In this article, we will discuss 10 Cheap Value Stocks to Invest In, According To Seth Klarman.
No value in crypto, but the focus should be on artificial intelligence. That’s the stance held by value investing magnet Seth Klarman. Like most conservative investors, the billionaire investor employs a value approach, looking for stocks and other assets that are trading below their intrinsic value and purchasing them at a discount.
The value investment strategy has been the catalyst behind Baupost Group, generating average returns of 20% over the last decade. The impressive run also stems from an aggressive investment strategy that tries to profit from emerging trends. That’s evident by Klarman’s moves around artificial intelligence in the hedge fund portfolio.
It’s no secret that Klarman has reiterated his admiration for artificial intelligence. Nevertheless, he insists that he is approaching the technology “with open eyes, with great humility, with a sense that profound change is upon us,” That’s evident given that Baupost Group does not hold significant stakes in some of the biggest plays around revolutionary technology.
READ ALSO: 10 Cheap Value Stocks to Invest in According to Warren Buffett and 14 Best 52-Week High Stocks To Buy According to Analysts.
While optimistic about AI, the Baupost Group CEO has clarified that he does not believe the burgeoning AI industry should be left to its own devices. Instead, he is one of the advocates calling on regulators and CEOs not to let “this get out of control.” If unchecked, the billionaire investor believes the technology could result in mass unemployment and, in the worst case scenario, “will sink the economy,”
While Klarman is bullish about artificial intelligence opportunities, he has touted opportunities in the credit and real estate sector. The Baupost Group CEO and portfolio manager insist opportunities are cropping up as interest rates decrease, resulting in improved consumer purchasing power.
“Real estate, in general, has been fruitful, not only in buying buildings but also indebted real estate-related companies, especially in Europe and Asia,” he said.
Even as Klarman remains bullish about the overall equity market outlook, he has not engaged in a buying spree as a value investor. Part of the cautious approach involves valuations in the equity markets getting out of hand. Most stocks are trading at premium valuations, with major indices near all-time highs.
In addition to valuation concerns, he has warned of increased government meddling in the markets more than ever. The billionaire investor has raised concerns about increased government intervention, making it difficult to tap into value investments in the market. “It’s almost like we’ve sort of outlawed failure — or at least financial failure,” he said. “That leads to a buildup of moral hazard. If nobody thinks anything can go wrong, they’ll take crazy risks because they’ll get bailed out.”
Nevertheless, Baupost Group’s investment portfolio is still rife with cheap value stocks to invest in. The adjustments that have come into play in recent quarters have affirmed the focus on investment plays trading below their intrinsic values. Recently, he has reduced his holdings in stocks with premium valuations and shifted his focus to lesser-known investments. His focus has been stocks trading at highly discounted valuations characterized by low price-to-earnings multiple.
Seth Klarman of Baupost Group
Our Methodology
To compile the list of 10 affordable value stocks to invest in, according to Seth Klarman, we analyzed Baupost Group’s portfolio, concentrating on stocks with a Forward P/E ratio of less than 20, as of January 17. We then examined the stocks on why they stand out, according to Seth Klarman. Finally we ranked the stocks in ascending order based on Baupost Group’s holdings.
At Insider Monkey, we are obsessed with 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 Cheap Value Stocks to Invest in, According To Seth Klarman
10. Restaurant Brands International Inc. (NYSE:QSR)
Number of Hedge Fund Holders: 29
Forward Price to Earnings Multiple: 11.24
Baupost Group’s Holdings: $2.04 Million
Restaurant Brands International Inc. (NYSE:QSR) is a quick-service restaurant company. After going down by about 20% in 2024, the stock appears to be trading at a significant discount, going by its price-to-earnings multiple of 11. The underperformance came as the restaurant chain faced immense pressure and competition from traditional and emerging players offering aggressive promotions.
Nevertheless, management is working round the clock to improve performance, going by the 2.3% growth in same-store sales under the core Tim Horton’s business. Global same-store sales also rose by 2.3% in the third quarter. The growth comes from Restaurant Brands International Inc. (NYSE:QSR) embarking on an acquisition drive aimed at expanding revenue and net income base. Restaurant Brands has already completed the acquisition of Popeyes China and the Carrols Restaurant Group.
Restaurant Brands International Inc. (NYSE:QSR) also plans to spend $400 million to revitalize its brands. Restaurant Brands International has already invested in improving in-store technology and mobile platforms, which should enhance customer convenience and experience. International growth prospects for Restaurant Brands include growing its Burger King business in Japan.
9. Herbalife Ltd. (NYSE:HLF)
Number of Hedge Fund Holders: 32
Forward Price to Earnings Multiple: 3.10
Baupost Group’s Holdings: $36.85 Million
Herbalife Ltd. (NYSE:HLF) is a packaged foods company that provides health and wellness products. It offers products in weight management, targeted nutrition, literature, and promotional items. The stock was under pressure, dropping by 47% in 2024 due to competitive pressures in the wellness industry and internal corporate hurdles. The slump has left the stock trading at a discount with a price-to-earnings multiple of 3.10.
Herbalife Ltd. (NYSE:HLF) delivered disappointing third-quarter results, with sales down by 3% as net income fell to 58 million from $65 million a year ago. Amid the disappointing results, Herbalife is confident that its growing distributor network and enhanced training initiatives will fuel future sales growth. Herbalife has embarked on a restructuring program to increase productivity, streamline the workforce, and bring leadership closer to its markets.
Starting in 2025, the Restructuring Program is anticipated to generate yearly savings of at least $80 million, with at least $50 million expected in 2024. Likewise, Herbalife Ltd. (NYSE:HLF) has made impressive strides to trim its debt level as it continues to clean its balance sheet. Its leverage ratio has dropped to 3.3 times and is on course to drop to 3.0 in 2025 as the company works on relieving itself of debt load. The health and wellness product company is also targeting $1 billion in debt reduction over the next five years.
8. Fidelity National Information Services, Inc. (NYSE:FIS)
Number of Hedge Fund Holders: 56
Forward Price to Earnings Multiple: 13.76
Baupost Group’s Holdings: $81.36 Million
Fidelity National Information Services, Inc. (NYSE:FIS) provides financial services technology solutions for financial institutions, businesses, and developers worldwide. It provides core processing, ancillary applications, mobile and online banking, fraud, and risk management solutions. The stock was on a roll, rallying by 31% in 2024.
The impressive performance in the market came from Fidelity National Information Services, Inc. (NYSE:FIS) capitalizing on the global shift towards digital transformation. The company has unveiled various solutions that have allowed it to benefit from organic growth in the banking and capital markets. Its focus on emerging markets is also proving to be a catalyst for its bottom-line growth.
In addition to coming up with technological solutions for the banking sector, the company has acquired Dragonfly Technologies. The acquisition strengthens FIS prospects in providing cybersecurity, enterprise networks, and automation, which are the solutions needed in the digital banking space. The investments are already paying off as the company’s Q3 revenue increased by 3.1% as earnings increased by 48.9%, affirming continued execution and business momentum.
Similarly, Fidelity National Information Services, Inc. (NYSE:FIS) has demonstrated its dedication to shareholders by continuing to provide value to them through buybacks. In the last three quarters alone, FIS has repurchased $3 billion worth of shares. While trading at a price-to-earnings multiple of 13, it is one of the cheapest value stocks, as it also yields 1.83% on dividends.
7. Solventum Corporation (NYSE:SOLV)
Number of Hedge Fund Holders: 48
Forward Price to Earnings Multiple: 12.76
Baupost Group’s Holdings: $126.89 Million
Solventum Corporation (NYSE:SOLV) is a healthcare company that develops, manufactures, and commercializes a portfolio of solutions to address critical customer and patient needs. After going down by about 9% in 2024, activist investor Trian Fund Management insists the stock is trading at a discount compared to its peers.
The activist investor fund founded by billionaire Nelson Peltz has weighed on Solventum Corporation’s (NYSE:SOLV) performance and started pushing for strategic changes it believes can help unlock hidden value. The firm wants the company to focus on reaccelerating organic growth and restoring margins while simplifying its business portfolio.
The push for strategic changes comes on Solventum Corporation (NYSE:SOLV) embarking on a three-phase strategy to reinvigorate growth prospects. Part of the strategy entails moving production lines from 67 factories to 27 Solventum plants. It also plans to trim its distribution facilities to 73 from 122 as it also reorganizes its supply chain and distribution network. The restructuring also comes against the backdrop of Solventum delivering solid third-quarter results on November 7, whereby sales increased by a modest 0.4% to $2.08 billion. Nevertheless, its earnings per share fell 42.9% to $1.64. Despite the significant earnings miss, the company raised its full-year guidance, projecting organic sales growth of between 0% and 1%, with earnings per share of between $6.50 and $6.65.
6. Eagle Materials Inc. (NYSE:EXP)
Number of Hedge Fund Holders: 31
Forward Price to Earnings Multiple: 15.11
Baupost Group’s Holdings: $143.90 Million
Eagle Materials Inc. (NYSE:EXP) is a basic materials company that manufactures and sells heavy construction materials and light building materials. It also engages in limestone mining to manufacture, produce, distribute, and sell Portland cement. EXP is a valuable stock to invest in due to its focus on both organic and inorganic initiatives aimed at strengthening its business and enhancing shareholder value.
Eagle Materials Inc. (NYSE:EXP) has since moved to strengthen its prospects in the construction materials sector with the acquisition of Bullskin Stone & Lime, LLC for $152.5 million in Western Pennsylvania. The acquisition is poised to expand the company’s growth strategy by strengthening its network of quarries and cement plants. Additionally, it positions the company to benefit from increased infrastructure spending and construction activity in the Pittsburgh area.
Expansion into Pittsburgh follows the acquisition of a small bolt-on aggregate business poised to expand the company’s Battletown Materials aggregate business in Louisville, KY. In addition to an aggressive acquisition drive, Eagle Materials Inc. (NYSE:EXP) has also initiated the modernization and expansion project construction at its Laramie, WY cement plant.
Bretton Fund stated the following regarding Eagle Materials Inc. (NYSE:EXP) in its Q3 2024 investor letter:
“Our most recent addition, Eagle Materials Inc. (NYSE:EXP), is in the more prosaic business of making cement and wallboard, and while it’s unlikely to match the earnings growth of Alphabet, it trades for a lower multiple. We’re optimistic on both stocks. We remain hopeful all our companies will continue to grow their earnings and cash flow over time, and our share prices will ultimately reflect this value creation.”
5. Dollar General Corporation (NYSE:DG)
Number of Hedge Fund Holders: 45
Forward Price to Earnings Multiple: 11.10
Baupost Group’s Holdings: $194.83 Million
Dollar General Corporation (NYSE:DG) is a discount retailer that provides various merchandise products. Its stock took a dive in 2024, going down by 44%. The selloff came as the company grappled with inflationary pressures, weak consumer spending, and market share losses to other larger competitors.
While Dollar General Corporation’s (NYSE:DG) financial results were under pressure for the better part of last year, it has started showing signs of improvements. In its fiscal first quarter of 2025, revenue was up by 2.9% to $40.2 billion as earnings per share came in at $6.08, outperforming expectations. Dollar General has also started reporting improvements in in-store traffic as consumer spending power is boosted by cutting interest rates.
The company’s long-term outlook remains solid as it moves to improve price gaps compared to competitors such as Walmart. Management has also embarked on efforts to resolve supply chain issues and improve stock levels as one of the ways of fuelling store traffic levels. Dollar General Corporation’s (NYSE:DG) extensive network of stores in rural areas and underserved areas is also expected to benefit from the low interest rate environment.
4. WESCO International, Inc. (NYSE:WCC)
Number of Hedge Fund Holders: 50
Forward Price to Earnings Multiple: 13.26
Baupost Group’s Holdings: $211.32 Million
WESCO International, Inc. (NYSE:WCC) is an industrial company that provides business-to-business distribution, logistics services, and supply chain solutions. It supplies products and supply chain solutions, including electrical equipment and supplies, automation and connected devices. While the company operates in over 50 countries and offers over 1.5 million products, it has embarked on an aggressive acquisition spree to strengthen its long-term prospects.
WESCO International, Inc. (NYSE:WCC) has already completed the acquisition of entroCIM, a data centre and building intelligence Software Company. The acquisition demonstrates the broader range of services, data-driven insights, and knowledge Wesco plans to offer its international clientele and supplier partners to boost supply chain value. With the acquisition, the company should also pursue growth opportunities around generative artificial intelligence with the provision of data center services.
WESCO International, Inc. (NYSE:WCC) has also inked a deal to acquire Storeroom Logix to strengthen its prospects of providing asset and inventory management software. As a leading provider of photovoltaic modules and load-balancing equipment, the company is well-positioned to capitalize on the growing demand for electric vehicles, solar energy installation, and data center expansion. The tremendous opportunities for growth is one reason analysts at RBC Capital expect the company to post organic sales growth of 1.6%, driven by growth in electrical & electronic solutions, communications & security solutions and data centre demand.
Here is what Blue Tower Asset Management stated the following regarding WESCO International, Inc. (NYSE:WCC) in its Q3 2024 investor letter:
“In this letter, I will be exploring our holding in WESCO International, Inc. (NYSE:WCC), an electric infrastructure, component, and communication equipment distributor. These distributors are another indirect way to profit from the ongoing boom in solar technology, electric vehicles, and AI technology. Despite the big boost that these technology trends should provide to these distributor businesses, these distributors are not trading at the expensive multiples of AI-related stocks. While most electronic component distributors are benefitting from these trends, Wesco is still realizing the integration benefits from a major 2020 merger and is more leveraged than peers.
Wesco originated in the Westinghouse Electric and Manufacturing Company in 1922, where it was originally the distribution arm of Westinghouse’s electrical and industrial products.
On February 1, 1994, private equity firm Clayton, Dubilier & Rice (CD&R) purchased Wesco from Westinghouse in a $340M leveraged buyout. Wesco was again sold just 4 years later to The Cypress Group, which created the holding company Wesco International. In 1999, the company went public. Over the past 20 years, Wesco engaged in over a dozen acquisitions, growing the scale and geographic scope of the company. In 2020, Wesco completed its largest acquisition with the takeover of Anixter International when it used a combination of cash, Wesco shares, and preferred stock to beat out an offer from CD&R…” (Click here to read the full text)
3. CRH plc (NYSE:CRH)
Number of Hedge Fund Holders: 80
Forward Price to Earnings Multiple: 15.87
Baupost Group’s Holdings: $244.15 Million
CRH plc (NYSE:CRH) is a basic materials company that provides building materials solutions. It provides solutions for constructing and maintaining public infrastructure and commercial and residential buildings. While the stock was up by 40% in 2020, it is still trading at a discount, going by its price-to-earnings multiple of 15. The impressive performance came on investors reacting to the company’s ability to capitalize on growing demand within the construction industry.
CRH plc (NYSE:CRH) delivered strong Q3 financial results characterized by double-digit growth in earnings. Total revenues increased by 4% to $11 billion, affirming strong demand for the company’s construction materials. CRH anticipates strong underlying demand in all of its major end-use markets in 2025, which will be fueled by substantial public infrastructure spending and reindustrialization efforts.
As one of the largest building materials companies with operations in 48 states and 7 Canadian provinces, CRH plc (NYSE:CRH) should continue to benefit from economies of scale amid increased spending in the construction sector. In addition, the company continues to return value to shareholders, going by its $300 million share repurchase initiative. The initiative seeks to boost capital structure and enhance shareholder value by reducing the number of shares in circulation.
2. Clarivate Plc (NYSE:CLVT)
Number of Hedge Fund Holders: 18
Forward Price to Earnings Multiple: 7.17
Baupost Group’s Holdings: $276.40 Million
Clarivate Plc (NYSE:CLVT) is an information services provider. It offers Web of Science and InCites that analyze and explore the academic research landscape and manage research information. It also provides Patent and Trademark Renewals. Following a roughly 40% decline in 2024, it is now emerging as one of the cheap value stocks.
Clarivate Plc (NYSE:CLVT) has unveiled DRG Fusion in pursuit of growth opportunities in the biopharma sector. The platform integrates real-world medical and pharmacy claims data to help medical technology companies optimize their commercial strategies. It also plans to integrate AI-driven and self-service features into the platform as it seeks to deliver user-centric solutions to healthcare challenges.
Pursuing growth opportunities in the life sciences sector comes on the heels of Clarivate Plc (NYSE:CLVT) launching Colelcto and Specto. The two AI-powered solutions are designed to allow librarians to manage collections effectively and with improved analytics. Specto showcases library digital collections through generative AI.
1. Willis Towers Watson Public Limited Company (NASDAQ:WTW)
Number of Hedge Fund Holders: 42
Forward Price to Earnings Multiple: 17.61
Baupost Group’s Holdings: $524.62 Million
Willis Towers Watson Public Limited Company (NASDAQ:WTW) is a financial services company that operates as an advisory, broking, and solutions company. It offers strategy, design consulting, plan management service and support, broking and administration services. While the stock was up by more than 30% in 2024, it’s still a cheap value stock as it has shown resilient growth, with revenue increasing by more than 5% over the past 12 months.
Analysts at Evercore ISI remain optimistic about the company’s growth metrics and long-term prospects as the company shifts to focus on Risk and Broking. The analysts point to a change in the business mix from Human Capital & Benefits (HWC) to higher margin R&B, which is expected to pick up speed in 2025. Willis Towers Watson Public Limited Company (NASDAQ:WTW) is anticipated to regain lost market share and possibly achieve organic growth of over 6% as it increases its workforce in accordance with its specialization strategy,
This mix shift could be accelerated and potentially result in an upside due to the company’s ability to fund more than $1.5 billion in buybacks. Willis Towers Watson Public Limited Company (NASDAQ:WTW) is also expected to outperform as AI-powered analytics and technology services have put it in a strong position to benefit from cost savings and productivity increases across various industries.
While we acknowledge the potential of Willis Towers Watson Public Limited Company (NASDAQ:WTW) as an investment, our conviction lies in the belief that some 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 WTW but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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