Earlier on March 13, Michael Cuggino, President and Portfolio Manager of the Permanent Portfolio Family of Funds, appeared on CNBC’s ‘The Exchange’ and began discussing his fund’s performance. Despite a challenging market environment, his fund achieved a 4% return this year, which he attributed to diversification rather than reliance on a single asset class like gold. The portfolio includes gold, silver, diversified equities, and bonds. When asked about market reactions to tariff-related headlines, Cuggino emphasized the importance of not overreacting to daily news fluctuations. He described the market’s behavior as herky-jerky and advised investors to focus on long-term opportunities rather than reacting impulsively. His base case anticipated some turbulence due to the transition under the new administration’s economic policies. His strategy involves identifying opportunities during volatile periods rather than making significant portfolio changes.
The discussion also featured David Zervos, Chief Market Strategist at Jefferies, who provided insights on Washington’s role in market volatility. Zervos acknowledged that while policies such as tariffs, immigration reforms, and drug policies were largely unfolding as expected, the speed of changes under the current administration was surprising investors. He pointed out rapid spending cuts and layoffs in the public sector as key contributors to market unease. For instance, courts recently ordered the federal government to rehire probationary employees who had been dismissed. Zervos likened this abrupt shift to transitioning from a public-sector-reliant economy to one driven by the private sector, which is a process that has introduced significant uncertainty. Regarding tariffs specifically, Zervos downplayed their overall impact on the US economy, which he described as domestically driven. While tariffs could affect specific industries like wine or automobiles with high overseas components, he argued that broader economic trends would be shaped by deregulation, reduced business costs, and a shift toward private-sector efficiency. He warned that the speed of these transitions could lead to short-term volatility but maintained optimism about long-term productivity gains.
It’s important to note that Zervos praised Cuggino’s diversified portfolio approach, particularly his use of hedges and fixed-income investments. Therefore, we’re here with a list of the 10 most undervalued S&P 500 stocks to buy now to help you diversify your portfolio.
Methodology
We used the Finviz stock screener to compile a list of the top S&P 500 stocks that had a forward P/E ratio under 15. We then selected the 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 Q4 2024. The hedge fund data was sourced from Insider Monkey’s database which tracks the moves of over 1000 elite money managers.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10 Most Undervalued S&P 500 Stocks to Buy Now
10. Merck & Co Inc. (NYSE:MRK)
Forward P/E Ratio as of March 14: 10.52
Number of Hedge Fund Holders: 91
Merck & Co Inc. (NYSE:MRK) is a global healthcare company that operates through its Pharmaceutical and Animal Health segments. It provides a portfolio of human and veterinary products, which include blockbuster drugs like Keytruda and Gardasil, along with a range of animal health solutions.
In Q4 2024, Keytruda sales experienced a 21% surge and reached $7.8 billion. This was fueled by global demand across both metastatic and earlier-stage cancers. The company secured regulatory approvals for Keytruda-based regimens in China, Japan, and the US. At upcoming medical meetings, the company plans to present findings from oncology studies, which include subcutaneous pembrolizumab and Keytruda in head and neck cancer.
For instance, the company announced positive Phase 3 trial results for its investigational doravirine/islatravir (DOR/ISL) two-drug HIV-1 regimen on March 12. The company’s new treatment proved as effective as standard therapies in two studies of adults with controlled HIV after 48 weeks. Viral levels rose in 1.5% and 1.4% of DOR/ISL patients compared to 0.6% and 4.9% on standard treatments, respectively. Most patients maintained viral suppression. Merck & Co Inc. (NYSE:MRK) will seek regulatory approval for this treatment by mid-2025.
The company’s Keytruda cancer drug continues to show growth. GreensKeeper Asset Management stated the following regarding Merck & Co Inc. (NYSE:MRK) in its Q3 2024 investor letter:
“Merck & Co., Inc. (NYSE:MRK) was our second-largest detractor this quarter, declining -8.3%. MRK’s leading HPV vaccine, GARDASIL 9, faced challenges internationally due to inventory buildup within its Chinese distributor, which is expected to reduce shipments for the remainder of 2024. Despite this short-term impact, the long-term outlook for GARDASIL 9 remains promising. Meanwhile, the company’s $27 billion Keytruda cancer juggernaut continues to grow at a healthy clip, powering earnings growth.”
9. Discover Financial Services (NYSE:DFS)
Forward P/E Ratio as of March 14: 12.2
Number of Hedge Fund Holders: 91
Discover Financial Services (NYSE:DFS) offers a range of digital banking and payment services across the US. These include Discover-branded credit cards, personal & home loans, and deposit products. It operates the PULSE (ATM and debit network) and Diners Club (global charge card network) payment networks.
The company’s Credit Card division had a strong Q4 2024 performance. The net interest margin reached 11.96%, which was a 0.98% increase year-over-year. Card receivables saw a modest 1% increase, which reflected a slight decrease in payment rates. Credit performance within the card segment showed positive trends. Card net charge-offs decreased by 0.25% sequentially. Additionally, credit card accounts from 2023 are projected to be more profitable than those from 2022. The consumer base remains stable, which is supported by wage growth and a strong labor market.
The company anticipates loan growth to return to pre-pandemic levels, with sales and new account generation playing a more significant role. The company is also preparing for its merger with Capital One. The merger will combine Discover Financial Services’ (NYSE:DFS) payment network and credit card business with Capital One’s. This will create a larger financial services company with increased scale and market share.
Middle Coast Investing stated the following regarding Discover Financial Services (NYSE:DFS) in its Q3 2024 investor letter:
“The good transitions tend to tie back to the macroeconomy. Financial companies are seen as the big winners in a soft landing. Each of our winners have good things happening with them, too. Discover Financial Services (NYSE:DFS) is cleaning up many of its problems from the past few years. Whether or not its deal with Capital One goes through, Discover’s business has gotten much stronger in the past six months.”
8. Pfizer Inc. (NYSE:PFE)
Forward P/E Ratio as of March 14: 8.62
Number of Hedge Fund Holders: 92
Pfizer Inc. (NYSE:PFE) is a global biopharmaceutical company that discovers, develops, and sells a range of medicines and vaccines across various therapeutic areas. These areas include cardiovascular, infectious diseases, and oncology, with notable brands like Comirnaty, Paxlovid, and Eliquis.
The company’s oncology segment is expanding. Padcev combined with pembrolizumab has become the leading initial treatment for advanced urothelial cancer in the US, with the potential to reach three times more patients. Additionally, Braftovi/Mektovi have experienced a 27% global sales increase from the previous year. It is supported by new data showing improved survival rates in colorectal cancer. Lorbrena also saw substantial growth and has become a standard lung cancer treatment with a 37% global sales increase.
The company is aggressively expanding its oncology pipeline with ongoing Phase 3 trials for sigvotatug vedotin in lung cancer and planned studies in other cancers. A Phase 3 readout for multiple myeloma is also anticipated. In 2025, Pfizer Inc. (NYSE:PFE) will aim for multiple regulatory approvals and Phase 3 results. Recent positive Phase 3 results for breast cancer therapy vepdegestrant, combined with FDA Fast Track designation, highlight the company’s commitment to innovation and strong financial performance. It has contributed to a modest 4% price increase despite broader market challenges.
Anticipating growth from the company, Parnassus Value Equity Fund bought its stock last year and stated the following regarding Pfizer Inc. (NYSE:PFE) in its first quarter 2024 investor letter:
“During the quarter, we added new positions in Pfizer Inc. (NYSE:PFE), NICE and Charter Communications. We purchased Pfizer to capture the potential upside from any turnaround following the COVID-induced boom-bust cycle of the last few years. Pfizer’s stock price sank by more than 40% in 2023 as COVID-19 vaccine revenues rolled off, providing an attractive entry point for us. The company completed its acquisition of Seagen, which should strengthen Pfizer’s pipeline in antibody-drug conjugates (ADC). Pfizer also offers an attractive dividend yield.”
7. Micron Technology Inc. (NASDAQ:MU)
Forward P/E Ratio as of March 14: 13.28
Number of Hedge Fund Holders: 94
Micron Technology Inc. (NASDAQ:MU) is a memory and storage solutions company that designs, develops, and manufactures DRAM, NAND, and NOR memory technologies under Micron and Crucial brands. It serves critical applications in data centers, mobile devices, automotive, and industrial sectors.
As January concluded, Morgan Stanley analyst Joseph Moore revised the company’s price target and lowered it from $98 to $91, while maintaining an Equal Weight rating. This reflected concerns regarding DeepSeek’s AI advancements that could lead to deflationary pressures. Moore suggested that the market’s response might trigger increased export restrictions or a decline in spending within the semiconductor industry, although it’s unexpected. However, he remains optimistic about the sector’s overall prospects.
The company’s data center segment contributes over 50% of its revenue as of FQ1 2025. It’s invested in the AI memory market, with HBM as a focus. The HBM market is projected to surpass $30 billion in 2025. The company is transitioning to 12-high HBM production, which will boost revenue throughout 2025. Micron Technology Inc. (NASDAQ:MU) is a frontrunner in deploying LPDDR5X memory in data centers for AI workloads. It’s partnering with players like NVIDIA, that use LPDDR5X’s performance and efficiency advantages.
Parnassus Value Equity Fund stated the following regarding Micron Technology, Inc. (NASDAQ:MU) in its Q2 2024 investor letter:
“Micron Technology, Inc. (NASDAQ:MU) posted fiscal-third-quarter results that met expectations. Micron’s DRAM (dynamic random access memory) and NAND (non-volatile storage technology) segments grew revenue strongly, continuing the company’s recovery from a cyclical downturn last year. We believe Micron is well positioned to capitalize on AI-driven demand for greater memory.”
6. PayPal Holdings Inc. (NASDAQ:PYPL)
Forward P/E Ratio as of March 14: 13.39
Number of Hedge Fund Holders: 94
PayPal Holdings Inc. (NASDAQ:PYPL) provides a technology platform for digital payments. It connects merchants and consumers and offers services under brands like PayPal, Venmo, and Braintree. It facilitates online and in-person transactions, fund transfers, and utilizes various funding sources, which include bank accounts, credit cards, and cryptocurrencies.
The company’s core growth engine in 2024 was its branded checkout segment, which saw consistent quarterly growth in transaction margin dollars, with an acceleration in US growth during Q4 2024. Upgraded checkout experiences, now live for over 25% of US traffic, reduced latency by 40% and boosted conversion rates by 1%. The Buy Now, Pay Later (BNPL) segment was also a major contributor, with $33 billion in total payment volume, which marked a 21% year-over-year increase. BNPL users spend 30% more on average. Fastlane, which is the company’s streamlined checkout feature, reached nearly 2,000 merchants, and attracted 75% new or re-engaged PayPal users.
For 2025, PayPal Holdings Inc.’s (NASDAQ:PYPL) priority is scaling adoption of these innovations. It will expand globally and deepen merchant partnerships, while also growing its omnichannel presence with PayPal Everywhere.
Longleaf Partners Fund attributed the company’s strong performance to its improved leadership, cost management, and share buybacks, which led to significant FCF growth. It stated the following regarding PayPal Holdings Inc. (NASDAQ:PYPL) in its Q4 2024 investor letter:
“PayPal Holdings, Inc. (NASDAQ:PYPL) – Digital payments platform PayPal was a contributor for the quarter and the year. The company delivered strong results, with gross margin dollars continuing to grow in the mid-high single digits for the last few quarters. Effective cost management further contributed to double-digit FCF growth, a key metric in our analysis. PayPal also demonstrated its commitment to enhancing shareholder value by repurchasing shares at a 10% annualized basis in the most recent quarter, leading to even stronger FCF per share growth. Much of what we envisioned at our initial investment has materialized quicker than anticipated. This strong performance has been driven by the improved leadership of relatively new CEO Alex Chriss.”
5. Wells Fargo & Co. (NYSE:WFC)
Forward P/E Ratio as of March 14: 11.81
Number of Hedge Fund Holders: 96
Wells Fargo & Co. (NYSE:WFC) is a financial services company that offers banking, investment, mortgage, and finance products and services across four segments. These include the Consumer Banking & Lending, Commercial Banking, Corporate & Investment Banking, and Wealth & Investment Management segments.
The company’s credit card division grew in 2024 and added over 2.4 million new accounts. It experienced a $17 billion increase in spending. The launch of 11 new card products since 2021 has contributed to a 3% revenue rise. This is driven by higher loan balances and increased spending. Despite overall loan declines within the bank, credit card balances grew, which reflected strong credit standards.
On January 20, analyst Glenn Thum of Phillip Securities maintained a Buy rating on Wells Fargo & Co. (NYSE:WFC) with an $85 price target due to its strong Q4 2024 earnings and a positive 2025 outlook for net interest income growth.
Oakmark Fund favors this company because of its strong earnings, efficient cost management, share repurchases, and positive market sentiment. It stated the following regarding Wells Fargo & Co. (NYSE:WFC) in its Q4 2024 investor letter:
“Wells Fargo & Company (NYSE:WFC) was the top contributor during the quarter. The U.S.-headquartered diversified bank’s stock price rose after reporting what we see as solid third-quarter earnings where the company’s efficiency ratio continued to improve as expenses were well controlled. The fee income segment also performed well, growing 12%. In addition, Wells Fargo had the opportunity to repurchase $3.5 billion in shares during the period, bringing the full-year repurchase to roughly $16 billion. In November, the stock price continued its upward trend following the U.S. presidential election as investors are optimistic that the financials sector will benefit from looser regulations and lower corporate taxes, thus stimulating a better environment for dealmaking. We continue to believe that Wells Fargo is a competitively advantaged bank that can use its superior business mix and return potential to unlock further value.”
4. Citigroup Inc. (NYSE:C)
Forward P/E Ratio as of March 14: 8.9
Number of Hedge Fund Holders: 101
Citigroup Inc. (NYSE:C) is a financial services company that provides diverse products and services across five segments. These include the Services, Markets, Banking, US Personal Banking, and Wealth segments. It serves consumers, corporations, governments, and institutions worldwide.
The company’s Services division saw a 9% year-over-year revenue increase in 2024, and reached $19.6 billion. This was driven by a 17% rise in fee revenue and higher deposit volumes. The division gained market share in Trade and Treasury Solutions (TTS) and security services, and achieved its best Q4 in 10 years with 6% market growth. For 2025, the company anticipates continued growth in non-interest revenue through expanded institutional and commercial client relationships and digital/data investments with asset managers.
Citigroup Inc. (NYSE:C) is expanding its Flex Pay “pay-over-time” tool through strategic partnerships, notably with Apple Pay, to increase customer awareness and usage. Flex Pay allows credit card customers to convert purchases of $75 or more into fixed monthly payments for a fee, instead of APR. Primarily used by digitally savvy customers for short-term financing, Flex Pay has seen consistent double-digit growth, which includes a 25% increase from 2023 to 2024. While accessible via the company’s app and website, partnerships drive significant volume and offer added convenience.
Diamond Hill Capital Long-Short Fund stated the following regarding Citigroup Inc. (NYSE:C) in its first quarter 2024 investor letter:
“Other top Q1 contributors included Meta Platforms, Citigroup Inc. (NYSE:C) and Walt Disney. Banking and financial services company Citigroup’s restructuring efforts are ongoing, and it continues remediating regulatory issues and building capital in anticipation of increased requirements. The company expects to see expenses fall meaningfully in the second half of 2024, bolstering the outlook from here.”
3. Exxon Mobil Corp. (NYSE:XOM)
Forward P/E Ratio as of March 14: 13.61
Number of Hedge Fund Holders: 104
Exxon Mobil Corp. (NYSE:XOM) is a global energy company that explores, produces, refines, and markets crude oil, natural gas, petrochemicals, and specialty products. It operates through Upstream, Energy Products, Chemical Products, and Specialty Products segments, and is also pursuing lower-emission technologies.
The company’s Upstream segment explores and produces oil and gas and achieved record production in 2024 due to the strong performance in the Permian Basin and Guyana. Permian production is projected to reach 2.3 million barrels per day by 2030, which will be up from 1.5 million in 2024. In 2025, the company will implement projects like Yellowtail in Guyana and advanced Permian recovery techniques, and focus on low-cost, low-emission, and high-return growth. Yellowtail is Guyana’s largest deepwater oil project, and advanced techniques boost Permian Basin oil and gas extraction.
Guyana, which is enriched by Exxon Mobil Corp.’s (NYSE:XOM) oil discoveries, is pursuing a gas partnership with Suriname to build an industrial hub. Guyana President aims to diversify the economy with gas-powered industries and regional energy security. Exxon Mobil Corp. (NYSE:XOM) is exploring gas development options, and stands to benefit from increased production and potential new infrastructure development in the region.
Madison Dividend Income Fund favors Exxon Mobil Corp. (NYSE:XOM) because of its strategic assets, efficient operations, planned production growth, and strong shareholder return policy. Here’s what it stated regarding the company 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 P/E Ratio as of March 14: 10.72
Number of Hedge Fund Holders: 113
Bank of America Corp. (NYSE:BAC) is a financial institution that offers products and services across four segments: Consumer Banking, Global Wealth & Investment Management, Global Banking, and Global Markets. It serves individuals, businesses, and institutions worldwide.
The company’s Consumer Banking division generated ~$11 billion in 2024 revenue, which made up 40% of the company’s total earnings. Q4 2024 revenue alone was $10.6 billion. The segment added over 200,000 net new checking accounts, marking 6 years of growth. The company’s digital engagement was strong, with over 14 billion logins and digital sales exceeding 60% in Q4. The AI-powered “Erica” platform surpassed 2.5 billion interactions.
This year, the company laid off investment banking staff, which included junior bankers, analysts, and associates, following workforce reductions of about 1% after performance reviews. These cuts are part of annual talent management. Bank of America Corp. (NYSE:BAC) made the job cuts to reduce costs and align staffing with current market conditions in the investment banking sector.
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 P/E Ratio as of March 14: 12.24
Number of Hedge Fund Holders: 123
JPMorgan Chase & Co. (NYSE:JPM) is a global financial services firm that provides a wide range of products and services across three segments. These are the Consumer & Community Banking, Commercial & Investment Bank, and Asset & Wealth Management segments.
The company’s Consumer & Community Banking (CCB) segment reported $18.4 billion in Q4 2024 revenue, which marked a 1% year-over-year increase. This was driven by an 11% rise in card outstandings and higher Net Interest Income (NII) in its Card Services business. Nearly 10 million new card accounts were acquired in 2024. The company anticipates continued card business growth, although at a moderate pace compared to 2024.
Recently, the company’s software engineers have seen a 10% to 20% increase in productivity due to an in-house coding assistant. This efficiency boost allows its 63,000-strong tech workforce to focus on higher-value AI and data projects. With 450 current AI use cases and CEO Jamie Dimon’s projection of 1,000 by next year, the bank aims to transform operations and create significant value. President Daniel Pinto estimates AI could add $1 billion to $1.5 billion in value.
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 time frame. 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.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
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.
