In this article, we discuss 10 value stocks to buy according to Joel Greenblatt. If you want to read about the top value stocks in the Greenblatt portfolio, go directly to 5 Value Stocks to Buy According to Joel Greenblatt.
Value investors are once again in the limelight as inflation wreaks havoc on the growth economy. One of those value investors is Joel Greenblatt, the chief of Gotham Asset Management, a hedge fund with a 13F portfolio value of more than $3 billion at the end of the fourth quarter of 2021. Greenblatt made his fortune on the market through a value-focused investing strategy that averaged returns of 50% in the late 1980s and early 1990s. He is also famous for working closely with Big Short investor Michael Burry during his early days in the market.
The value investing guru recently spoke to William Green in a larger discussion around his outlook on the economy. The Gotham Asset Management chief sought to brush aside the hype around blockchain technology in general and Bitcoin in particular during the interview, saying he did not own any Bitcoin because he thought it was “not an intelligent way” to invest in the crypto economy. Greenblatt labeled Bitcoin “speculation” and predicted that it would “never earn any money” but stressed that he was not totally dismissive of blockchain technology.
Greenblatt compared Bitcoin to expensive art, noting that the pieces that may be popular now may not be popular in the future. These and other thoughts that Greenblatt has on the economy are much better understood in the context of the latest market moves made by the investor. Some of the top value holdings in the Gotham Asset Management portfolio at the end of December 2021 included Target Corporation (NYSE:TGT), McDonald’s Corporation (NYSE:MCD), and The Home Depot, Inc. (NYSE:HD), among others discussed in detail below.
Our Methodology
The stocks were picked from the fourth quarter 13F holdings of Gotham Asset Management, based on the fund’s latest 13F regulatory filing with the SEC. The analyst ratings of each stock are also discussed to provide readers with some additional context for their investment decisions. Data from around 900 elite hedge funds tracked by Insider Monkey in the fourth quarter of 2021 was used to identify the number of hedge funds that hold stakes in each firm.
Joel Greenblatt of Gotham Asset Management
Value Stocks to Buy According to Joel Greenblatt
10. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 71
Exxon Mobil Corporation (NYSE:XOM) is an integrated oil and gas firm. According to its latest 13F filing, Gotham Asset Management owned 253,999 shares of the company at the end of December 2021 worth $15.5 million, representing 0.50% of the value of its 13F portfolio. The fund increased its stake in the energy giant by 20% between September 30 and December 31
On March 9, Barclays analyst Jeanine Wai kept an ‘Overweight’ rating on Exxon Mobil Corporation (NYSE:XOM) stock and raised the price target on it to $98 from $91, identifying “current gas price strip and updated Permian production/capex assumptions” as some of the main reasons behind the ratings update.
At the end of the fourth quarter of 2021, 71 hedge funds tracked by the database of Insider Monkey held stakes worth $5.3 billion in Exxon Mobil Corporation (NYSE:XOM), compared to 64 funds in the previous quarter holding stakes worth $4.6 billion.
Just like Target Corporation (NYSE:TGT), McDonald’s Corporation (NYSE:MCD), and The Home Depot, Inc. (NYSE:HD), Exxon Mobil Corporation (NYSE:XOM) is one of the stocks on the radar of value investors amid rising inflation.
In its Q4 2021 investor letter, Saturna Capital highlighted a few stocks and Exxon Mobil Corporation (NYSE:XOM) was one of them. Here is what the fund said:
“Few companies maintain their position at the top for more than a decade or two. One that did was Exxon Mobil Corporation (NYSE:XOM), which appeared decennially from 1980 through 2010. In 2019 it was ranked 10th, but as of writing has dropped to 39th place.”
9. United Parcel Service, Inc. (NYSE:UPS)
Number of Hedge Fund Holders: 55
United Parcel Service, Inc. (NYSE:UPS) provides letter and package delivery services. Greenblatt’s hedge fund owned 72,502 shares of the delivery firm at the end of the fourth quarter of 2021 worth $15.5 million, representing 0.5% of its 13F portfolio value. The fund increased its stake in United Parcel by 16% in the fourth quarter.
On February 2, Wells Fargo analyst Allison Poliniak-Cusic maintained an ‘Overweight’ rating on United Parcel Service, Inc. (NYSE:UPS) stock and raised her price target on it to $270 from $245, noting the earnings results of the firm topped expectations, and were reflective of the “better not bigger” strategy of the firm.
Among the hedge funds tracked by Insider Monkey, New York-based Renaissance Technologies is a leading shareholder in United Parcel Service, Inc. (NYSE:UPS) with 1.1 million shares worth more than $249 million.
In its Q4 2021 investor letter, Saturna Capital also discussed United Parcel Service, Inc. (NYSE:UPS). Here is what the fund said:
“Given the likelihood of rising inflation and interest rates ahead, we anticipate adjustments to the portfolio to reduce exposure to highly valued stocks dependent on low interest rates to support terminal year valuations, while seeking investments in companies more correlated with a return to economic normalcy. Despite the share price decline, it remains expensive with modest growth. We sold our position in United Parcel. The United Parcel Service, Inc. (NYSE:UPS) sale was premature, and we may re-engage given an opportunity.”
8. Lowe’s Companies, Inc. (NYSE:LOW)
Number of Hedge Fund Holders: 72
Lowe’s Companies, Inc. (NYSE:LOW) is a home improvement retailer. The latest data shows that the investment firm led by Joel Greenblatt owned 59,045 shares in the company at the end of December 2021 worth $15.2 million, representing 0.49% of its 13F portfolio value. The fund increased its stake in the home improvement company by 50% in the fourth quarter.
On February 23, Baird analyst Peter Benedict kept an ‘Outperform’ rating on Lowe’s Companies, Inc. (NYSE:LOW)’s stock, with a price target of $285, underlining that home improvement demand would prove “more durable” than some feared in the coming months.
At the end of the fourth quarter of 2021, 72 hedge funds held stakes worth $6.8 billion in Lowe’s Companies, Inc. (NYSE:LOW), up from 60 in the preceding quarter with holdings worth $5 billion.
In its Q4 2021 investor letter, Pershing Square Capital Management, an asset management firm, highlighted a few stocks and Lowe’s Companies, Inc. (NYSE:LOW) was one of them. Here is what the fund said:
“Lowe’s Companies, Inc. (NYSE:LOW) is a high-quality business with significant long-term earnings growth potential
Supportive macroeconomic backdrop
-Aging housing stock, lack of new inventory, robust home equity values, and unprecedented pro project backlog
-COVID-19 causing millennials to enter the housing market
Positioned to grow EPS largely independent of market conditions
-Idiosyncratic revenue opportunities driving share gains
-Self-help initiatives catalyzing operating margin expansion
-Buybacks representing ~8% of current market capitalization planned for 2022
Multi-year business transformation with substantial earnings upside
-Margin target of 13% has substantial upside; Home Depot at ~15.3% and increasing
-Potential to generate high-teens EPS growth over the next several years.
Lowe’s Companies, Inc. (NYSE:LOW) continues to trade at a significantly discounted P/E multiple relative to Home Depot despite materially higher prospective EPS growth. LOW’s share price including dividends increased 63% in 2021 and has decreased 10% year-to-date in 2022.”
7. Micron Technology (NASDAQ:MU)
Number of Hedge Fund Holders: 83
Micron Technology (NASDAQ:MU) makes and sells semiconductor products. Gotham Asset Management owned 161,973 shares of the company worth $15 million as of December 31, representing 0.48% of the value of its 13F portfolio. The fund upped its stake in the chip stock by 25% in the fourth quarter.
On March 30, Morgan Stanley analyst Joseph Moore kept an ‘Equal Weight’ rating on Micron Technology (NASDAQ:MU) and raised the firm’s price target on its shares to $83 from $77, noting that the firm “continues to execute well and the strong earnings power continues to be more durable than expectations”.
At the end of the fourth quarter of 2021, 83 hedge funds in the database of Insider Monkey held stakes worth $5.5 billion in Micron Technology (NASDAQ:MU), compared to 63 funds with $3.8 billion in holdings a quarter earlier.
In its Q3 2021 investor letter, Hazelton Capital Partners, an asset management firm, highlighted a few stocks and Micron Technology (NASDAQ:MU) was one of them. Here is what the fund said:
“It’s hard to explain how shares of Micron Technology (NASDAQ:MU), manufacture of DRAM and NAND semiconductor chips, can fall during a global chip shortage. In most industries, focusing on demand can give you a clear insight into what lays ahead for a company. Today, the memory and storage chip industry is no different. However, in the past, companies focused on market share led to the reckless build out of chip fabrication plants (FABs), oversupply, falling average selling prices (ASPs) of memory and storage chips, lower margins, and declining cash flows. As the industry consolidated – there are now just 3 major producers of DRAM and 5 on the NAND side – rational behavior among the key players began to take hold as competitors began focusing more on R&D. Currently, chip pricing remains cyclical although less so than in the past and that cyclicality has a long-term upward bias. The ongoing transition to newer and more robust platforms (3D 176-layer NAND & 1-Alpha node DRAM) has provided the memory and storage chip industry with improved supply capacity under its current manufacturing footprint, ultimately pressuring ASPs. Over the past three years, as most of the large platform conversions have already taken place, being able to add more bits per wafer has reached a saturation point. With no major FAB build outs planned in the near-term by competitors Samsung or SK Hynix, constrained supply and flattening cost curves should lead to durable and upward sloping ASPs once the recent volatility from the chip shortage subsides.
Currently Micron Technology (NASDAQ:MU) trades at just 8x 2022 estimate earnings. Micron Technology (NASDAQ:MU) is expecting growth in both DRAM and NAND not just from the supply of more chips to data centers, artificial intelligence, the auto sector, and mobile devices, but also from greater demand for gigabyte capacity per unit within those segments. With a healthy balance sheet, improving return on invested capital, and expanding cash flows, not only should Micron benefit from improving future earnings but its multiple should also reflect the transition to a flattening cost curve.”
6. DTE Energy Company (NYSE:DTE)
Number of Hedge Fund Holders: 27
DTE Energy Company (NYSE:DTE) is a multi-utilities firm. Gotham Asset Management owned 119,933 shares of the company at the end of December 2021 worth $14.3 million, and representing 0.46% of value of its 13F portfolio. The company was a new addition to the portfolio in the fourth quarter.
On March 10, Argus analyst Marie Ferguson maintained a ‘Buy’ rating on DTE Energy Company (NYSE:DTE) stock and raised her price target on it to $132 from $130, backing the firm to grow its EPS by 5%-6% annually over the next five years and to provide shareholders with total annual returns of 9%-10%.
At the end of the fourth quarter of 2021, 27 of the hedge funds tracked by our database held stakes worth $778 million in DTE Energy Company (NYSE:DTE), up from 22 in the preceding quarter, which held stakes worth $426 million.
Along with Target Corporation (NYSE:TGT), McDonald’s Corporation (NYSE:MCD), and The Home Depot, Inc. (NYSE:HD), DTE Energy Company (NYSE:DTE) is one of the stocks that institutional investors have their eye on as interest rates rise.
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Disclosure. None. 10 Value Stocks to Buy According to Joel Greenblatt is originally published on Insider Monkey.
