In this article, we will take a look at the 10 most promising low-cost stocks according to hedge funds.
Inflation Data Hints at a Lower Than 50 bps Cut
The September Consumer Price Index data showed that consumer prices rose way above expectations. On October 10, Omair Sharif, Inflation Insights president, appeared in an interview on Yahoo Finance to discuss his market thesis amid rising consumer prices.
Sharif highlights that while inflation data is higher than expected housing inflation has started to cool down a bit more. He also adds that food prices have come down significantly ever since the outburst after COVID-19, hinting that there are a lot of positives to extract from the current market situation.
Sharif suggests that the market is not up to a point where the Fed will be worried about the status quo, wiping out any hopes for a 50 basis point cut in November. His market thesis is that a 25 basis point cut in November will be the best course of action.
The Bull Market is Turning Two Years Old
As the Street approaches the second anniversary of the bull market, the market is set up for major changes. On October 11, Matthew Palazzolo, Bernstein Private Wealth Management’s senior investment strategist, appeared in an interview on Yahoo Finance to discuss the market outlook.
Palazzolo suggests that the Fed’s monetary policy is probably the biggest risk to the bull market at the moment. He adds that the Fed will continue to cut rates in 2025. While returns are expected to be modest the scenario is expected to be fairly conducive for equity investors.
He adds that the market is expected to broaden out from the magnificent seven and their valuations will increase relatively slowly. Palazzolo highlights that low-cost names will offer greater opportunity. He also suggests that companies beyond the big seven are more in line with their long-term average.
Now that we have assessed the current market outlook, let’s take a look at the 10 most promising low-cost stocks according to hedge funds.
A senior executive looking up at a large boardroom filled with the stocks their company manages.
Our Methodology
To find the most promising low-cost stocks according to hedge funds, we used the Finviz stock screener. We set the Forward P/E under 15 to get a list of cheap stocks with a market capitalization of over $2 billion. We then examined the hedge fund sentiment of these stocks as of Q2 2024 and picked the most popular ones. The stocks are sorted in ascending order of the number of hedge fund holders as of Q2 2024 as a primary metric and their Forward P/E as of October 13, as a secondary metric.
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 Most Promising Low-Cost Stocks According to Hedge Funds
10. General Motors Company (NYSE:GM)
Number of Hedge Fund Holders: 72
Forward P/E Ratio as of October 13, 2024: 4.8
General Motors Company (NYSE:GM) is one of the most promising low-cost stocks according to hedge funds. The company designs and produces trucks, crossovers, cars, and automobile parts.
While the company’s most profitable products include SUVs and internal combustion engine (ICE) pickups, General Motors (NYSE:GM) is making significant investments in electric vehicles, promising high growth potential in 2024 and ahead.
During the third quarter of 2024, General Motors Company (NYSE:GM) delivered more than 32,000 electric vehicles, up by 60% year-over-year, and 46% sequentially. The company is on track to develop nearly 200,000 General Motors-branded electric vehicles by the end of 2024.
Declining battery costs have been a catalyst for the EV industry and the company especially. General Motors Company (NYSE:GM) expects production volume and demand to grow for the foreseeable future. The company’s affordable electric vehicle lineup sets it apart from competitors. General Motors Company (NYSE:GM) is able to offer lower prices due to its massive cost-saving initiatives. Over the last two years, the company has reduced fixed costs by more than $2 billion, giving it a competitive advantage.
Diamond Hill Capital stated the following regarding General Motors Company (NYSE:GM) in its Q2 2024 investor letter:
“Other top Q2 contributors included Extra Space Storage and General Motors Company (NYSE:GM). Shares of automobile manufacturer General Motors (GM) rose as its internal combustion engine business has also received a boost from the recent slowdown in electric vehicle adoption among consumers. GM also announced additional share repurchases in Q2, reinforcing its commitment to returning cash to shareholders.”
9. Elevance Health, Inc. (NYSE:ELV)
Number of Hedge Fund Holders: 73
Forward P/E Ratio as of October 13, 2024: 13.47
Elevance Health, Inc. (NYSE:ELV) ranks ninth on our list of the most promising low-cost stocks according to hedge funds. Formerly referred to as Anthem, Inc., Elevance Health is now a prominent health benefits company in the United States.
In the fiscal second quarter of 2024, Elevance Health, Inc. (NYSE:ELV) generated revenue worth $43.2 billion and an adjusted operating gain of $2.8 billion. In addition to that, the company generated an operating cash flow worth $2.4 billion year-to-date. As a regular dividend payer, the company paid a quarterly dividend of $1.63 per share, representing a cash distribution of $378 million.
On October 1, the company revealed its 2025 Medicare Advantage Plans. According to the report, Elevance Health, Inc. (NYSE:ELV) will offer flexible medicare advantage plans with personalized benefits to nearly 40.3 million eligible consumers in 23 states across the US. In addition to that, the company’s affiliated health plans serve 2.9 million Medicare members, and in 2025, Elevance plans to provide personalized care for customers beyond healthcare.
Overall, the company’s financial results were driven by its diversified portfolio and the efficient execution of its strategic initiatives. Elevance Health, Inc. (NYSE:ELV) has strong fundamentals positioning it as an important name in the industry. Its 119 million strong clientele is evidence of its standing in the industry.
Artisan Partners’ Artisan Select Equity Fund stated the following regarding Elevance Health, Inc. (NYSE:ELV) in its Q2 2024 investor letter:
“The top contributors to performance for the quarter were Alphabet, Lam Research and Elevance Health, Inc. (NYSE:ELV). Elevance shares rose 5% during the quarter. The business has been performing well and has delivered good profit growth this year, despite a flat top line. It has largely navigated the challenges related to Medicaid redeterminations, which have caused temporary volatility in membership and health care utilization levels. Its vertical integration strategy is gaining traction, with strong revenue and profit growth at its Carelon Services business. Elevance’s shares are trading at 13X earnings, which is a very attractive investment proposition for a durable business that expects long-term earnings growth of over 12%.”
8. Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Holders: 83
Forward P/E Ratio as of October 13, 2024: 11.81
Wells Fargo & Company (NYSE:WFC) is one of the most promising low-cost stocks according to hedge funds. The financial services company provides a range of services including asset management, banking, commodities, insurance, investment management, and mortgage loans through its subsidiaries including Wells Fargo Advisors, First Clearing, and Wells Fargo Advisors.
In the third quarter of 2024, Wells Fargo & Company (NYSE:WFC) logged $20.4 billion in revenue and $5.1 billion in net income. The company provides services to one in three households and almost 10% of small businesses in the United States, making it one of the biggest financial services companies in the world.
Compared to the third quarter in 2023, Wells Fargo & Company (NYSE:WFC) saw a decline in revenue by 2% and net interest income by 11%. Despite such, the company is confident in its performance. The entity has altered its earnings profile and has made strategic investments in important segments of the business while selling non-profitable ones. Overall, these strategic investments are expected to pay off in the long term.
The company has more than 69 million customers based in 22 countries. Wells Fargo & Company (NYSE:WFC) has over 5,600 branches and more than 11,000 ATMs. The company boasts a strong banking network challenging for competitors to replicate.
7. Citigroup Inc. (NYSE:C)
Number of Hedge Fund Holders: 85
Forward P/E Ratio as of October 13, 2024: 11.48
Citigroup Inc. (NYSE:C) is an investment banking giant that provides asset management services, risk management services, investment management services, mortgage loans, credit cards, and other banking commodities. Some of its subsidiaries include Citibank, Banamex, and Citicorp LLC, to name a few.
Citigroup Inc. (NYSE:C) is present in 90 countries, issues currencies in 144 countries, and has trading floors in 77 countries. The company is strongly inclined to expand by offering commercial banking services in other countries. In addition to that, Citigroup is also leveraging technology to deliver next-gen transaction banking services to its clients. On October 10, the company partnered with Mastercard to enable cross-border payments in 14 receiving markets from across the globe.
In the second quarter of 2024, the company logged $20.1 billion in revenue and $3.2 billion in net income, up from $19.4 billion in revenue and $2.9 billion in net income from Q2 2023. Of this, its investment banking segment showed promising results and increased revenue by 38%.
Citigroup Inc. (NYSE:C) is one of the most important names in the banking sector because of its expansive network and strong ecosystem. The company continues to grow due to its extravagant expansion strategy.
Patient Capital Management stated the following regarding Citigroup Inc. (NYSE:C) in its first quarter 2024 investor letter:
“Citigroup Inc. (NYSE:C) gained 24.1% in the quarter continuing its uptrend from 4Q. The company is on a multi-year journey to reorganize the business and reach return on tangible common equity of 11-12% by 2026 (and higher further out). Citigroup is finally taking the hard actions necessary, cutting unprofitable departments, taking out middle management layers, and reducing overall headcount. As of early March, the company was 70% done with its business exits and had reduced management layers by 1/4th. We have high confidence Citi will hit its targets. In the meantime, the company is returning cash to shareholders, which could meaningfully increase if the Basel III capital proposal is changed.”
6. PDD Holdings Inc. (NASDAQ:PDD)
Number of Hedge Fund Holders: 86
Forward P/E Ratio as of October 13, 2024: 12
PDD Holdings Inc. (NASDAQ:PDD) is one of the most promising low-cost stocks according to hedge funds. The company is a multinational e-commerce group that owns Temu and Pinduoduo, two online retail sites, and holds a 20% market share in China’s e-commerce industry.
Pinduoduo is one of the most prominent online agriculture retail platforms in China. Temu, on the other hand, is an e-commerce platform in the United States and Europe that sells clothing, home decor, beauty, and handmade items.
Temu, known for its notoriously low-priced products and fast deliveries, is set to become one of the most used platforms in the world. Temu has a 20% market share in its home country and is rapidly expanding in Europe and North America, known as the fastest-growing e-commerce platform in the world.
In the second quarter of 2024, PDD Holding’s total revenue reached RMB 97 billion, an 86% increase year-over-year. It also generated an operating profit of $4.5 billion, hinting that it is extremely profitable.
The company has placed significant bets on its cross-border growth, which may have been in jeopardy due to geopolitical tensions at the moment. Conversely, as the Chinese government takes steps to stimulate the economy, PDD Holdings Inc. (NASDAQ:PDD) is expected to accelerate rapidly.
5. Alibaba Group Holding Limited (NYSE:BABA)
Number of Hedge Fund Holders: 91
Forward P/E Ratio as of October 13, 2024: 12.43
Alibaba Group Holding Limited (NYSE:BABA) ranks fifth on our list of the most promising low-cost stocks according to hedge funds. It is a technology and internet retail company that operates e-commerce sites that serve consumers and small business owners. In addition to e-commerce, Alibaba Group (NYSE:BABA) is also involved in cloud computing, logistics, digital media, and entertainment.
Its most popular business-to-consumer online retail site, AliExpress, is home to all sorts of items including appliances, office equipment, home improvement products, and sports equipment. It has over 150 million users and is present in 190 countries. Overall, Alibaba’s (NYSE:BABA) platforms are used by more than 800 million people worldwide.
During the fiscal first quarter of 2025, Alibaba Group Holding Limited (NYSE:BABA) logged $34.7 billion (RMB 243.3 billion) in revenue, up by 4% year-over-year. The company drives its revenue by offering premium customer shopping experiences at the lowest price possible.
Despite geopolitical headwinds, the company’s market share continues to grow. According to the DBS bank, Alibaba Group Holding Limited (NYSE:BABA) currently has a 40% share of the Chinese e-commerce market. The company also leverages artificial intelligence to enhance its cloud solutions and improve the buying and selling experience.
4. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 92
Forward P/E Ratio as of October 13, 2024: 13.12
Bank of America Corporation (NYSE:BAC) is a financial services company that provides investment and wealth management services to individuals, institutions, small to medium-sized businesses, large corporations, and the government. Some of its subsidiaries include Merrill, BofA Securities, and Bank of America Private Bank.
The company has over 3,800 retail locations and 15,000 ATMs across the United States servicing a large clientele of 69 million individual customers. Bank of America now manages $5.7 trillion in client balances, loans, deposits, and investments in its consumer and wealth management segments.
On August 12, Yahoo Finance shared Wolfe Research’s bullish stance on Bank of America Corporation (NYSE:BAC). The stock is a top pick for the firm and has more room to grow despite an aggressive easing cycle by the Fed. According to the firm, the setup for the leading retail banking services provider is constructive.
Bank of America Corporation (NYSE:BAC) is one of the best long-cost stocks according to hedge funds and we say that because of its strong ecosystem and client network. According to the Insider Monkey database, at the end of Q2, 92 hedge funds were bullish on the stock.
ClearBridge Investments’ ClearBridge Value Equity Strategy stated the following regarding Bank of America Corporation (NYSE:BAC) in its first quarter 2024 investor letter:
“We added several new positions during the quarter. Our largest new addition was Bank of America Corporation (NYSE:BAC), one of the world’s leading financial institutions, serving some 66 million consumer and small business clients across the U.S. as well as large corporations, financial institutions and governments globally. We believe that the interest rate pressure that Bank of America faced in early 2023 has subsided, and risks surrounding deposit outflows have abated, which should allow the company to improve its book value and capital growth as well as benefit from a rebound of capital markets activity.”
3. Merck & Co., Inc. (NYSE:MRK)
Number of Hedge Fund Holders: 96
Forward P/E Ratio as of October 13, 2024: 13.69
Merck & Co., Inc. (NYSE:MRK) is one of the most promising long-term stocks according to hedge funds. The pharmaceutical company is engaged in the production of vaccines and the provision of hospital care services.
What sets Merck & Co., Inc. (NYSE:MRK) apart is its expansion strategy. Recently, it acquired EyeBio, expanding Merck’s position in the ophthalmology industry. In addition to that, its animal health segment also closed the acquisition of Elanco’s aqua business, presenting it as a crucial stakeholder in the animal health industry. On October 1, Merck & Co., Inc. (NYSE:MRK) acquired CN201 from Curon Biopharmaceutical (Curon), a novel clinical-stage bispecific antibody for the treatment of B-cell diseases.
On September 17, Jacob Sonenshine, Barron’s market reporter, appeared in an interview on Fox Business to share his bullish outlook on Merck & Co., Inc. (NYSE:MRK). Sonenshine shares that he expects the company to see double digital stock price increases in the next five years. He adds that MRK is cheap and has over 20 drugs in its pipeline that are yet to be approved. He expects the majority of them to become blockbuster drugs.
Merck & Co., Inc. (NYSE:MRK) boasts strong fundamentals and is a front-runner in the race to become a leading drug provider. To align with the goal, the company spent over $30.5 billion in research and development in 2023, which is expected to increase with every passing year.
Baron Funds’ Baron Health Care Fund stated the following regarding Merck & Co., Inc. (NYSE:MRK) in its first quarter 2024 investor letter:
“Global pharmaceutical company Merck & Co., Inc. (NYSE:MRK), Inc. contributed on the continued growth of Keytruda, the company’s key asset and the leading immuno-oncology agent used to treat a variety of cancers. The FDA’s late March approval of pulmonary arterial hypertension drug sotatercept, also drove share gains. We retain conviction as Merck has started to transition from prioritizing its Keytruda franchise to building a more diversified business, with a focus on the Gardasil vaccine, pneumococcal vaccine development, and cardiovascular drug development, well in advance of the scheduled expiration of patent protection/exclusivity rights.”
2. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 111
Forward P/E Ratio as of October 13, 2024: 12.68
JPMorgan Chase & Co. (NYSE:JPM) ranks second on our list of the most promising low-cost stocks according to hedge funds. The multinational provides financial services to millions in 100 countries from across the globe. Some of its services include investment banking solutions, risk management services, and capital-raising services to companies, institutions, and the government.
JPMorgan Chase & Co. (NYSE:JPM) is leveraging artificial intelligence to help its employees complete tedious tasks. On the customer front, the company introduced several features over the past few months to ease payment mechanisms across treasury, trade, and commerce. In addition to that, JPMorgan recently expanded biometric solutions for merchants in the US, making shopping convenient for buyers and sellers alike.
In the fiscal third quarter of 2024, JPMorgan Chase & Co. (NYSE:JPM) generated revenue worth $42.7 billion and net income worth $12.9 billion. The company’s asset and wealth management segment now has $3.9 trillion in assets under management and $5.7 trillion in client assets, making it one of the largest banks with the strongest clientele.
Carillon Tower Advisers Carillon Eagle Growth & Income Fund stated the following regarding JPMorgan Chase & Co. (NYSE:JPM) in its first quarter 2024 investor letter:
“JPMorgan Chase & Co. (NYSE:JPM) contributed positively to performance following solid financial results and positive guidance for the remainder of 2024. Moreover, growing chatter around rising capital markets activity likely contributed to the stock’s strong performance relative to other banks. Recall that JPMorgan has a robust capital markets franchise.”
1. Micron Technology, Inc. (NASDAQ:MU)
Number of Hedge Fund Holders: 120
Forward P/E Ratio as of October 13, 2024: 11.97
Micron Technology, Inc. (NASDAQ:MU) ranks first on our list of the most promising low-cost stocks according to hedge funds. The semiconductor company is home to intelligent infrastructure enabling the development of artificial intelligence and generative AI applications. Its primary offerings include memory and storage products.
In the fiscal year 2024, Micron Technology, Inc. (NASDAQ:MU) grew its revenue by 62% and gross margins by more than 30 percentage points. The company reported record revenue growth in its data center and automotive segments. During the year, the company invested $8.1 billion in capital expenditures. The company expects capex to be considerably higher in 2025.
For the fiscal first quarter of 2025, Micron Technology, Inc. (NASDAQ:MU) expects revenue to reach $8.7 billion and gross margin at 39.5%. The company is also a market leader in its DRAM and NAND technologies, accounting for 69% and 31% of its revenue respectively.
The company is shifting its entire focus to meeting the demands for artificial intelligence and data center customers, two of the fastest-growing industries. The company’s leadership in process technologies promises strong growth and higher returns.
Baird Chautauqua International and Global Growth Fund stated the following regarding Micron Technology, Inc. (NASDAQ:MU) in its Q3 2024 investor letter:
“After Micron Technology, Inc.’s (NASDAQ:MU) price appreciated 54% in 1H24, investors became anxious about potential memory weakness, less clear cyclical recovery pace, and whether competitor Samsung will act rationally with capacity expansion. We maintain our long-term positive view on the industry’s demand/supply situation. We believe Micron is well positioned in technology capability, and that its margins will continue to improve.”
Overall, MU ranks first among the 10 most promising low-cost stocks according to hedge funds. While we acknowledge the potential of semiconductor companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than MU but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.
Disclosure: None. Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below.
