In this piece, we will take a look at ten overlooked large-cap stocks with cheap multiples. For more stocks, head on over to 5 Overlooked Large-Cap Stocks with Cheap Multiples.
In business as well as in the stock market, a time test principle holds true – the bigger you get, the more attention comes your way. For the stock market, this is clear when we see media coverage of different stock companies. The largest companies in the world in terms of market capitalization, such as Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT) get the most coverage, while other names see less attention. Yet, even though big tech, referred to as a ‘monopoly’ consists of a handful of companies, the mega cap segment to which these firms belong has a lot more companies than that. Mega cap refers to firms that have a market capitalization greater than $200 billion, and data from the stock screener Stock Analysis shows that right now there are 39 such firms, with Apple being the largest with a $2.6 trillion market capitalization and the smallest being Cisco Systems, Inc. (NASDAQ:CSCO) which has a $208 billion market capitalization.
Yet, as we move down the market capitalization food chain and focus our attention on large cap stocks (those with market capitalization between $10 billion and $200 billion), the number of firms naturally grows. There are 726 large cap companies, out of which NIKE, Inc. (NYSE:NKE) is the biggest since it has a $194 billion market capitalization and Dr. Reddy’s Laboratories Limited (NYSE:RDY) is the smallest with a market value of just a hairline above $10 billion. However, the small cap segment has the highest number of stocks, with more than a thousand companies on the list.
With these countless firms, investing is nothing less than an art. These days, the hottest topic in the financial press is a recession. As counterintuitive as it may sound, a potential recession is actually the result of the decisions of the Federal Reserve. This is because the central bank is worried about high inflation in U.S. becoming permanent, and to achieve its objectives, it has rapidly been increasing interest rates. On the inflation front, fresh data from the Bureau of Labor Statistics released in mid April 2023 show that ‘some’ inflation had down. To understand what this means, you have to understand that there are two kinds of inflation. These are the core and non core inflation, with the former removing food and energy from the mix to evaluate the prices of consumer goods, and the latter being a broader metric of inflation as a whole. The Labor Department’s data revealed that the broader inflation, or the consumer price index (CPI), had grown by 5% annually in March 2023, for a full percentage point drop from February’s figures. In monthly terms, the CPI stood at a mere 0.1%, below economist forecasts of 0.2%.
However, the core inflation component sat at 5.6% during March 2023, for a ten basis point (0.1%) jump from the annual February reading of February 2023. The monthly core reading dropped to 0.4% from the previous month’s 0.5% indicating that downward price trends are in play. A key component of the core CPI is rent, and their growth continued to push inflation higher.
The divergence between the core and non core inflation readings has led to a broad consensus that the Fed will increase interest rates one more time in May 2023 by 25 basis points before pausing. At the same time, most analysts also believe that a recession is due in America later this year, mirroring sentiment echoed by investment banks as 2023 started to settle in. So, in a recession, which stocks perform well? On this front, Schroders has some research, which shows that capital flows away from small cap stocks into large cap stocks as a recession starts to kick in since investors become wary of the stock market’s health. However, as the small cap share prices drop, capital flows back into them once a recession has settled in. Broadly speaking, during a recession and recovery, small cap stocks give 9.9% in annualized returns and large caps return 4.9%. However, during the expansion and slowdown phases, large caps end up returning 8.5% while small caps return 5.5%.
Finally, the Fed’s latest Monetary Policy Committee and Board of Governors meeting held in late March 2023 provides additional insights into how long a recession can last. The meeting’s minutes share:
For some time, the forecast for the U.S. economy prepared by the staff had featured subdued real GDP growth for this year and some softening in the labor market. Given their assessment of the potential eco- nomic effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years. Real GDP growth in 2024 was projected to remain below the staff’s estimate of potential output growth, and then GDP growth in 2025 was expected to be above that of potential. Resource utilization in both product and labor markets was forecast to be much less tight than in the January projection. The level of real output was projected to move below the staff’s estimate of potential output in early 2024, more than a year sooner than in the previous projection. Likewise, the unemployment rate was projected to rise above the staff’s estimate of its natural rate early next year.
With these details in mind, let’s take a look at some large cap stocks that are cheap and do not see significant hedge fund interest. Some top picks are U-Haul Holding Company (NYSE:UHAL), MPLX LP (NYSE:MPLX), and Western Midstream Partners, LP (NYSE:WES).
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Our Methodology
To pick out overlooked large cap stocks, we first listed down all companies with a market capitalization that ranges between $10 billion and $200 billion. Then, we narrowed them down to those companies that have a price to earnings (P/E) ratio lower than 10. A P/E ratio is a common measure of a stock’s ‘cheapness’ since the share price is more in tune with the firm’s profits. Finally, these firms were ranked according to hedge fund sentiment courtesy of Insider Monkey’s fourth quarter of 2022 survey of 943 hedge funds. Out of these, the ten with the least number of hedge fund investors were picked as part of our list of cheap and overlooked large cap stocks.
10 Overlooked Large-Cap Stocks with Cheap Multiples
10. Celanese Corporation (NYSE:CE)
Number of Hedge Fund Investors in Q4 2022: 31
Celanese Corporation (NYSE:CE) is headquartered in Irving, Texas. It is a chemicals company, which makes and sells polymer and other products for a variety of industries such as healthcare, automotive manufacturing, and food and beverage.
By the end of last year’s fourth quarter, 31 of the 943 hedge funds part of Insider Monkey’s survey had bought Celanese Corporation (NYSE:CE)’s shares. The firm’s largest investor in our database is the Oracle of Omaha, Warren Buffett’s Berkshire Hathaway which owns 9.7 million shares that are worth $992 million.
Along with MPLX LP (NYSE:MPLX), U-Haul Holding Company (NYSE:UHAL), and Western Midstream Partners, LP (NYSE:WES), Celanese Corporation (NYSE:CE) is an overlooked large cap company with cheap multiples.
9. International Paper Company (NYSE:IP)
Number of Hedge Fund Investors in Q4 2022: 30
International Paper Company (NYSE:IP) is a consumer cyclical firm that is based in Memphis, Tennessee. The firm makes and sells packaging products such as liner board and craft. Additionally, it also provides the personal care and hygiene industries with critical raw materials. International Paper Company (NYSE:IP) is one of the oldest companies on our list since it was set up in 1898.
30 of the 943 hedge funds profiled by Insider Monkey had invested in the company during Q4 2022. International Paper Company (NYSE:IP)’s largest investor is Edgar Wachenheim’s Greenhaven Associates which owns six million shares that are worth $210 million.
8. PulteGroup, Inc. (NYSE:PHM)
Number of Hedge Fund Investors in Q4 2022: 30
PulteGroup, Inc. (NYSE:PHM) is a construction firm headquartered in Atlanta, Georgia. It acquires land and builds houses and residential properties such as town homes and duplexes from the ground up. The firm also provides customers with mortgage financing.
Insider Monkey dug through 943 hedge funds for their December quarter of 2022 investments and found out that 30 had bought a stake in PulteGroup, Inc. (NYSE:PHM). Out of these, Natixis Global Asset Management’s Harris Associates is the largest shareholder since it owns 5.9 million shares that are worth $270 million.
7. Corebridge Financial, Inc. (NYSE:CRBG)
Number of Hedge Fund Investors in Q4 2022: 29
Corebridge Financial, Inc. (NYSE:CRBG) is based in Houston, Texas. It is a financial firm that provides customers with products such as mutual funds and annuities. It also offers financial planning products, alongside insurance and investment products.
29 of the 943 hedge fund portfolios studied by Insider Monkey had held Corebridge Financial, Inc. (NYSE:CRBG)’s shares in Q4 2022.
6. The Carlyle Group Inc. (NASDAQ:CG)
Number of Hedge Fund Investors in Q4 2022: 28
The Carlyle Group Inc. (NASDAQ:CG) is another financial company. It is headquartered in Washington, D.C.
Insider Monkey dug through 943 hedge fund portfolios for 2022’s final quarter and found out that 28 had held a stake in the firm. The Carlyle Group Inc. (NASDAQ:CG)’s largest hedge fund investor is Panayotis Takis Sparaggis’s Alkeon Capital Management which owns 13.1 million shares that are worth $395 million.
U-Haul Holding Company (NYSE:UHAL), The Carlyle Group Inc. (NASDAQ:CG), MPLX LP (NYSE:MPLX), and Western Midstream Partners, LP (NYSE:WES) are some large cap stocks not on the hedge fund radar.
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Disclosure: None. 10 Overlooked Large-Cap Stocks with Cheap Multiples is originally published on Insider Monkey.