In this article, we will look at 11 best undervalued stocks to buy now. If you want to explore similar stocks, you can also read 5 Best Undervalued Stocks to Buy Now.
Value investing has long been an investors’ go-to strategy to come atop the broad market and pocket huge profits for themselves and their investors. Some of the world’s most influential and successful investors of all time such as Warren Buffett, Kenneth Fisher, Benjamin Graham, and Seth Klarman have employed, vouched for, and pioneered value investing strategies to acquire their fortunes.
Value Investing Legends
Benjamin Graham, now late, is officially dubbed as the “father of value investing”. He is applauded for his work in Security Analysis with David Dodd and The Intelligent Investor, both of which laid the groundwork for value investing instruments and tools widely used in stock valuations now. Warren Buffett, one of the world’s most successful value investors to date, has religiously followed the teachings of Benjamin Graham. As of 2022, Warren Buffett is worth $95.7 billion and is the fifth-wealthiest billionaire in the world. Warren Buffett has set the example for making fortunes from value investing strategies over the long term. During the entirety of his career, Mr. Buffet’s hedge fund has generated a median annual return of roughly 20.1% from 1965 to 2021, besting the S&P 500’s average annualized returns of 10.5%, including dividends, over the same period.
When To Own What: Growth Vs Value
Billionaire Kenneth Fisher has compared growth stocks to value stocks on multiple occasions and has laid the rationale of when to own what. Mr. Fisher spoke on the topic in a recent video he uploaded to his YouTube channel. Here is what he said:
“There’s a time when value does better, a time when growth does better. Typically early in a stock market cycle off the bottom, following a bear market, value stocks tend to lead. Typically late in a bull market, before it peaks, growth stocks tend to lead.”
However, Mr. Fisher believes that in the longer term both categories tend to perform the same as a consequence of shifts in supply overwhelming shifts in demand for either category, in the “very long term”.
Performance of Value Stocks: In Retrospect
A leading investment research company, Dimensional Fund Advisors, conducted a study that examined the returns of stocks belonging to growth and value categories between 1927 and 2021. Dimensional found that value stocks bested growth stocks by a median of 4.1% on an annualized basis in the US since 1927.
Some of the best value stocks that you can invest in right now are JPMorgan Chase & Co. (NYSE:JPM), Morgan Stanley (NYSE:MS), and Exxon Mobil Corporation (NYSE:XOM).
Our Methodology
For our list of 11 best undervalued stocks to buy now, we picked pure-play value stocks from the energy, financials, and industrials segments. We checked each stock’s trailing-twelve-month price-to-earnings ratios and narrowed down our selection to stocks that had a PE of less than 15. Moreover, we preferred stocks that had consensus buy-side ratings from expert financial analysts.
With each stock, we have mentioned the analyst rating and hedge fund sentiment, which we sourced from Insider Monkey’s database of approximately 900 hedge funds. The stocks are ranked in increasing number of hedge fund holders.
Best Undervalued Stocks to Buy Now
11. Marathon Oil Corporation (NYSE:MRO)
Number of Hedge Fund Holders: 43
PE Ratio as of June 24: 7.71
Marathon Oil Corporation (NYSE:MRO) is on the rise and is also trading well below its true value, which is why it is one of best undervalued stocks to buy now. As of June 24, the stock has returned 30.71% to investors year-to-date and has a PE ratio of 7.71.
Analysts are bullish on Marathon Oil Corporation (NYSE:MRO). As of May 31, Mizuho analyst Vincent Lovaglio has a $38 price target and Buy rating on Marathon Oil Corporation (NYSE:MRO). On June 14, Barclays analyst Jeanine Wai raised her price target on Marathon Oil Corporation (NYSE:MRO) to $37 from $30 and reiterated an Overweight rating, equivalent to Buy, on the shares.
At the end of Q1 2022, 43 hedge funds disclosed ownership of stakes in Marathon Oil Corporation (NYSE:MRO). The total stakes of these hedge funds were worth $1.50 billion, up from $969.10 million a quarter ago with 40 positions. The hedge fund sentiment for the stock is positive.
As of March 31, Fisher Asset Management is the top shareholder in Marathon Oil Corporation (NYSE:MRO) with stakes worth $217.05 million.
Like JPMorgan Chase & Co. (NYSE:JPM), Morgan Stanley (NYSE:MS), and Exxon Mobil Corporation (NYSE:XOM), Marathon Oil Corporation (NYSE:MRO) is an attractive undervalued stock option to consider investing in right now.
10. FedEx Corporation (NYSE:FDX)
Number of Hedge Fund Holders: 52
PE Ratio as of June 24: 12.75
On June 23, FedEx Corporation (NYSE:FDX) announced earnings for the fourth quarter of fiscal year 2022. The company reported a revenue of $24.40 billion, up 7.96% year over year, but missed estimates by $156.15 million. The company’s earnings per share came in at $6.87, short of expectations by $0.01. FedEx Corporation (NYSE:FDX) also guided to improved diluted EPS for the next year and said that it expects it to range between $22.45 and $24.45, above Wall Street forecasts of $22.40.
Shortly after the company’s earnings release, BofA analyst Ken Hoexter raised his price target on FedEx Corporation (NYSE:FDX) to $276 from $265 and reiterated a Buy rating on the shares. As of June 24, FedEx Corporation (NYSE:FDX) has a forward PE ratio of 12.75 and a dividend yield of 2.00%, which is why we included it in the 11 best undervalued stocks to buy now.
At the close of Q1 2022, 52 hedge funds were long FedEx Corporation (NYSE:FDX) with stakes worth $1.78 billion. Of these, $321.29 million were of Southeastern Asset Management, the largest shareholder in the company.
Here is Artisan Partners‘ view on FedEx Corporation (NYSE:FDX). The investment management firm mentioned the company in their Q3 2021 investor letter and said:
“Our weakest Q3 performers included FedEx. Shares of FedEx, a global shipping and logistics firm, were held back by disappointing business results as labor cost headwinds and air network disruptions overshadowed solid top-line trends. We think the company should be able to overcome these near-term issues. Importantly, FedEx has strong pricing power as it operates in a consolidated global shipping industry. In September, the company announced it would increase its shipping rates by an average of 5.9% across most of its services, which is the first time in several years that its annual increase would exceed 5.0%. The industry’s renewed pricing discipline is a welcome change, reflecting a broader commitment to earn better returns on invested capital. FedEx is also closer to fully integrating TNT, a European-focused parcel company it acquired in 2016. The market is beginning to incorporate a higher probability FedEx will fully integrate TNT, which will provide a significant boost to profits. The stock now trades at a near-trough multiple of less than 12X 2022 earnings, so we added to our position on weakness.”
9. Chevron Corporation (NYSE:CVX)
Number of Hedge Fund Holders: 53
PE Ratio as of June 24: 13.69
Shares of Chevron Corporation (NYSE:CVX) are picking up in 2022. As of June 24, the stock has surged 22.15% year-to-date and is currently trading at $145.66 a share with a price-to-earnings ratio of 13.69. Chevron Corporation (NYSE:CVX) is therefore among our top undervalued energy stock picks to invest in now.
As of June 9 Manav Gupta, an analyst at Credit Suisse has a $202 price target and Outperform rating on Chevron Corporation (NYSE:CVX). The stock is also one of Wells Fargo’s top recession stock picks from the energy sector.
Chevron Corporation (NYSE:CVX) is a young dividend company that has been growing its dividends for about 6 years now, with a 5-year CAGR of 5.07% and an annual payout ratio of 51.37%. As of June 24, the stock has a forward dividend yield of 3.99%.
Insider Monkey spotted 53 hedge funds bullish on Chevron Corporation (NYSE:CVX) at the close of Q1 2022. The total stakes of these hedge funds came in at $27.99 billion, up from $6.50 billion a quarter ago with 53 positions.
Berkshire Hathaway is betting big on Chevron Corporation (NYSE:CVX). In the first quarter of 2022, Warren Buffett’s hedge fund raised its stakes in the oil giant by 317% bringing them to $25.91 billion and making Berkshire Hathaway the largest shareholder in the company.
ClearBridge Investments shared their insights on Chevron Corporation (NYSE:CVX) in their Q1 2022 investor letter, Here is what the firm said:
“The energy sector, which led a strong market in 2021, generated even more dramatic relative performance in the quarter, advancing 39% and leading the benchmark Russell 1000 Value Index. Years of restrained investment in the energy sector, combined with a strong post-pandemic recovery, contributed to the higher commodity prices. The upward pressure escalated with the Russian invasion of Ukraine. Our energy holding Chevron (NYSE:CVX) benefited from higher commodity prices and was among the top contributors to first-quarter performance.”
8. Builders FirstSource, Inc. (NASDAQ:BLDR)
Number of Hedge Fund Holders: 57
PE Ratio as of June 24: 4.74
As of June 24, Builders FirstSource, Inc. (NASDAQ:BLDR) has climbed 17.66% over the past twelve months and is currently trading at $52.76 with a PE ratio of 4.74. These are only some of the features that make it a compelling stock from the industrials sector for value investors.
In the first quarter of 2022, Builders FirstSource, Inc. (NASDAQ:BLDR) repurchased over 3.5 million shares of its common stock for roughly $286 million. On May 9, the company’s board also authorized a new share repurchase program of $2 billion.
Analysts are bullish on Builders FirstSource, Inc. (NASDAQ:BLDR) and the stock has received consensus Buy or equivalent ratings. On May 13, Wedbush analyst Jay McCanless raised his price target on Builders FirstSource, Inc. (NASDAQ:BLDR) to $110 from $105 and reiterated an Outperform rating on the shares.
At the close of Q1 2022, 57 hedge funds held stakes in Builders FirstSource, Inc. (NASDAQ:BLDR) valued at $1.87 billion. Of these, the majority stakes were of Coliseum Capital which raised its stakes in the company by 19% in Q1 2022, bringing them to $358.42 million.
Here is why you should consider investing in Builders FirstSource, Inc. (NASDAQ:BLDR) according to Black Bear Value Partners, who mentioned the company in their Q1 2022 investor letter:
“Builders FirstSource is a supplier and manufacturer of building materials for professional homebuilders, subcontractors, remodelers, and consumers. Their products include factory-built roof and floor trusses, wall panels and stairs, vinyl windows and custom millwork.
The fundamental discussion about homebuilders applies to BLDR. As more homes are built across the country, there will be an increased need for scaled sourcing of products to homebuilders. There is a large amount of fragmentation in the supply chain which provides BLDR a long runway for acquisitions and realistic synergies.
The management team has been using their prodigious free cash flow to both acquire new businesses and buy in their stock. While I historically always liked their business, their historic high-debt levels gave me pause. They have right sized their balance sheet and are taking a very thoughtful view on capital allocation on behalf of shareholders.
BLDR should be able to generate $7-$10 a share in cash in the medium term with significant upside if they can scale through acquisition and/or further penetrate existing markets. We own it at a 11-15% free-cash flow yield so little growth is needed for us to compound value at high rates.”
7. ConocoPhillips (NYSE:COP)
Number of Hedge Fund Holders: 67
PE Ratio as of June 24: 9.45
The market seems to have overlooked ConocoPhillips, which is currently trading at $90.91 with a PE ratio of 9.45. As of June 24, the stock has returned 23.23% to investors since the beginning of 2022, which makes it an attractive undervalued stock to invest in now.
On June 14, Barclays analyst Jeanine Wai raised her price target on ConocoPhillips (NYSE:COP) to $142 from $132 and reiterated an Overweight rating, equivalent to Buy, on the shares.
On June 21, leading oil and gas company Exxon Mobil Corporation (NYSE:XOM) announced that it will be jointly developing QatarEnergy’s North Field East project with ConocoPhillips (NYSE:COP) and other partners. The $29 billion project is expected to increase the state of Qatar’s LNG capacity to 110 million metric tons per year, up from its current capacity of 77 million.
67 hedge funds disclosed ownership of stakes in ConocoPhillips (NYSE:COP) at the close of Q1 2022. The total stakes of these hedge funds amounted to $2.58 billion, up from $1.55 billion a quarter ago with 56 positions. The hedge fund sentiment for the stock is positive.
In Q1 2022, Diamond Hill Capital went long in ConocoPhillips (NYSE:COP) and purchased over 7 million shares of the company. Diamond Hill Capital is the top shareholder in the company.
Here is what ClearBridge Investments had to say about ConocoPhillips (NYSE:COP) in its Q1 2022 investor letter:
“The energy sector, which led a strong market in 2021, generated even more dramatic relative performance in the quarter, advancing 39% and leading the benchmark Russell 1000 Value Index. Years of restrained investment in the energy sector, combined with a strong post-pandemic recovery, contributed to the higher commodity prices. The upward pressure escalated with the Russian invasion of Ukraine. Our energy holdings ConocoPhillips (NYSE:COP) benefited from higher commodity prices and was among the top contributors to first-quarter performance.”
6. Occidental Petroleum Corporation (NYSE:OXY)
Number of Hedge Fund Holders: 67
PE Ratio as of June 24: 8.69
On June 23, Truist analyst Neal Dingmann raised his price target on Occidental Petroleum to a “street high” of $93 from $88 and reiterated a Buy rating on the shares, shortly after Warren Buffett’s Berkshire Hathaway reportedly purchased over 9.5 million additional shares of the company. Dingmann noted that he sees a high probability of the value investor purchasing the remaining shares of Occidental Petroleum Corporation (NYSE:OXY).
So far in 2022, Occidental Petroleum Corporation’s (NYSE:OXY) year-to-date returns are up 85.19%. As of June 24, the stock has a price-to-earnings ratio of 8.69, which makes now the time to invest in this undervalued energy stock.
Insider Monkey found 67 hedge funds that held stakes in Occidental Petroleum Corporation (NYSE:OXY) at the end of the first quarter of 2022. These funds held collective stakes of $12.61 billion in the company. This is compared to 58 hedge funds in the previous quarter with stakes of $3.86 billion.
As of March 31, Berkshire Hathaway is the top shareholder in Occidental Petroleum Corporation (NYSE:OXY). After the fund’s recent purchase of an additional 9.5 million shares of the company, Berkshire Hathaway now owns one-third of Occidental Petroleum Corporation (NYSE:OXY).
Some of the best undervalued stocks to buy now include Occidental Petroleum Corporation (NYSE:OXY), JPMorgan Chase & Co. (NYSE:JPM), Morgan Stanley (NYSE:MS), and Exxon Mobil Corporation (NYSE:XOM).
Smead Capital Management mentioned several companies in its Q3 2021 investor letter, one of which was Occidental Petroleum Corporation (NYSE:OXY). Here is what the firm had to say:
“Oil stocks dominated our winners for the quarter. We showed that we have unlimited ability to tempt fate by buying into Occidental Petroleum (OXY) this year after it was our biggest loser of 2020. It gained 16.64% during the third quarter.”
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Disclose. None. 11 Best Undervalued Stocks to Buy Now is originally published on Insider Monkey.
