In this article, we will take a look at the 11 most undervalued financial stocks to buy according to hedge funds. To see more such companies, go directly to 5 Most Undervalued Financial Stocks To Buy According To Hedge Funds.
Financial stocks are wavering as chances of recession mount amid expectations that the Federal Reserve will have to continue being aggressive to tame inflation. Earnings from major banks also showed that the rising interest rate environment is taking a toll on banks’ earnings. Major banks are also allocating huge sums of money for loan-loss provisions in anticipation of a recession.
According to a Bloomberg report, Morgan Stanley’s Michael Wilson believes the S&P 500 could fall 26% in the first half of 2023. The analyst said that the rally during the start of the year made US equities expensive. The analyst reportedly said that the US stocks’ measure of equity risk premium has entered the “death zone.” Wilson thinks that while the US economy might dodge a full-blown recession, the Federal Reserve’s hawkish policy is far from being over. He also said that the risk-reward for equities is now “very poor.”
“Continued Volatility Through Year-End”
A strong jobs report and data pointing to stubborn inflation has forced investors to keep their optimism in check. Carol Schleif, chief investment officer at BMO Family Office, said that investors are still trying to adjust to the reality that the Federal Reserve is unlikely to change its hawkish stance and instead will focus on fighting inflation, according to Bloomberg. That, according to Schleif, means we will experience “continued volatility through year-end.”
Photo by Ferran Fusalba Roselló on Unsplash
Methodology
For this article, we used the Finviz stock screener to identify stocks from the Financial sector with PE ratios under 15 as of February 22. After this first check we got a long list of stocks. From this list we chose top 11 stocks that have the highest number of hedge fund investors as of the end of 2022. For this metric we used Insider Monkey’s proprietary database of 943 hedge funds’ holdings as of the end of the fourth quarter of 2022.
Most Undervalued Financial Stocks To Buy According To Hedge Funds
11. HSBC Holdings plc (NYSE:HSBC)
Number of Hedge Fund Holders: 11
British bank HSBC Holdings plc (NYSE:HSBC) ranks 11th in our list of the most undervalued financial stocks to buy according to hedge funds. Earlier this month the bank posted its fourth quarter results. Adjusted profit before tax in the quarter jumped about 92% to $6.8 billion. Revenue in the quarter increased by 24% on a YoY basis to reach $14.9 billion. Net interest margin increased by 28 basis points to 1.48%.
HSBC Holdings plc (NYSE:HSBC) this month also declared a $1.15/ADS interim dividend, which is payable on April 27 to shareholders of record as of March 3.
As of the end of the fourth quarter of 2022, 11 hedge funds reported owning stakes in HSBC Holdings plc (NYSE:HSBC). The total value of these stakes was over $122 million. The biggest stakeholder of HSBC Holdings plc (NYSE:HSBC) was Ken Griffin’s Citadel Investment Group which had a $40 million stake in the firm.
10. Bank of Montreal (NYSE:BMO)
Number of Hedge Fund Holders: 12
Bank of Montreal (NYSE:BMO) has a low PE ratio which makes it undervalued. At the end of the fourth quarter, 12 hedge funds in Insider Monkey’s database of hedge funds reported having stakes in Bank of Montreal (NYSE:BMO).
In December, Bank of Montreal (NYSE:BMO) declared a quarterly dividend of CAD 1.43 per share, which was a 2.9% increase from its prior dividend.
For the fourth quarter, Bank of Montreal (NYSE:BMO)’s adjusted EPS came in at C$3.04, missing estimates by C$0.01. Revenue in the period jumped about 61% on a YoY basis to reach C$10.57 billion, easily beating estimates by C$3.65 billion.
9. UBS Group AG (NYSE:UBS)
Number of Hedge Fund Holders: 16
Swiss bank UBS Group AG (NYSE:UBS) ranks 9th in our list of the most undervalued financial stocks to buy according to hedge funds. UBS Group AG (NYSE:UBS) beat analyst estimates for the fourth quarter of 2022 revenue but warned of an uncertain economic outlook for 2023. UBS Group AG (NYSE:UBS) said its GAAP EPS in the fourth quarter came in at $0.50. Revenue in the quarter fell about 7.85 on a YoY basis to $8.03 billion, beating estimates by $60 million. The company’s cost/income ratio was 75.8%.
UBS Group AG (NYSE:UBS) said that it was starting 2023 from a position of strength.
At the end of the fourth quarter of 2022, 16 hedge funds reported having stakes in UBS Group AG (NYSE:UBS), according to Insider Monkey’s database of 943 hedge funds’ holdings. The net worth of these hedge funds’ stakes was about $250 million.
8. Royal Bank of Canada (NYSE:RY)
Number of Hedge Fund Holders: 17
Royal Bank of Canada (NYSE:RY) is also a decent dividend-paying stock. It has a dividend yield of 3.86% as of February 22.
In December, Bank of America Global Research analyst Ebrahim Poonawala gave bullish comments on Royal Bank of Canada (NYSE:RY) and upgraded the stock to Neutral rating. The analyst said in his note that even though Royal Bank of Canada (NYSE:RY) shares have outperformed their peers, the trend could continue because of a worsening macro backdrop as “investors seek exposure to RY’s EPS/ROE defensibility and dependable execution.”
As of the end of the fourth quarter of 2022, 17 hedge funds reported owning stakes in Royal Bank of Canada (NYSE:RY), up from 14 hedge funds in the previous quarter. The biggest stakeholder of Royal Bank of Canada (NYSE:RY) during this period was Robert Richards’ Heathbridge Capital Management which has an $11 million stake in the company.
7. The Toronto-Dominion Bank (NYSE:TD)
Number of Hedge Fund Holders: 17
The Toronto-Dominion Bank (NYSE:TD) is one of the most undervalued financial stocks to buy according to hedge funds.
Back in December, Canaccord Genuity analyst Scott Chan upgraded the stock to Buy. The analyst said that The Toronto-Dominion Bank (NYSE:TD)’s strong personal and commercial banking momentum helped by First Horizon acquisition should enable it to generate above-average growth.
In December, The Toronto-Dominion Bank (NYSE:TD) posted its fourth quarter results. Adjusted EPS in the quarter came in at C$2.18, beating estimates by C$0.14. Revenue in the period jumped about 12% on a YoY basis to reach C$12.25 billion, beating estimates by C$950 million.
At the end of the fourth quarter of 2022, 17 hedge funds tracked by Insider Monkey had stakes in The Toronto-Dominion Bank (NYSE:TD). The total value of these stakes was over $186 million. The biggest stakeholder of The Toronto-Dominion Bank (NYSE:TD) during this period was Noam Gottesman’s GLG Partners which owns a $28 million stake in the company.
6. U.S. Bancorp (NYSE:USB)
Number of Hedge Fund Holders: 58
U.S. Bancorp (NYSE:USB) has a PE ratio of 12.92 as of February 22. U.S. Bancorp (NYSE:USB) is seeing an increased interest from hedge funds. At the end of the fourth quarter of 2022, 58 hedge funds reported having stakes in U.S. Bancorp (NYSE:USB), up from 52 hedge funds in the previous quarter. The biggest stakeholder of U.S. Bancorp (NYSE:USB) at the end of 2022 was Jean-Marie Eveillard’s First Eagle Investment Management which had a $430.4 million stake in the company. On the other hand, Warren Buffett’s hedge fund cut its stake in U.S. Bancorp (NYSE:USB) by about 90% in the quarter.
U.S. Bancorp (NYSE:USB) has a dividend yield of over 4%, much better than the industry average dividend yield. The bank also has a strong track record of dividend growth.
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Disclosure: None. 11 Most Undervalued Financial Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.
