In this article, we discuss 10 cheap value stocks hedge funds are buying in 2022. If you want to see more cheap value stocks on the radar of institutional investors, click 5 Cheap Value Stocks Hedge Funds are Buying in 2022.
Financials and energy stocks are the biggest contributors to the recent outperformance of value stocks. Jeff Weniger, head of equity strategy at Chicago-based WisdomTree Investments, told Bankrate that value stocks perform better in an inflationary environment as compared to their growth counterparts. There will come a time when investors stop favoring large-cap tech giants, and that is when the relative performance of value stocks will outshine, according to Ryan Johnson, director of portfolio management and research at the Ohio-based Buckingham Advisors.
Value Stocks Have Outperformed Growth Stocks From 1927 Through 2019
Similarly, Dr. Robert Johnson, finance professor at Creighton University and co-author of the book “Strategic Value Investing”, cited the work of Nobel Prize laureate Eugene Fama and Kenneth French, which suggested that data compiled from 1927 to 2019 over 15-year rolling periods illustrates that value stocks performed better than growth stocks in 93% of the instances.
According to Vanguard, for investors with sufficient risk tolerance and a long-term investment horizon, a portfolio overweight with value stocks could help negate the slowing broader market returns the firm forecasts over the coming decade. Investors who are wary of the US benchmark indexes running red and the volatile macro environment can slowly ease into the stock market by picking up inexpensive value stocks. Some of the most notable cheap value plays of smart investors in 2022 included General Motors Company (NYSE:GM), AT&T Inc. (NYSE:T), and Freeport-McMoRan Inc. (NYSE:FCX).
Our Methodology
We selected value stocks that were priced under $50 for this list, with a P/E ratio not exceeding 20 as of May 27. These stocks were picked from the database of 912 elite hedge funds maintained by Insider Monkey as of the end of the first fiscal quarter of 2022. Elite funds invest billions of dollars to shortlist the best stocks for their clients. Insider Monkey believes imitating their stock picks is a wise strategy.
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Cheap Value Stocks Hedge Funds are Buying in 2022
10. General Motors Company (NYSE:GM)
Number of Hedge Fund Holders: 76
P/E Ratio as of May 27: 6.40
Share Price as of May 27: $38.57
General Motors Company (NYSE:GM) was founded in 1908 and is headquartered in Detroit, Michigan. It is an automobile manufacturer that sells vehicles, spare parts, and related accessories in North America, the Asia Pacific, the Middle East, Africa, South America, the United States, and China.
Priced at $38.57 with a price to earnings ratio of 6.40, General Motors Company (NYSE:GM) is one of the top cheap value stocks that hedge funds are buying in 2022. In Q1 2022, 76 hedge funds were bullish on General Motors Company (NYSE:GM), compared to 90 funds in the earlier quarter. Warren Buffett’s Berkshire Hathaway is the biggest shareholder of the company, with over 62 million shares worth $2.71 billion.
On May 11, Wells Fargo analyst Colin Langan double downgraded General Motors Company (NYSE:GM) to Underweight from Overweight with a price target of $33, down from $74. The analyst noted that eattery electric vehicle costs have “massively risen” and raw material supply is tight. He also sees price normalization and inflationary headwinds impacting General Motors Company (NYSE:GM).
Here is what Oakmark Global Fund has to say about General Motors Company (NYSE:GM) in its Q1 2022 investor letter:
“General Motors (NYSE:GM) was a detractor during the quarter, due to increased macro uncertainty, higher fuel prices, and concerns over rising input costs, which pressured the company in particular and the auto industry as a whole. While we are closely monitoring the potential impact of these dynamics, industry demand remains robust, driven by strong consumer balance sheets and pent-up demand after multiple years of constrained production. We also remain confident in GM’s ability to navigate a complex operating environment, which the company has consistently demonstrated over the past few years. Finally, the long-term picture remains bright. We believe GM is significantly undervalued, is well-positioned for the long-term transition to electric vehicles and has numerous needle-moving ancillary business opportunities (most notably Cruise, which is an industry leader in autonomous vehicle technology) that are underappreciated.”
9. CSX Corporation (NASDAQ:CSX)
Number of Hedge Fund Holders: 72
P/E Ratio as of May 27: 18.21
Share Price as of May 27: $32.05
CSX Corporation (NASDAQ:CSX) is a Florida-based provider of railway freight transportation services. CSX Corporation (NASDAQ:CSX) posted on April 20 its Q1 financial results, announcing earnings per share of $0.39, beating analysts’ estimates by $0.02. The revenue of $3.41 billion also outperformed Street consensus by $106.57 million.
On May 10, CSX Corporation (NASDAQ:CSX) declared a quarterly dividend of $0.10 per share, in line with previous. The dividend is payable on June 15, to shareholders of the company as of May 31.
Citi analyst Christian Wetherbee downgraded CSX Corporation (NASDAQ:CSX) on May 19 to Neutral from Buy with a price target of $35, down from $45. The analyst sees short-term risk in a slowing freight and economic backdrop. He noted that rail valuations have improved compared to the broader market, with earnings growth forecasts at their highest. He believes “freight warning signs” and “persistent” service issues can lead to “delayed operational reaction to a true downturn”.
Among the hedge funds tracked by Insider Monkey, 72 funds were bullish on CSX Corporation (NASDAQ:CSX) at the end of March 2022, up from 56 funds in the prior quarter. Eric W. Mandelblatt’s Soroban Capital Partners held the leading position in the company, with about 41 million shares worth $1.5 billion.
In addition to General Motors Company (NYSE:GM), AT&T Inc. (NYSE:T), and Freeport-McMoRan Inc. (NYSE:FCX), CSX Corporation (NASDAQ:CSX) is on the radar of elite investors as a cheap value play.
Here is what ClearBridge Investments Global Infrastructure Value Strategy has to say about CSX Corporation (NYSE:CSX) in its Q4 2021 investor letter:
“On a regional basis, the U.S. and Canada were the top contributors to quarterly performance, of which U.S. rail operator CSX was among the lead performers. CSX is one of five leading North American rail companies, with over 21,000 miles of rail, covering 23 states and 40+ ports. CSX is engaged in the transportation of rail freight in the Southeast, East, and Midwest via interchange with other rail carriers, to and from the rest of the U.S. and Canada. CSX performed well during the quarter after the company beat market expectations on its third-quarter results. The beats were largely driven by strong pricing, which could be hitting record highs, and healthy commodity/coal volume driven by the current energy crisis.”
8. Freeport-McMoRan Inc. (NYSE:FCX)
Number of Hedge Fund Holders: 68
P/E Ratio as of May 27: 11.50
Share Price as of May 27: $39.65
Freeport-McMoRan Inc. (NYSE:FCX) is an Arizona-based company that mines mineral properties for copper, gold, molybdenum, silver, and other metals, as well as oil and gas. Freeport-McMoRan Inc. (NYSE:FCX), with a P/E ratio of 11.50 and a share price of almost $40 as of May 27, is one of the most prominent value stocks that elite hedge funds are buying in 2022.
Freeport-McMoRan Inc. (NYSE:FCX) reported on April 21 its Q1 results, posting earnings per share of $1.07, exceeding analysts’ estimates by $0.15. The revenue of $6.60 billion grew 36.14% year-over-year, topping Street forecasts by $148.02 million.
On April 22, BMO Capital analyst David Gagliano reiterated an Outperform rating on Freeport-McMoRan Inc. (NYSE:FCX) but lowered the price target on the stock to $56 from $62 after its Q1 results. The analyst is slashing his FY22 EPS view by 25c to $3.47 to account for higher unit cost expectation, though he also sees the company “remaining well-placed” to take advantage of the ongoing strength in underlying copper prices.
According to the first quarter database of Insider Monkey, 68 hedge funds were long Freeport-McMoRan Inc. (NYSE:FCX), up from 66 funds in the earlier quarter. Ken Fisher’s Fisher Asset Management is the leading shareholder of the company, with 50.75 million shares worth $2.5 billion.
Here is what Horizon Kinetics has to say about Freeport-McMoRan Inc. (NYSE:FCX) in its Q4 2021 investor letter:
“Those were some ideas about copper demand. Here are some specifics about supply. Global copper mine production in the 10 years from 2005 to 2015 rose 2.45% annually. In the next 5 years, to 2020, it increased by only 0.9% annually. Even ignoring the 2020 pandemic year, for the 4 years from to 2019, the expansion rate was 1.66%. We already have the historical context for this: the commodity price collapse prior to 2015, from a position of excess capacity.
What producers must do in that situation, because they have high fixed costs and debt expense, is curtail their exploration and development expenditures and reduce operating costs. They rely on existing mines, instead, and on their highest-grade ores and lowest-cost production. They might not actually reduce current production, but they aren’t replacing the reserves that are being slowly drawn down. You can see this at work at the individual company level.
Freeport-McMoRan will illustrate. It is the world’s third-largest copper producer, closely following Chile’s Codelco and Australia’s BHP Group. In 2014, even though Freeport sold more copper than the prior year, its revenues dropped by over 25%, and it went from $4.8 billion of operating earnings (a 22% margin) to a $(0.2) billion loss. The company’s capital expenditures peaked in 2014 at $3.86 billion and will be about $1.72 billion in 2021, meaning the company is spending 55% less now than it was seven years ago. In inflation-adjusted terms, it’s spending 61% less today than seven years ago…” (Click here to see the full text)
7. MGM Resorts International (NYSE:MGM)
Number of Hedge Fund Holders: 59
P/E Ratio as of May 27: 11.34
Share Price as of May 27: $34.89
MGM Resorts International (NYSE:MGM) is another cheap value stock that hedge funds are buying in 2022. The company owns and operates casino, hotel, and entertainment resorts in the United States and Macau. On May 2, MGM Resorts International (NYSE:MGM) posted its Q1 results, reporting an EPS of $0.01 and a revenue of $2.85 billion, ahead of analysts’ predictions by $0.06 and $45.50 million, respectively.
On May 20, Deutsche Bank analyst Carlo Santarelli reiterated a Buy recommendation on MGM Resorts International (NYSE:MGM) but lowered the firm’s price target on the stock to $48 from $52. The analyst reduced the price target due to the company’s BetMGM stake and assumed 2024 as the base year for his valuation.
According to Insider Monkey’s Q1 2022 database, 59 hedge funds were bullish on MGM Resorts International (NYSE:MGM), up from 55 funds in the preceding quarter. William B. Gray’s Orbis Investment Management is the largest shareholder of the company, owning about 7 million shares worth $293.4 million.
In addition to value names like General Motors Company (NYSE:GM), AT&T Inc. (NYSE:T), and Freeport-McMoRan Inc. (NYSE:FCX), institutional investors are piling into MGM Resorts International (NYSE:MGM) to protect their investments amid the inflationary market backdrop.
Here is what Baron Real Estate Fund has to say about MGM Resorts International (NYSE:MGM) in its Q1 2022 investor letter:
“At this stage, we believe several public real estate companies offer compelling long-term return prospects that, in some cases, may include a trifecta combination of growth, dividends, and an improvement in valuation. Examples of public real estate companies that are attractively valued include: MGM Resorts International. Leading global casino and entertainment company. At its recent price of $40 per share, we believe the company is valued at a significant discount to our reasonable $60 per share estimate of the sum-of-the-parts value of its business.”
6. The Bank of New York Mellon Corporation (NYSE:BK)
Number of Hedge Fund Holders: 54
P/E Ratio as of May 27: 11.51
Share Price as of May 27: $46.78
The Bank of New York Mellon Corporation (NYSE:BK) offers investment products, asset management, custody, wealth and estate planning, private banking, and information management services. The stock offers a price to earnings ratio of 11.51 and it is priced under $50, making it one of the most notable cheap value plays of elite hedge funds in 2022.
The Bank of New York Mellon Corporation (NYSE:BK) reported earnings for Q1 on April 18, posting an EPS of $0.94, beating market estimates by $0.08. The revenue of $3.93 billion fell below Street forecasts by $12.30 million. The company announced on May 5 that it will redeem all of the issued and outstanding $1 billion of 2.661% fixed rate/floating rate callable senior notes due May 16, 2023.
On May 19, Deutsche Bank analyst Brian Bedell downgraded The Bank of New York Mellon Corporation (NYSE:BK) to Hold from Buy, slashing the price target to $45 from $54. The analyst downgraded the shares as part of his mid-Q2 outlook for the brokers, asset managers, and exchanges.
According to Insider Monkey’s Q1 data, 54 hedge funds reported owning stakes in The Bank of New York Mellon Corporation (NYSE:BK), up from 49 funds in the last quarter. Jean-Marie Eveillard’s First Eagle Investment Management is a significant shareholder of the company, with 15.80 million shares worth over $784 million.
Here is what Ariel Investments has to say about The Bank of New York Mellon Corporation (NYSE:BK) in its Q4 2021 investor letter:
“Rising interest rates, after a surprisingly long period of low absolute rates and negative “real” rates, will create a headwind. While there has been much debate about the cause of these low rates, we believe the most important factor has been the $120 billion in monthly federal reserve open market bond purchases and the accumulation of an $8 trillion balance sheet. The former will end, and the latter will shrink. It is not just the Fed that has aggressively purchased bonds, bidding up prices and lowering yields. Bond traders and hedge fund managers have added to positions, confident that being on the same side as the Fed was the wise place to be. Now as the Fed is about to become a seller of bonds rather than a buyer, Wall Street’s “smart money” is likely to follow suit. Against this backdrop, fixed income securities and bond substitutes such as high dividend paying utilities and absolute return hedge funds are substantially overpriced and are not likely to produce attractive returns going forward.
This expectation of a reversion to the mean for interest rates helped 2021 performance, though not as much as we had hoped. The yield on the U.S. 10-year Treasury did indeed increase from +0.92% at the beginning of the year to +1.52% at year-end. An underreported story was the poor performance of bonds last year. The Barclays Aggregate Index declined -1.67% for the year ending December compared to a return of +28.71% for equities as measured by the S&P 500. Interest rates have continued to climb in 2022 with the 10-year Treasury at +1.79% as we go to print. This move higher in rates has contributed to our good, early start to 2022. Smaller positions in The Bank of New York Mellon Corporation (BK) also benefited from higher rates, principally with their ability to invest customer cash.”
Click to continue reading and see 5 Cheap Value Stocks Hedge Funds are Buying in 2022.
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Disclosure: None. 10 Cheap Value Stocks Hedge Funds are Buying in 2022 is originally published on Insider Monkey.
