the stock at a high single digit forward earnings multiple, a discount to its peers that trade in the mid to high teens. Shortly after our purchases PG&E Corporation (NYSE: PCG) hired the well regarded Patti Poppe as their new CEO – we like this decision.”
8. Change Healthcare Inc. (NASDAQ: CHNG)
Stake Value: $274,040,000
Percentage of David Abrams’ 13F Portfolio: 6.17%
Number of Hedge Fund Holders: 45
Change Healthcare Inc. (NASDAQ: CHNG) is an analytics and data company that offers its services to various segments of the U.S healthcare system, including administrative, financial, and clinical segments. The company recently announced a new partnership with Amazon to provide superior data through health data social determinants. The stock ranks 8th in the list of best value stocks to invest in right now based on billionaire Abrams’ Q1 portfolio.
Change Healthcare Inc. (NASDAQ: CHNG) data as a service offering aims to help life science companies and health systems to achieve higher therapy intervention effectiveness. The company recently released its Q3 fiscal 2021 financials, revealing that it generated $735.3 million solutions revenue and $785.1 million total revenue. Its net income was $2.2 million, equivalent to $0.01 per share.
UnitedHealth Group Incorporated (NYSE: UNH) plans to acquire Change Healthcare Inc. (NASDAQ: CHNG) might be hindered by concerns aired by the American Antitrust Institute. The latter believes that a deal of that magnitude might lead to unfair competition. JPMorgan initiated a coverage on the stock and rated it as “Neutral,” with a price target of $25.75. Abrams Capital added this stock to its portfolio in Q1 2021.
7. Teva Pharmaceutical Industries Limited (NYSE: TEVA)
Stake Value: $277,495,000
Percentage of David Abrams’ 13F Portfolio: 6.24%
Number of Hedge Fund Holders: 26
Teva Pharmaceutical Industries Limited (NYSE: TEVA) is one of the biggest manufacturers in the pharmaceuticals industry. It ranks 7th in the list of best value stocks to invest in right now according to billionaire David Abrams.
Some of Teva’s latest key developments include the announcement of various doses of the generic version of Absorica for treating non-pregnant patients suffering from severe recalcitrant nodular acne. It also announced the launch of the generic version of Erythromycin tablets earlier this month. The tablets can be administered in 250 mg and 500 mg doses and used to treat various types of bacterial infections.
Teva Pharmaceutical Industries Limited (NYSE: TEVA) generated $4.0 billion revenue in Q1 2021 and its GAAP diluted EPS for the same period was $0.07. Its full-year revenue estimate range is $16.4 billion to $16.8 billion, while its estimated full-year EBITDA range is $4.8 billion to $5.1 billion. The EPS outlook is $2.50 to $2.70. Fitch Ratings maintains a negative rating on the stock on account of growth uncertainty, higher competition, and huge debt profile.
In April, RBC Capital initiated a coverage on the stock and has rated it as “Sector Perform” setting a price target of $11.
In one of its investor letters, Miller Value Partners highlighted a few stocks and Teva Pharmaceutical Industries Ltd (NYSE:TEVA) is one of them. Here is what Miller Value Partners said:
“Teva Pharmaceuticals (TEVA) declined 26.9% during the quarter as the market continues to be concerned on opioid liabilities as well as price fixing lawsuits. The company report 2Q results with total revenue of $3.87B below consensus of $4.024B, but reiterated 2020 company guidance of $16.6-17B (consensus of $17.041B). The company reported 2Q Adjusted EBITDA of $1.108B versus $1.099B expected and reiterated 2020 Adjusted EBITDA of $4.5-4.9B ($4.637B consensus) and adjusted EPS of $2.30-2.55 ($2.53 consensus) and Free Cash Flow of $1.8-2.2B. The company was hit after the US Department of Justice alleged in a lawsuit that TEVA provided illegal copays from 2006-2015 on a drug to treat MS. The allegation is $300mm of false claims which TEVA would be liable for 3x that in potential damages if they were to lose in court.”
6. Alphabet Inc. (NASDAQ: GOOG)
Stake Value: $302,035,000
Percentage of David Abrams’ 13F Portfolio: 6.80%
Number of Hedge Fund Holders: 157
Alphabet Inc. (NASDAQ: GOOG) ranks 6th in the list of best value stocks to invest in right now according to billionaire David Abrams. Even though Google is often considered a growth stock, the company has an explosive long-term growth potential and its valuation is still in an acceptable range. Stifel analyst Scott Devitt in March 2021 upgraded the stock, citing “reasonable” valuation when compared to other tech companies.
Alphabet Inc. (NASDAQ: GOOG) also expects a lot of growth from its Google Cloud and data center services. It recently secured a contract to provide those services to Elon Musk’s Starlink and SpaceX. It will also offer analytics and infrastructure support to PayPal Holdings, Inc. (NASDAQ: PYPL). The company is also elevating its Google Pay service to global status in the remittance industry through a partnership with Wise and The Western Union Company (NYSE: WU).
Alphabet’s Q1 2021 revenue of $55.3 billion reflects the growth witnessed in ads revenue courtesy of higher online consumer activity. Google Cloud generated $4.0 billion revenue during the same period.
In April, Evercore ISI’s analyst Mark Mahaney initiated a coverage on Alphabet and rated it as “Outperform,” and set a price target of $2,525.
Polen Global Growth Fund, in its Q1 2021 investor letter, mentioned Alphabet Inc. (NASDAQ: GOOG). Here is what Polen Global Growth Fund has to say about Alphabet Inc. in its Q1 2021 investor letter:
“For our top contributors, each generated strong returns for different, but fundamentally based reasons, in our opinion. Alphabet saw renewed strength recently as advertisers generally resumed spending after a short pause during the pandemic.
Alphabet experienced some challenging quarters in 2020 as many companies paused their advertising spend. But, the business bounced back recently, spurring a strong recovery in the company’s share price. Even during such a challenging period, the company still compounded revenue at 14% in constant currency for 2020.
This is partly due to Alphabet’s multiple growth engines. For example, while its search business was negative one quarter and only grew by 6% during another, YouTube ads and Google Cloud Platform (GCP) grew at over 30% and 46% during the quarter, respectively. YouTube and GCP combined now contribute over 50% of the company’s growth, which we believe is a testament to a strong culture of innovation, a long-term mindset, and prudent capital allocation. With search bouncing back this most recent quarter–growing 17% –we believe that Alphabet continues to be well-positioned to durably compound earnings at or above 15% for many years to come. It remains one of our largest positions.”
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Disclosure: None. 10 Best Value Stocks to Invest In Right Now According to Billionaire Abrams is originally published on Insider Monkey.
