On March 26, Jack Caffrey of JPMorgan Asset Management provided an analysis of market trends in a discussion on CNBC’s ‘Squawk Box’. He emphasized diversified portfolios built around different exposures during periods of volatility. Caffrey believes in the importance of ‘time in the market’ over ‘timing the market’. He highlighted the difficulty in predicting when fear or euphoria will dominate, as some of the best market days follow extreme pessimism. Caffrey also discussed the October sell-offs in 2022 and 2023, where many strategists expected further market tests at levels like 3200 or 3300 on the S&P 500. However, instead of panic selling, the market experienced rebounds in 2023 and 2024. He observed that implied volatility reached the high 20s during recent corrections, but did not indicate widespread panic.

Caffrey also discussed how the MAG7 drives market trends. While these stocks led growth in early 2020, their momentum eventually faded. This led to corrections instead of broadening. Investors began exploring second and third derivative trades stemming from AI developments, such as increased electricity demand and improvements in natural gas markets. He noted that mean reversion often occurs when primary trades become well-understood and widely owned. He suggested that markets would likely be led by earnings rather than valuation. Caffrey acknowledged that while some stocks within the MAG7 have posted earnings growth that makes their valuations more reasonable, traders are increasingly seeking opportunities in overlooked sectors like energy and businesses benefiting from a weaker dollar. For instance, oil prices have remained down despite energy leading the market performance this year.

Stimulus measures in Europe are also shifting from monetary to fiscal policies, which creates additional opportunities for investors. That being said, we’re here with a list of the 11 cheap NYSE stocks to invest in according to hedge funds.

Our Methodology

We sifted through the Finviz stock screener to compile a list of the top NYSE-listed stocks. We then selected the 11 stocks with a forward P/E ratio under 15, as of April 8, that were also 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 900 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).

11 Cheap NYSE Stocks to Invest in According to Hedge Funds

11. Discover Financial Services (NYSE:DFS)

Forward P/E Ratio as of April 8: 11.17

Number of Hedge Fund Holders: 91

Discover Financial Services (NYSE:DFS) provides digital banking products and services, and payment services in the US through two segments. Its Digital Banking segment offerings range from Discover-branded credit cards to individuals to direct-to-consumer deposit products. The Payment Services segment operates the PULSE to access ATMs, debit, and electronic funds transfer networks among other services.

Earlier on January 27, Brian Foran of Truist maintained a Buy rating on the company while raising the price target from $233 to $262 due to the company’s robust financial performance. In Q4 2024, the company’s net interest margin for its Credit Card division reached 11.96%, which showed an improvement of 0.98% increase year-over-year. Payment rates also slightly decreased because of the modest 1% improvement in card receivables.

The company’s credit card accounts from 2023 are anticipated to be more profitable than those from 2022. Notably in Q4, Discover Financial Services’ (NYSE:DFS) total earnings were $5.11, which was higher than analyst estimates of $3.20 per share. The total revenue of $4.76 billion also exceeded the estimates of $4.41 billion.

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.”

10. Merck & Co. (NYSE:MRK)

Forward P/E Ratio as of April 8: 9.02

Number of Hedge Fund Holders: 91

Merck & Co. (NYSE:MRK) is a healthcare company that operates through two segments: Pharmaceutical and Animal Health. The company offers human health pharmaceuticals for various areas, which include oncology, vaccines, hospital acute care, cardiovascular, and neuroscience among others. It also provides veterinary pharmaceuticals, like vaccines and health management solutions and services.

The company’s Keytruda sales increased by 18% year-over-year in 2024 and reached $29.5 billion. In Q4 alone, these sales surged by 21% and generated $7.8 billion, which was driven by global demand across both metastatic and earlier-stage cancers. On February 24, DBS analyst Nico Chen reaffirmed a Buy rating on the company while also maintaining his $100 price target due to Keytruda’s rapid growth.

Merck & Co. (NYSE:MRK) has secured regulatory approvals for Keytruda-based regimens in China, Japan, and the US. It will also be seeking regulatory approval for other treatments by mid-2025, such as its investigational doravirine/islatravir (DOR/ISL) two-drug HIV-1 regimen. This new treatment proved as effective as standard therapies in two studies of adults with controlled HIV after 48 weeks.

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.”