In this article, we will discuss: 10 Best Very Cheap Stocks To Buy Now According To Hedge Funds.
As we approach the third half of 2024, the market’s performance continues to draw in both investors and analysts alike. After rising by an average of 24% the year before, the 500 largest-cap US equities finished the second quarter of this year with an impressive gain of over 3%, on average. Overall, the unexpectedly resilient U.S. economy and the frenzied AI boom have propelled equities to unprecedented levels.
Even though the markets are currently worried about a slowdown, most recent economic indicators complement this market performance, demonstrating the US economy’s resilience. The Commerce Department revealed a 3.1% YoY gain in Q4,2023 for the economy, primarily due to solid consumer expenditure on dining out, healthcare, and automobiles. The world’s largest economy’s growth prediction was slightly revised by the IMF to 2.6% this year, pointing out the country’s robust and adaptable nature to changes in the global economy. According to Economic Intelligence’s consumer goods and retail outlook study for 2024, global retail sales are projected to rise by 6.7% in 2024, bolstered by a 2% increase in volume, regardless of a dip in inflation.
This brings us to industries that are selling at a discount, of which, broadcasting is one, at an EV to EBITDA ratio of 7.31. According to The Business Research Company, the television and radio broadcasting markets have expanded significantly in recent years. It is expected to grow from $439.41 billion in 2023 to $466.83 billion in 2024, at a CAGR of 6.2%. According to Future Market Insights, North America has the largest market share globally for television broadcasting services, followed by Asia Pacific.
The introduction of digital transmission and the Internet caused a major transformation in the television industry. Broadcast television and cable coexist with cable substitutes like HBO Max, Netflix, and Amazon Prime Video. Many others have completely cut their cable connections, opting to get all of their television needs met online. The Motion Picture Association of America reports that the film and television industries have a major economic impact, employing 2.5 million people annually and paying out over US$ 188 billion in compensation.
Another industry trading at a reduced price is air transportation, which has an EV to EBITDA ratio of 6.17. The Business Research Company reports that the size of the air transport market has expanded dramatically in recent years. The projected CAGR is 6.8%, which would see it rise from $1,016.38 billion in 2023 to $1,085.37 billion in 2024. Furthermore, it is anticipated that during the next several years, the size of the air transport sector will rise significantly. With a 6.5% CAGR, it will reach $1,394.51 billion in 2028.
The future expansion of the air transport market is anticipated to be driven by the growth of e-commerce and online shopping. For example, in September 2022, the US Department of Commerce’s International Trade Administration reported that consumer e-commerce accounted for 30% of the UK’s total retail market (up from 20% in 2020), with over $120 billion in e-commerce sales annually. In the UK, 82% of individuals will have made at least one online transaction by 2021.
Three air travel stocks made our list of the 10 Best Very Cheap Stocks To Buy Now According To Hedge Funds. Please keep in mind that for this article only the stocks with single digit PE ratios are considered.
Stocks
Methodology:
We selected stocks with an institutional ownership of over 70% and a PE ratio under 10, as of June 25 for our list of 10 Best Very Cheap Stocks To Buy Now According To Hedge Funds. We narrowed down our selection to 10 stocks that were the most widely held by institutional investors and ranked them in ascending order of the number of hedge funds that have stakes in them as of Q1 of 2024. In cases where two or more stocks have the same number of hedge funds, we’ve used the PE ratio as a tie-breaker.
In order to identify cheap stocks, we searched for companies with a strong earnings track record by evaluating their EPS over the last two to three years. Secondly, we only considered stocks that received “buy” or “strong buy” recommendations from analysts.
Why are we interested in the stocks that hedge funds pile into? 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. EOG Resources, Inc. (NYSE:EOG)
Number of Hedge Fund Holders: 39
PE Ratio as of August 1: 9.77
EOG Resources, Inc. (NYSE:EOG) is one of America’s original unconventional oil and gas producers. Notable for its varied portfolio across many basins, EOG continues to be a robust investment even in the face of recent stock price reductions brought about by choices made by the Organization of the Petroleum Exporting Countries (OPEC).
EOG is viewed as a very cheap stock to purchase right now since its PE ratio of 9.77 is lower than the PE ratio of 12.81 for the Oil & Gas Exploration & Production industry.
Insider Monkey monitored that 39 hedge funds out of the 920 hedge funds held a position in EOG Resources, Inc. (NYSE:EOG) as of the end of the first quarter of 2024. Donald Yacktman’s Yacktman Asset Management is the largest stakeholder in the company, with 1,787,728 shares worth $225.02 million.
EOG Resources exceeded Wall Street expectations for second-quarter earnings as the oil and gas company benefited from increased oil output. Based on LSEG statistics, the firm reported an adjusted profit of $3.16 per share for the quarter ended June 30, which was higher than the average expectation of $2.96 made by analysts. Compared to the 970,300 barrels of oil equivalent per day (boepd) produced in the same period of the previous year, the total output for the second quarter of 2024 was 1.05 million boepd. 1.04 million boepd was the average forecast made by analysts.
According to the Energy Information Administration’s (EIA) Petroleum Supply Monthly report, U.S. oil output and demand reached a four-month high in April, increasing producers’ profits, like EOG Resources. Additionally, the company projected a third-quarter output of 1.05 million to 1.08 million boepd.
Strategically, EOG aims to protect against low energy prices and set the stage for larger profits under favorable market conditions by maintaining a 30% after-tax rate of return at $40 per barrel of oil and $2.50 per MMBtu of natural gas.
EOG emphasized the potential for growth in the demand for natural gas, which is being driven by LNG exports and rising industrial consumption, at Bernstein’s Annual Strategic Decisions Conference. The Dorado gas project in South Texas puts EOG in a position to benefit from these developments. EOG estimates 10 billion barrels of oil equivalent in reserves, which equates to about 26 years of production by 2024.
The average price goal of the 20 analysts that have 12-month price projections for EOG Resources shares is $144.15. The average objective indicates a 17.09% rise from the $123.11 stock price as it is right now. Piper Sandler and RBC Capital Markets increased their price estimates for EOG Resources in July due to encouraging results from the company’s Utica wells and an effective program of buybacks by shareholders.
EOG Resources has strong prospects for future development with its excellent production growth, effective operations, large reserves, and dedication to shareholder returns. However, the company’s performance is dependent on the fluctuating price of gas and oil, and in order to sustain output growth, it must constantly discover new, high-quality reserves.
Overall, EOG Resources, Inc. (NYSE:EOG) is an attractive investment due to its effective operations, significant reserves, and deliberate concentration on high-return projects. The firm is well-positioned for long-term development and significant shareholder returns due to its commitment to returning 70% of free cash flow to shareholders, a solid dividend history, and an appealing price.
9. Everest Group, Ltd. (NYSE:EG)
Number of Hedge Fund Holders: 40
PE Ratio as of August 1: 5.45
Everest Group (NYSE:EG), is a global underwriting leader providing best-in-class property, casualty, and specialty reinsurance and insurance solutions. EG has a PE ratio of 5.45 with hedge fund sentiments of 40 in Q1 2024. Joe Dimenna’s ZWEIG DIMENNA PARTNERS is the shareholder in the company, with 79,909 shares worth $30.45 million. The average Wall Street analyst price target for Everest Group, Ltd. (NYSE:EG) is $427.67, which presents a 17.45% upside potential from the current price of $364.13.
Seasonality affects the firm’s performance; catastrophe (cat) losses (hurricane risk) are a major factor; these losses are concentrated in Q3 2024 and may extend into Q4 2024. Everest Group’s stock has increased somewhat during the previous 12 months, mostly staying in the $360-$400 region. Although the company has benefited from a calm catastrophe environment, it has only gained 4% since May, underperforming the market’s 8% rise.
Everest announced strong earnings in Q2 2024, with gross premiums up 13% to $4.7 billion from the same quarter the previous year. A net income of $724 million was recorded, up from $670 million in the second quarter of 2023. The company generated underwriting profits of $358 million, resulting in a combined ratio of 90.3% overall. Cat losses, however, were modest at $135 million as compared to $27 million in the same quarter the prior year, which had an impact on the attritional combined ratio. With an 88.9% combined ratio and a $303 million underwriting profit, the reinsurance unit fared better than expected. In contrast, the insurance unit fell short of expectations, with a consolidated ratio of 94.4% and a mere $54 million in underwriting profit.
Everest has grown its reinsurance business, and its total premiums have increased to $3.2 billion, a 16.5% increase from the same quarter the previous year. Performance was poor, even though the insurance division increased by 6% to $1.5 billion.
Even though Everest’s investment income increased to a record $528 million in Q2 due to higher rates, it’s still uncertain whether there will be any major upside triggers. There are obstacles because of catastrophe risk and poor underwriting performance, particularly given the uncertain hurricane season that lies ahead.
In 2023, the company’s annual revenue grew by 20.95% YoY. Revenue in Q1 FY2024 increased by 25.78% compared to the same quarter last year due to higher premiums earned and net investment income.
Everest Re Group’s insurance combined ratio target of 2025 is within reach, as it expects to finish 2024 with a quarterly run rate of 93% to 94%.
The firm is comfortably within its risk appetite and seeks to tilt its portfolio towards the most promising profit prospects worldwide. Before the year ends, EG intends to join the Italian market and concentrate on growing in the areas it has already reached.
Even with the possibility of hurricane risks, Everest Group (NYSE:EG) is an appealing investment due to its outstanding Q2 performance and cash reserves, which position it well for growth. Its potential for ongoing financial stability and market prospects should be taken into account by investors.
8. Arch Capital Group Ltd. (NASDAQ:ACGL)
Number of Hedge Fund Holders: 45
PE Ratio as of August 1: 7.66
Arch Capital Group Ltd (NASDAQ:ACGL) is a global provider of services in the insurance and reinsurance industries. In Q1 2024, 45 hedge funds held positions in Arch Capital Group Ltd. (NASDAQ:ACGL) stock. The hedge fund with the largest holding was Joe Dimenna’s ZWEIG DIMENNA PARTNERS, which held 204,505 shares worth $20.63 million.
CFRA has recently raised the price objective for Arch Capital from $107 to $120 after upgrading the company’s rating from Buy to Strong Buy.
Operating EPS of $2.57, above both the consensus expectation of $2.21 and CFRA’s estimate of $2.24, was announced by Arch Capital in a robust Q2 2024. This was mostly due to a 26% spike in underwriting income and a 20.2% gain in earned premiums over the same quarter last year. In comparison to the previous quarter’s 79.8%, the combined ratio for the second quarter was 78.7%, or 76.7% before disasters. Pre-tax net investment income surged by 50.4% to $364 million, while gross premiums written increased by 11.1% to $5.38 billion. This resulted in a net income of $1.3 billion, or $3.30 per share.
If approved by authorities, Arch Capital Group Ltd (NASDAQ:ACGL) plans to buy Allianz’s U.S. MidCorp and Entertainment insurance operations, expanding its market footprint.
In Q2, the company’s annualized operating return on equity (ROE) was 20.5%, which was 50% better than the peer average due to its operational and underwriting measures. The stock may be stimulated by solid financial performance and careful underwriting.
Madison Investors Fund stated the following regarding Arch Capital Group Ltd. (NASDAQ:ACGL) in its Q2 2024 investor letter:
“At Arch Capital Group Ltd. (NASDAQ:ACGL), earnings continue to grow nicely. As we’ve discussed for the last few years, the supply-demand situation in both reinsurance and primary insurance markets remains favorable, and we expect profits to stay elevated for some time and perhaps even grow moderately from current levels. Furthermore, Arch continues to roll over its fixed income portfolio at more favorable coupon rates.”
The forecast for Arch Capital was revised by several other analyst firms. BofA Securities lifted its stock price objective to $119, RBC Capital Markets raised it from $105 to $108, and Citi increased it to $104, all indicating higher EPS forecasts for 2024 and 2025. Arch Capital’s impressive performance and optimistic projections are highlighted by these changes.
Arch Capital is a desirable investment due to its solid Q2 performance, targeted acquisitions, and sound financial indicators. The firm is well-positioned for future development, indicating tremendous upside potential for investors, due to its disciplined underwriting and swift rise in premiums and investment income.
7. United Airlines Holdings, Inc. (NASDAQ:UAL)
Number of Hedge Fund Holders: 46
PE Ratio as of August 1: 4.81
United Airlines Holdings Inc (NASDAQ:UAL) is one of the best very cheap stocks to buy, according to hedge funds. United Airlines Holdings, Inc. and its subsidiaries provide air transportation services throughout North America, Asia, Europe, Africa, the Pacific, the Middle East, and Latin America. The company uses its mainline and regional fleets to move both passengers and freight. In addition, it provides third-party maintenance, flying training, catering, and ground-handling services.
A total of 46 hedge funds tracked by Insider Monkey reported owning stakes in United Airlines Holdings Inc (NASDAQ:UAL) as of the end of the first quarter. The company’s largest stakeholder, Frank Fu’s CaaS Capital, has 10,200 shares, valued at $496,332.
Comparing UAL’s PE ratio of 4.81 to the industry average of 12.93, it seems cheap. This implies that, in relation to its earnings, which are on the rise, UAL can be a cheap investment.
Recently, United Airlines (NASDAQ:UAL) released its Q2 2024 earnings, which showed slightly lower sales and higher earnings than expected. The firm disclosed sales of $14.99 billion and adjusted earnings of $4.14 per share, against projections of $15.15 billion and $3.99, respectively.
UAL’s stock price decreased by over 72% in 2020 due to the pandemic, when travel demand was essentially zero. In early January 2021, UAL stock was trading at $45; it has since increased to $48. This is compared to a 45% growth in the S&P 500 during the same period. UAL’s stock returns for the years 2021, 2022, and 2023 were 1%, -14%, and 9%, respectively, behind the returns of the S&P 500, which were 27%, -19%, and 24%. At $15 billion, Q2 revenue increased by 5.7% compared to the same quarter last year. Available seat miles increased by 8.3% for the airline, while passenger revenue per available seat mile decreased by 2.9%. As of Q2 FY23, the adjusted pre-tax margin was 15.3%; however, it is now 12.1%. After rising to $5.03 in Q2 FY23, adjusted EPS fell to $4.14.
According to UAL, the average gasoline price per gallon increased by 3.8% over the past year. The company projects adjusted EPS for Q3 2024 to be between $2.75 and $3.25, with a range of $9 to $11 for the entire year 2024. However, Q3 2024 forecasts fall short of the $3.44 average consensus expectation.
Reiterating its full-year expectations has helped UAL shares, which increased 8% in just one week, despite the company’s poor Q2 earnings and dismal Q3 guidance.
ClearBridge Value Equity Strategy stated the following regarding United Airlines Holdings, Inc. (NASDAQ:UAL) in its fourth quarter 2023 investor letter:
“Our industrials stocks faced headwinds early in the quarter due to fears of a recession, which weighed on some of our more cyclical industrials such as United Airlines Holdings, Inc. (NASDAQ:UAL). Additionally, the Fed’s pivot and the prospect of rate cuts in 2024 helped fuel a rally in lower-quality industrials that we did not hold, further dampening the performance of our high-quality holdings.”
Analysts have a mixed view of UAL, citing the uncertain macroeconomic climate, high oil costs, and high interest rates. Nonetheless, the 13 analysts have given the stock a “strong buy” rating with a $72.78 average price target on the stock and an upside potential of 71.73% from the current stock price of $42.38. This means that most of the analysts believe this stock is likely to perform very well in the near future and significantly outperform the market.
Strong Q2 2024 results and reaffirmed full-year expectations for United Airlines position the airline well for development in the future. Though the results have been inconsistent, the stock seems cheap and has a large upside potential.
6. Delta Air Lines, Inc. (NYSE:DAL)
Number of Hedge Fund Holders: 51
PE Ratio as of August 1: 6.27
Delta Air Lines, Inc. (NYSE:DAL), which offers scheduled air transportation for passengers and cargo in the United States and abroad, is one of the best very cheap stocks to purchase right now, according to hedge funds. Delta Air Lines (NYSE:DAL) is the most competitive of the major hubs, accounting for around 70% to 75% of the market in the top six hubs and deploying more than half of its production capacity. In terms of domestic revenue, Delta Air Lines, Inc. (NYSE:DAL) is also the largest airline operating in the United States.
Given that its PE ratio of 6.02 is lower than the weighted average PE ratio of 12.67 for the airline industry, DAL is seen as a very cheap stock to buy now, given its reasonable financial performance in the past year.
Delta Air Lines, Inc. (NYSE:DAL) stands out as a compelling choice for investors seeking undervalued opportunities since its PE ratio is 6.75 with positive hedge fund sentiments of 51 in Q1 2024. Jeremy Hosking’s Hosking Partners is the biggest shareholder in the company, with 519,217 shares worth $24.63 million.
After second-quarter earnings were reported, the stock dropped by 3%. Despite marginally exceeding revenue estimates, Delta Air Lines’ second-quarter earnings revealed that unit revenue growth was behind capacity growth. Q2 revenue is above analyst projections of $15.7 billion by $16.66 billion. Nevertheless, a 5% rise in passenger revenue was exceeded by an 8% increase in capacity, putting pressure on unit revenues and yields.
In Q2 2024, compared to the same quarter the year before, Delta’s emphasis on premium items and loyalty travel rewards resulted in an 8% increase in loyalty awards and a 10% increase in premium revenues. Notwithstanding these advantages, overall income climbed by 7%, while operating expenditures also increased by 10% due to rising wages, rising fuel prices (up 12%), and increasing maintenance costs. Operating margins dropped from 17.1% to 14.7% as a result, unit costs shot up by 0.6%, and passenger revenue per available seat mile decreased by 3%.
Delta anticipates 2-4% revenue growth in Q3 on a 5-6% increase in capacity. Unit expenses are anticipated to increase by 1% to 2%, and margins are predicted to range from 11% to 13%. The firm anticipates issues as a result of a weaker-than-expected summer.
Overall, the company’s financial condition is solid, with a total annual revenue of $58.04 billion in 2023, up 14.76% from the previous year. Delta’s net income for the same period was $4.61 billion, up from $1.32 billion in 2022. Delta Air Lines is attracting attention as one of the businesses with the highest proportion of high-value corporate and premium traffic, and business traffic accounts for over 40% to 50% of the company’s revenue. The company’s earnings are expected to grow by 10% in 2025.
Delta’s stock is seen as cheap despite recent price drops. Analysts’ average price targets are $62.68, which would be a 51.04% increase in value from the $41.50 stock price as it is right now.
Oakmark Fund stated the following regarding Delta Air Lines, Inc. (NYSE:DAL) in its first quarter 2024 investor letter:
“Delta Air Lines, Inc. (NYSE:DAL) is a leading global airline. Of the big three U.S.-based airlines (Delta, United and American), we see Delta as the most competitively advantaged. We believe the company’s years of industry-leading operational performance and investments in the customer experience have established Delta as the premium brand in the industry. We also think its geographically optimal hubs, high local market share, robust loyalty program and unique corporate culture all support healthy returns on capital. Delta currently trades at 6x our estimate of normalized earnings per share. We believe this is an attractive valuation for a competitively advantaged and growing business in an out-of-favor industry.”
Even with pressure on costs and capacity, Delta Air Lines is still cheap and in a strong position. The stock is suggested for purchase, however, due to industry-wide cost and capacity concerns, caution is urged.
5. Toll Brothers, Inc. (NYSE:TOL)
Number of Hedge Fund Holders: 54
PE Ratio as of August 1: 9.47
Having been established in 1967, Toll Brothers, Inc. (NYSE:TOL) is currently ranked as the fifth largest homebuilder in the United States by net sales, and it operates in 60 markets across 24 states. The firm offers a variety of product lines, including luxury move-up homes and luxury homes targeted at millennials, with an average price of about $1.028 million.
Toll Brothers, Inc. (NYSE:TOL) is considered a cheap company with a PE ratio of 9.47 as compared to the weighted average residential construction industry PE ratio of 11.19. In Q1 2024, hedge fund sentiment for the stock was positive, with 54 hedge funds investing in it, up from 49 in the previous quarter. The largest stakeholder in the business, holding 5,565,787 shares valued at $641.07 million, is Edgar Wachenheim’s Greenhaven Associates.
In light of its growth potential, TOL presents a more favorable value proposition with a PEG ratio of 1.01 as opposed to the industry average of 1.06, indicating that TOL may be slightly undervalued.
The fact that TOL offers its products built-to-order is the reason for the company’s success. Until purchasers have a contract with TOL, the company does not start construction. This business approach provides great assurance in future expenses, margins, and control over the monetary benefit of each property.
Toll Brothers (NYSE:TOL) saw an upgrade from a Sell to a Neutral rating by Goldman Sachs in June, with an increased price target of $124 from $112. This adjustment emphasizes the higher return on equity (ROE) of the luxury homebuilder, which is predicted to be 20.3% for the fiscal year 2024, above the average ROE of 18.5% for builders that Goldman Sachs tracks. According to Goldman Sachs, new house sales will continue to exceed forecasts, bolstering Toll Brothers’ consistent income, profitability, and returns beyond historical averages.
Toll Brothers’ stock has been resilient in the face of rising mortgage rates, demonstrating the company’s solid market position and strategic ambitions. Over the last ten years, Toll Brothers has seen a significant increase in free cash flow. Over the last five years, the S&P 500 returned 86%, while the stock increased by more than 216%, outperforming the market by 130%. TOL’s EPS has also increased over the previous three years.
The reason for the improvement is that Toll Brothers performed better than anticipated. The firm has successfully capitalized on the robust and persistent demand for houses, which surpasses the available supply. The company’s activities and the capacity to offer higher-quality, discretionary properties are credited with this accomplishment. Toll Brothers has been able to sustain a strong sales trajectory despite the market’s expectation that purchases would be delayed because of high mortgage rates.
In Q2 2024, the business generated $2.84 billion, beating analyst projections of $2.58 billion and a 13.2% increase over the same period the previous year. Toll Brothers increased its full-year projection to $10.23 billion after reporting record Q2 fiscal 2024 home sales revenue of $2.65 billion, 6% more than the same quarter the previous year. This was attributed to favorable demographics, a robust economy, and growing demand for new houses. Citi maintained a Neutral rating and lowered its price target to $133 despite these encouraging results because of worries about an anticipated decline in gross margins for the second half of the year.
Keefe, Bruyette & Woods increased their price target from $135 to $142, maintaining their Outperform rating, pointing out a noteworthy 30% year-over-year increase in orders, and projecting a 25% increase in book value by the end of 2025. Wolfe Research kept its Outperform rating but raised its price objective to $135 from $123. Wells Fargo Securities gives a positive perspective with a price objective of $150, while Barclays Capital Inc. has an “Underweight” rating with a $118 price goal. RBC Capital Markets has a price target of $130 and an “Outperform” rating. In total, 16 analysts have rated this stock as a “buy,” with an average price target of $132.19.
Despite encouraging financial patterns, there are also concerns, such as rising interest rates, labor disputes, shifting building material prices, and the potential for real estate market downturns. Profitability may be impacted by these variables.
Baron Real Estate Fund stated the following regarding Toll Brothers, Inc. (NYSE:TOL) in its first quarter 2024 investor letter:
Following exceptional performance in 2023, the share prices of our investments in homebuilder companies – Toll Brothers, Inc. (NYSE:TOL), Lennar Corporation, and D.R. Horton, Inc. – continued to move higher in the first quarter of 2024, gaining 26.1%, 15.8%, and 8.5%, respectively, in part due to the continuation of strong quarterly business results and management optimism about each company’s multi-year prospects. Our recent meetings with CEOs Doug Yearley (Toll Brothers), Stuart Miller (Lennar), and Paul Romanowski (D.R. Horton), reinforced our view that each company is well positioned to generate strong long-term shareholder returns.
In March, we traveled to Pennsylvania to meet with Doug Yearley and other key members of Toll Brothers’ senior management team. Our broad-ranging discussion strengthened our view that the long-term prospects for Toll Brothers have never been brighter. Our optimism is due to several factors including:
Strong long-term growth prospects: In the next few years, we believe Toll Brothers has the ability to grow its community count of homes by approximately 10% per annum due to its multi-year supply of highly desirable land and the possibility of additional land or builder acquisitions…” (Click here to read the full text)
Significant upside potential is suggested by Toll Brothers, Inc. (NYSE:TOL)s’ strategic goals, good market performance, a better ROE, and healthy sales. The firm has a good chance of growing in the future because of its capacity to handle market obstacles.
