In this article, we’re going to talk about the 10 most undervalued large-cap stocks to invest in.
Are Cyclical Stocks The New Investment Strategy?
As significant gains are already being realized after the Fed’s aggressive September interest rate decision, historical trends suggest that markets typically remain flat or slightly up in the 30 to 60 days following the first rate cut. Positive factors contributing to the current rally include a strong internal market dynamic, with a large portion of the S&P 500 trading above their 200-day moving averages, and optimism surrounding the stimulus measures from China.
At such a time, investors are cautioned against assuming certainty in market outcomes. They are advised to consider protective strategies, such as exploring shorter-duration bonds as a hedge against potential rapid rate cuts by the Fed. Overall, focusing on sectors with strong fundamentals while remaining adaptable can help investors navigate economic uncertainties. Liz Young Thomas, SoFi’s head of investment strategy, holds a similar sentiment. We covered her opinion in our article about the 8 Most Active US Stocks To Buy Now, here’s an excerpt from it:
“When discussing valuation concerns, Young agreed that while US market multiples are relatively high, hovering around 21 to 22, this is not unprecedented when compared to historical standards. She pointed out that current valuations are above both the 5-year and 10-year averages but not at overbought levels… Young expressed a desire for the market to shift towards trading based on fundamentals rather than multiple expansions. She noted that while earnings stability is crucial, there are signs of strength in sectors outside of technology, particularly in industrial stocks… As for identifying sectors with potential for faster earnings growth, Young emphasized the importance of thorough research and analysis rather than relying solely on top-down market movements… she advised investors to remain vigilant and consider protective strategies. She suggested exploring opportunities across the Treasury curve, particularly in shorter-duration bonds, as a hedge against potential faster-than-expected rate cuts by the Fed. ”
Scott Chronert, Citi US equity strategist, joined CNBC’s ‘Squawk on the Street’ on October 2 to discuss his assessment of the major averages and stocks to end the year and how investors should lean into growth and cyclicals to manage potential market choppiness.
Scott Chronert set a target for the S&P 500 at 5,600. As the market entered October, significant global events have unfolded, including stimulus measures from China and ongoing geopolitical tensions marked by strikes in the Middle East. Chronert acknowledged that while these developments are crucial, translating them into actionable investment strategies has proven challenging, particularly in light of the ongoing conflicts involving Russia, Ukraine, and Israel.
Addressing the geopolitical landscape, he noted that the situation in the Middle East remains unpredictable and continues to be a wild card. This uncertainty has prompted a tactical shift towards an overweight position in energy stocks as they enter the fourth quarter, suggesting that rising tensions could benefit this sector. However, he characterized this move as somewhat contrarian given the current market climate.
When discussing monetary policy, Chronert indicated that the Fed is still in a less restrictive mode and has not yet reached a point where it can be considered fully accommodative. The focus is on balancing growth while adopting a defensive stance as the year concludes. This approach includes an overweight position in financials while avoiding more defensive sectors that are historically viewed as expensive. He pointed out that healthcare is somewhat of an exception to this trend, but overall, there is no urgency to invest heavily in traditionally defensive sectors.
The conversation also touched on the Fed’s role in achieving a soft landing for the economy. Chronert believes that if the Fed continues to lower interest rates, as indicated by market expectations of potential cuts totaling up to 200 basis points, it could create a favorable environment for equities. However, he acknowledged that markets have misjudged Fed actions in the past.
The discussion raised concerns about potential risks facing both monetary policy and economic performance. Chronert emphasized that the greater risk lies in the Fed needing to stay ahead of economic narratives rather than falling behind. A deterioration in labor conditions could lead to further rate cuts; however, he cautioned against viewing this solely as negative for equities. Instead, he sees potential risks related to inflation stemming from rising commodity prices due to geopolitical tensions.
Looking ahead to 2025, he expressed concerns about how ongoing discussions regarding deficit financing might impact markets, particularly regarding bond market dynamics and potential pressures from bond vigilantes. He noted that while immediate risks may seem manageable, longer-term implications could arise from political developments surrounding US elections.
Additionally, he suggested that markets could see supportive conditions with expectations of rate cuts, potentially 50 basis points in November while expressing contentment with either 25 or 50 basis points as long as the overall trajectory remains constructive.
Analysts are increasingly optimistic about large-cap stocks, viewing them as a strong investment choice amid current market volatility. Scott Chronert’s assessment aligns with this perspective, as he suggests that leaning into growth and cyclicals could be beneficial for investors navigating the choppy end-of-year conditions. With their stability and potential for steady dividends, large-cap companies are well-positioned to weather economic uncertainties and geopolitical tensions, making them a reliable option for those looking to maintain a balanced portfolio. With that context, we’re here with a list of the 10 most undervalued large-cap stocks to invest in.
Methodology
We used the Finviz stock screener to compile a list of 25 stocks trading over $20 billion, that’s our definition of large-cap stocks. We then selected stocks with a forward P/E ratio under of 15 and made a list of 10 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
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 Undervalued Large Cap Stocks To Invest In
10. CVS Health Corp. (NYSE:CVS)
Forward Price-to-Earnings Ratio: 8.47
Number of Hedge Fund Holders: 60
CVS Health Corp. (NYSE:CVS) is the world’s second-largest healthcare company that operates a network of retail pharmacies, offers pharmacy benefit management services, and provides healthcare services through its MinuteClinic walk-in medical clinics. It also owns and operates the health insurance company Aetna, and is committed to providing accessible, affordable healthcare solutions to individuals and communities across the US.
The company is doing well because it’s becoming a more integrated healthcare provider. It’s expanding its MinuteClinics and improving its telehealth services to offer more convenient care, attracting new customers. It also bought Aetna, which allows it to offer more complete care solutions. This is in line with the trend in healthcare towards value-based care, which focuses on better patient outcomes and long-term growth.
The company serves almost 187 million people. More people are using Aetna medical plans through CVS pharmacies, and Caremark now covers 13.8 million Aetna members. It lowered its earnings forecast for the whole year because of challenges in its insurance division, Aetna, making this the second time they’ve lowered the forecast for 2024. However, the company’s revenue still grew by 2.6% in Q2 2024, partly attributed to the successful launch of CVS CostVantage.
Management expects to improve its profit margin in the Medicare Advantage segment by about 110 basis points in 2025. This is within its goal of 100 to 200 basis points. The company also expects a 5% decrease in Medicare Advantage members and $500 million in cost savings.
CVS Health Corp. (NYSE:CVS) is doing well because of its new ideas and how it combines different healthcare services. It’s growing faster by using transparent payment models, using more biosimilars, and improving patient care through its connected healthcare assets.
Coho Relative Value Equity Strategy stated the following regarding CVS Health Corporation (NYSE:CVS) in its Q2 2024 investor letter:
“While we believe each of those companies is performing in line with or better than our expectations and that the moves lower are unjustified, both CVS Health Corporation (NYSE:CVS) and Nike reported disappointing performance in recent results. In CVS’ case, management gave an optimistic outlook to 2024 at its December Investor Day, which we believed was consistent with our expectations. Unfortunately, management misestimated its medical loss ratio and the anticipated profitability in its book for Medicare Advantaged lives. This triggered a position paper violation, as the company’s financial flexibility now looks constrained in both 2024 and 2025.”
9. Comcast Corp. (NASDAQ:CMCSA)
Forward Price-to-Earnings Ratio: 9.04
Number of Hedge Fund Holders: 61
Comcast Corp. (NASDAQ:CMCSA) is the fourth-largest broadcasting and cable television company worldwide by revenue. It’s a multinational mass media and technology conglomerate that provides cable television, high-speed internet, telephone services, and theme parks. Its major subsidiaries include Comcast Cable, NBCUniversal, and Sky, and it is known for its extensive cable television network, popular entertainment channels, and its role in the film and television industry.
The company has around 32 million broadband customers, making it the biggest broadband provider in the US. In Q2 2024, it added 322,000 new wireless customers, which means that 12% of its broadband customers are also using wireless services. Comcast Corp. (NASDAQ:CMCSA) has been able to keep its average revenue per user between 3% and 4% over a long time.
While revenue fell slightly by 2.7% to $29.69 billion in Q2 2024, the company earned more per share than expected, beating the consensus by 9%. The broadband business grew by 3%, even with lost subscribers. This is because of the increased average price per user by 3.6%. The wireless business revenue grew by 17% year-over-year. This business has grown by 20% for several years.
The Content & Experiences segment had revenue fall by 7.5% due to fewer people visiting theme parks, but the streaming service, Peacock, grew by 28% year-over-year. Mostly, there were difficulties in the Studios and Theme Parks division, with declines of 27% and 10.6%, respectively.
It’s facing competition from satellite internet providers like Starlink and fixed wireless companies, which could make it harder to keep customers. If the company starts to lose customers, its stock price could go down. Despite this competition, Comcast Corp.’s (NASDAQ:CMCSA) strong market position, diversified revenue streams, and focus on innovation suggest a promising outlook.
ClearBridge Large Cap Value Strategy made the following comment about Comcast Corporation (NASDAQ:CMCSA) in its Q3 2023 investor letter:
“Long-term holdings Charter and Comcast Corporation (NASDAQ:CMCSA) delivered strong second-quarter results relative to expectations; their stable recurring revenue streams and undemanding valuations were rewarded in the current environment. Cable multiples compressed over the past 24 months on fears of heightened competition in their core broadband business from fixed wireless and fiber providers. While fiber remains a competitive alternative to cable broadband over the long term, high upfront investments and a materially higher cost of capital are resulting in slower buildouts than previously expected. Fixed wireless also continues to gain traction, particularly in rural markets, but share gains also appear to be moderating. At the same time, both Comcast and Charter are expanding their footprints into rural and adjacent markets while gaining wireless market share, leveraging their mobile virtual network operator agreements with Verizon. We think both cable companies are well-positioned to continue to grow while generating substantial free cash flows. We added to Comcast during the quarter.”
8. DR Horton Inc. (NYSE:DHI)
Forward Price-to-Earnings Ratio: 12
Number of Hedge Fund Holders: 62
DR Horton Inc. (NYSE:DHI) is the largest homebuilder by volume in the US. It specializes in building new homes and communities across the country, and offers a range of housing options, from entry-level homes to luxury estates, to meet the diverse needs of homebuyers. The focus is on providing quality homes at affordable prices while contributing to the growth of communities.
Other than homebuilding, the homebuilder offers mortgage, title, and insurance. The homebuilder has Express Series for first-time homebuyers, Emerald Series for high-end homes, and Freedom Series for easy living and low maintenance. Rental communities for those who cannot own a home are also available.
The company’s earnings per share increased by 5% year-over-year in FQ3 2024. The company sold 24,155 homes in the quarter, generating $9.97 billion in revenue, up 2.47% from a year-ago period. It also has a strong relationship with Forestar, a company that develops land for building homes. Forestar has a lot of land available, which is good for DR Horton Inc. (NYSE:DHI) because there is a shortage of land for building homes.
Sales orders increased slightly in FQ3, from 22,794 homes to just over 23,000 homes year-over-year. However, the total value of these orders remained flat at $8.7 billion. The cancellation rate increased from 15% to 18% sequentially. The average price of homes sold decreased slightly from $379,800 to $378,900 year-over-year.
For affordability, it offers incentives like lower mortgage rates and has made some homes smaller and cheaper. Based on the strong financial position and expectation for increased cash flows, the board recently approved a new share repurchase authorization totaling $4 billion. DR Horton Inc.’s (NYSE:DHI) is positioned as a leading player in the industry.
Baron Real Estate Fund stated the following regarding D.R. Horton, Inc. (NYSE:DHI) in its Q2 2024 investor letter:
“The shares of D.R. Horton, Inc. (NYSE:DHI) underperformed during the second quarter. D.R. Horton is the largest homebuilder in the U.S., with operations in 119 markets in 33 states, and a focus on more affordable price points (70% of homes closed are below $400,000).
Share prices of U.S. homebuilders more broadly were pressured over concerns that demand for new single-family homes would slow due to stretched consumer affordability (high prices, down payments and mortgage rates) and a rise in home resale inventory across several markets. D.R. Horton has been able to successfully weather these headwinds and continue to grow owing to its affordable price points, low-cost position, and scale advantages.
We remain enthusiastic about the multi-year prospects for D.R. Horton. Our view remains that the U.S. will need to build new homes at an elevated rate for the foreseeable future in order to replenish a current structural deficit of housing stock while also housing a growing population. We anticipate that D.R. Horton will continue to grow faster than the broader housing industry as the company leverages its scale advantages to gain market share across its footprint. Furthermore, we believe that as the company continues to transition its operations to a more asset-light business model that emphasizes returns and cash flow generation, the company’s valuation multiple may expand.”
7. Schlumberger (NYSE:SLB)
Forward Price-to-Earnings Ratio: 11.11
Number of Hedge Fund Holders: 67
Schlumberger (NYSE:SLB) supplies the petroleum industry with services such as seismic data processing, formation evaluation, well testing and directional drilling, well cementing and stimulation, artificial lift, well completions, flow assurance and consulting, and software and information management. Its services are essential for oil and gas companies to discover, develop, and produce hydrocarbons efficiently and safely.
Many big oil companies like Petrobras and Saudi Aramco are its customers, which makes them strong. However, this can be affected if oil production slows down, which happened earlier this year because of China’s weak economy. It still has a lot of cash and generated $4.3 billion in free cash flow in the past year. In Q2 2024, the company made $9.14 billion in the second quarter, recording a year-over-year revenue growth of 12.84%.
It’s been using AI to make important discoveries in the energy sector. It recently launched Lumi, a new AI platform that helps energy companies work together and make better decisions by using high-quality data. It also partnered with NVIDIA to create new AI solutions specifically for the energy sector to add to its existing platforms.
It’s a good stock to buy because of the company’s partnerships with big companies. On September 18, it partnered with Aramco to reduce greenhouse gas emissions in the industrial sector. Schlumberger (NYSE:SLB) is a strong investment choice in the oilfield services sector. Despite some headwinds, the company’s long-term performance has significantly outpaced the market, demonstrating its resilience and ability to capitalize on industry trends. With its focus on international and offshore markets, it is well-positioned to benefit from ongoing capacity expansion projects and increasing demand for oilfield services.
Alger Spectra Fund stated the following regarding Schlumberger Limited (NYSE:SLB) in its fourth quarter 2023 investor letter:
“Schlumberger Limited (NYSE:SLB) provides technology for reservoir characterization, drilling, production, and processing to the oil and gas industry. During the quarter, the company reported fiscal third quarter operating results that were slightly above consensus estimates, driven by growth in international markets, namely Saudi Arabia, Kuwait, and Egypt. However, shares detracted from performance as declining oil prices weighed on the stock throughout the quarter, along with concerns around a lower North America rig count.”
6. AT&T Inc. (NYSE:T)
Forward Price-to-Earnings Ratio: 9.7
Number of Hedge Fund Holders: 71
AT&T Inc. (NYSE:T) is one of the largest telecommunications companies in the world. It offers a range of products and services, including wireless and wireline phone services, broadband internet, television, and digital advertising, and has a significant presence in the media industry through its ownership of Warner Bros. Discovery, which was formed in 2022 when AT&T Inc. (NYSE:T) spun off WarnerMedia and merged it with Discovery, Inc.
It’s focusing on modern internet solutions, especially expanding its 5G and fiber networks. The focus on fiber is important because it offers much faster and more reliable internet than cable. People now need faster internet because they use more data.
The company’s revenue decreased slightly year-over-year in Q2 2024 by 0.4%, but still earned $0.57 per share. Most of the revenue came from Mexico, and the company added 419,000 new postpaid phone customers. The average revenue per postpaid phone customer increased by 1.4%. Mobility service revenues grew by 3.4%, driven by improved pricing and a balanced go-to-market strategy. Overall broadband revenues increased by 7%, supported by a significant 18% rise in fiber revenues.
For the whole year, broadband revenue is expected to grow by more than 7%. The mobile business is doing well and is expected to grow in the second half of 2024. Selling both mobile and internet services together is bringing good returns.
The company has fiber internet available to ~28 million homes and businesses and is on track to reach over 30 million locations by the end of 2025. It’s a good investment because it focuses on modern internet solutions, is expanding its 5G and fiber networks, and offers fast and reliable internet. AT&T Inc. (NYSE:T) can charge more for its internet because of the pricing power it holds, which helps it stay profitable. Hence, it’s well-positioned for further growth.
Miller Value Income Strategy made the following comment about AT&T Inc. (NYSE:T) in its Q3 2023 investor letter:
“Our third-largest holding at quarter end was AT&T Inc. (NYSE:T), a leading provider of communications and connectivity services in the US. At $15/share, the stock trades at the same price it did almost thirty years ago. The share price is much less interesting to us in relation to where it has traded in the past than in relation to how much cash the company generates and what management is doing with it. At just over 6x earnings, the stock trades near its lowest price-to-earnings (P/E) multiple ever, also representing close to its largest-ever P/E discount to the stock market. The business converts most of its earnings to free cash flow, implying a forward free cash flow yield north of 15%. Just under half of free cash flow is going toward the dividend (7.5% yield), while much of the balance is going to debt paydown. In other words, if the stock does not fall below its lowest-ever valuation, investors clip a rock-solid 7.5% in cash, while owning a growing portion of a very steady business as management reduces debt outstanding. A discounted cash flow model will suggest that intrinsic value for shares begins with a “2,” suggesting the stock is undervalued on an absolute basis. The lack of volatility in the underlying fundamentals also makes it unique when compared to many other things we own, which reduces the probability of permanent capital impairment and argues for a significant weight in the portfolio.
AT&T looks particularly attractive when compared to some of the larger names dominating the S&P 500. Compare the stock to Apple, for instance, whose revenues and profits are likely to shrink this year, even as it trades at 29x this year’s earnings estimate. The ongoing return to rationality and capital accountability, along with extreme valuations in the megacap tech stocks, have us more excited about our portfolio’s prospects than we can remember for quite some time. As always, we remain the largest investors and welcome any questions or comments.”
5. ConocoPhillips (NYSE:COP)
Forward Price-to-Earnings Ratio: 11.52
Number of Hedge Fund Holders: 72
ConocoPhillips (NYSE:COP) is a global independent exploration and production company focusing on exploring, developing, and producing oil and natural gas resources. It’s committed to responsible energy practices and strives to meet the growing global demand for energy while minimizing environmental impact. In 2023, it secured access to a regasification terminal in the Netherlands for importing LNG. It also committed to buying 5 million tons of LNG annually and invested in a new LNG export facility in the US.
ConocoPhillips (NYSE:COP) has signed agreements to buy LN from two projects in Mexico. It also bought Concho Resources during a difficult time for the oil industry. This created a combined oil reserve of about 23 billion barrels. It’s using natural gas to help reduce greenhouse gas emissions and ensure energy security.
There’s an ongoing merger between ConocoPhillips (NYSE:COP) and Marathon Oil (MRO). MRO shareholders approved the merger, which is valued at $22.5 billion, including ~$5.4 billion in net debt. The deal is expected to close in late Q4 2024, pending regulatory approval and customary closing conditions
The company has been financially stable for a long time because of its structured approach. During the 2020 recession, many other oil companies took on more debt, but this company stayed financially healthy. In Q2 2024, it had adjusted earnings of $1.98 per share. It generated $14.14 billion in quarterly revenue, up 9.72% year-over-year.
The company’s ability to navigate market challenges, generate consistent cash flow, and return value to shareholders demonstrates its resilience and adaptability. Despite potential headwinds from global economic conditions and geopolitical factors, its diversified portfolio and strong operational execution suggest a promising future outlook.
Diamond Hill Large Cap Strategy stated the following regarding ConocoPhillips (NYSE:COP) in its Q2 2024 investor letter:
“Other bottom contributors in Q2 included CarMax, Target Corporation and ConocoPhillips (NYSE:COP). Shares of oil and gas exploration and production company ConocoPhillips declined against a backdrop of lower oil prices in Q2, as well as concerns about the expensive though strategically sound acquisition of Marathon Oil.”
4. Wells Fargo & Co. (NYSE:WFC)
Forward Price-to-Earnings Ratio: 10.03
Number of Hedge Fund Holders: 83
Wells Fargo & Co. (NYSE:WFC) is one of the largest banks in the US, offering a range of financial products and services, including commercial banking, retail banking, wealth management, and investment banking, and is known for its extensive network of branches and ATMs across the country, making it a convenient choice for many customers. It operates in 35 countries and serves over 70 million customers worldwide.
Revenue for the second quarter of 2024 from consumer, small, and business banking declined 5% from a year ago due to lower deposit balances and higher deposit costs. Home lending revenue was down 3%, auto revenue declined 25%, personal lending revenue was down 4%, middle market banking revenue dropped 2%, and asset-based lending and leasing revenue decreased 17% year-over-year.
Despite challenges in all of these segments, the company delivered a strong quarter with fee-based revenue growth across key categories and progress on strategic initiatives. It made $20.69 billion in Q2 2024 revenue, up 0.76% from a year-ago period. Credit card revenue was stable from a year ago, with growth in new account originations offset by lower other fee revenue. While market revenue grew 16%, driven by strong performance in equities, structured products, and credit products.
Wells Fargo & Co. (NYSE:WFC) is a well-positioned financial services company with a strong competitive advantage. Its diversified offerings, extensive branch network, and focus on margin expansion in key segments position it for continued growth and profitability. The lifting of the asset cap and ongoing investments in various areas, including trading, investment banking, and credit card services, are expected to drive further earnings growth.
ClearBridge Value Equity Strategy stated the following regarding Wells Fargo & Company (NYSE:WFC) in its fourth quarter 2023 investor letter:
“Stock selection in the financials sector proved to be the largest contributor to relative outperformance. Banking stocks such as Wells Fargo & Company (NYSE:WFC) saw their share price rise during the quarter as investors anticipated Fed rate cuts that would reduce deposit costs while retaining economic strength and minimizing the risk of credit losses.”
3. Exxon Mobil Corp. (NYSE:XOM)
Forward Price-to-Earnings Ratio: 13.44
Number of Hedge Fund Holders: 92
Exxon Mobil Corp. (NYSE:XOM) is engaged in every aspect of the petroleum business, from exploration and production to refining and marketing. It operates in various regions around the world and is known for its technological advancements in the energy industry, committed to providing reliable, affordable energy solutions while addressing environmental and social challenges.
The company is working on developing Proxxima, a new type of plastic, and other carbon materials for many different uses. It’s also focusing on producing more oil and gas at a lower cost and in a way that is better for the environment. This will help the US economy and energy security.
It had record production in Guyana and the Permian Basin. In Q2 2024, revenue grew by 12.24% from a year-ago period. Oil production increased by 15%, producing 574,000 barrels of oil per day. Product sales also increased by 10%. It’s expanding into LNG projects in Mozambique and the US, which are cleaner energy sources. These initiatives show the company’s commitment to sustainability.
Recently, Exxon Mobil Corp. (NYSE:XOM) bought Pioneer Natural Resources, which created the world’s largest potential for high-return unconventional resource development. It also agreed with Air Liquide to produce carbon-free hydrogen, with 98% of CO2 removed. The company also increased its share repurchase program to $20 billion through 2025, depending on market conditions, and it plans to buy back over $19 billion by the end of 2024.
The company’s strategic focus on diversification, innovation, and sustainability positions it well for long-term growth and success. Exxon Mobil Corp.’s (NYSE:XOM) recent acquisitions, investments in emerging energy technologies, and strong operational performance demonstrate its ability to adapt to changing market dynamics and deliver value to shareholders.
Madison Dividend Income Fund stated the following regarding Exxon Mobil Corporation (NYSE:XOM) in its first quarter 2024 investor letter:
“This quarter we are highlighting Exxon Mobil Corporation (NYSE:XOM) as a relative yield example in the Energy sector. XOM is a leading integrated oil and natural gas company. It has upstream assets that develop and produce oil and natural gas, along with downstream refining and chemical manufacturing assets. We believe it has attractive low-cost acreage in the Permian basin and has a sizeable growth opportunity in Guyana. Further, we think XOM has a sustainable competitive advantage due to size and scale, and its ability to integrate refining and chemical assets provides a low-cost advantage versus competitors.
Our thesis on XOM is that it will grow production volumes of oil and gas moderately over the next few years, while limiting excessive capital investment that plagued the industry from 2014-2020. Production growth will come from its 2023 acquisition of Pioneer Natural Resources, which is the largest producer in the Permian basin. XOM plans to double its Permian output by 2027, to 2 million barrels per day. Capital spending will be limited to $20-25 billion per year through 2027, which should allow for significant amounts of cash to be returned to shareholders including a $35 billion share repurchase program and continued dividend increases. Higher oil prices would provide a tailwind to our thesis but are not necessary. We think XOM can grow earnings and cash flow if oil prices remain above $60 per barrel…” (Click here to read the full text)
2. Bank of America Corp. (NYSE:BAC)
Forward Price-to-Earnings Ratio: 10.91
Number of Hedge Fund Holders: 92
Bank of America Corp. (NYSE:BAC) is one of the largest banks in the United States, offering a range of financial products and services, including commercial banking, retail banking, wealth management, and investment banking. It’s known for its extensive network of branches and ATMs across the country, making it a convenient choice for many customers. It’s focusing on technology and digital banking to improve customer experience and efficiency.
Bank of America Corp. (NYSE:BAC) struggles with high-interest costs, which jumped to $32.4 billion in the first half of 2023. As interest rates fall, the bank may see lower costs and higher growth in its investment banking and brokerage businesses. However, this also depends on the overall economic situation.
The company opened 278,000 new checking accounts in Q2 2024, bringing the total to 500,000 for the year. Its wealth management division added 6,100 new clients, and its commercial banking division added thousands of small businesses. It manages $5.7 trillion in customer money.
Overall, its revenue increased slightly in the second quarter. Fees grew by 6%, making up 46% of total revenue. Car and Service charge revenue also grew by 6%. 87% of customers are now using digital banking, which is important because 53% of sales were made digitally in the second quarter. Non-interest revenue grew significantly, with asset management fees up 14% and investment banking fees up 29%.
The company had strong earnings in Q2 because of higher interest rates. Although rising deposit costs affected consumer banking, their other businesses helped balance this out. The investment banking and capital markets division did well despite difficult market conditions. As the economy gets better, it should benefit from increased spending on credit cards, loans, and business borrowing. These factors together make it a great investment opportunity.
Diamond Hill Large Cap Strategy stated the following regarding Bank of America Corporation (NYSE:BAC) in its Q2 2024 investor letter:
“Other top contributors in Q2 included Bank of America Corporation (NYSE:BAC) and Extra Space Storage. Shares of financial services company Bank of America rose in the quarter as it looks increasingly likely net interest income will inflect and begin growing again in 2024’s back half and into 2025.”
1. JPMorgan Chase & Co. (NYSE:JPM)
Forward Price-to-Earnings Ratio: 12.15
Number of Hedge Fund Holders: 111
JPMorgan Chase & Co. (NYSE:JPM) is the largest bank in the US, offering a range of financial products and services, including commercial banking, retail banking, investment banking, wealth management, and asset management. It’s known for its global reach, serving clients in various countries and industries. It’s also a major player in the financial markets, providing investment banking services, trading, and asset management.
The company’s revenue grew by 21.53% in Q2 2024 as compared to the year-ago period, driven largely by its Commercial and Investment Banking (CIB) division, which saw a remarkable 50% surge in investment banking fees. The commercial and investment banking segment grew by 9% year-over-year, and net income increased by 11%. Asset and wealth management contributed $5.3 billion to revenue growth. It expanded its partnership with Oracle to improve payments in treasury, trade, and commerce, and introduced new biometric payment solutions for merchants in the US, making it easier for buyers and sellers to use payments.
It’s using automation to improve internal tasks and customer experiences. In August, it launched an AI assistant to help ~60,000 employees complete tasks more efficiently. For customers, the company introduced a new facial payment solution for merchants in the US. In May, it also launched a new data management service for institutional investors to help them streamline their operations and access consistent data.
JPMorgan Chase & Co. (NYSE:JPM) has $4.1 trillion in assets and $3.6 trillion in assets under management. The company is expected to continue to be successful because of its cost advantages and strategic investments in growth. With its strong financial performance, size, and scale, it’s well-positioned for future success.
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.”
While we acknowledge the growth potential of JPMorgan Chase & Co. (NYSE:JPM), our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than JPM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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