In this article, we discuss the 12 best very cheap stocks to buy now according to hedge funds. To skip the detailed analysis of current economic conditions and forecasts, go directly to the 5 Best Very Cheap Stocks To Buy Now According To Hedge Funds.
We are at the end of 2023, and recession hasn’t hit the world’s biggest economies like the US and China, as predicted by several analysts earlier. In March, over 70% of the National Association of Business Economics’ (NABE) survey panelists believed that the growth in the consumer price index (CPI) would remain above 4% by the end of the year. Furthermore, 24% of the panelists believed a recession might start in the third quarter of 2023.
In the October 31-November 1 meeting, the Federal Reserve did not raise the interest rates for the third time in the last four sessions as the CPI dropped to 3.7% in September and was at 3.2% in October, according to the Bureau of Labor Statistics. The employment rate has remained steady with slight fluctuations, and the stock market has shown resilience as the S&P 500 is up 19.23% and the NASDAQ-100 is up 47.13% year-to-date on November 24. Additionally, the US GDP grew 4.9% in the third quarter of 2023, up from 2.1% in the second quarter.
Nonetheless, experts still have different opinions about the economic outlook. While some experts believe that the US will be able to achieve a “soft landing,” others believe that risks of recession are still there.
Investment Strategies During Rough Economic Conditions
While experts can sometimes correctly predict market conditions and provide close to accurate forecasts, the market remains unpredictable for several reasons. For example, no one could have predicted the COVID-19 pandemic or the Russian invasion of Ukraine, both of which sent the global economy into chaos. Furthermore, many financial news websites suggest investing in utilities, healthcare, and real estate segments during tough economic conditions. However, our previous report suggests that these three were this year’s worst performing sectors of the stock market.
Despite the unpredictability of the market, there are still some steps that can be taken to avoid losing a lot of money during an economic turmoil. Value stocks are a good option during a recession as it is believed that even though value stocks are not an absolute protection against recession, they are likely to do less damage to your investment portfolio during one. Additionally, it is a good idea to avoid companies with unsustainable debt and high volatility.
Another option investors, especially beginners, can opt for is safe, well-established stocks that aren’t affected by short-term economic fluctuations and can safeguard investments for the long term till the economy shows clear signs of recovery.
Some examples of safe stocks can be The Coca-Cola Company (NYSE:KO) and International Business Machines Corporation (NYSE:IBM). Both of the companies are old, well-established in their sectors, and have a stable dividend and sustainable payout ratios.
Hedge funds are also a great option because leaving it to the experts might be the best option when there is high uncertainty and a lack of knowledge. Some of the most successful hedge fund managers include Warren Buffett, Ken Griffin, and Seth Klarman. Klarman’s Baupost Group has been able to post average annualized returns of 20% since its inception. On the other hand, Ken Griffin’s Citadel Investments posted $16 billion in profits in 2022.
While economists and experts are still debating the direction that the economy might take, stocks with low valuations, which are favored by hedge funds, can prove to be beneficial for investors. While the PE ratio is not the absolute metric for defining a cheap stock, it can definitely help an investor determine a stock’s relative valuation. Some cheap stocks to buy according to hedge funds include Bank of America Corporation (NYSE:BAC), Citigroup Inc. (NYSE:C), and D.R. Horton, Inc. (NYSE:DHI).
Our Methodology
For this article, we first made a comprehensive list of large- and mega-cap stocks with a PE ratio below 10. From this dataset we removed companies with bearish ratings from experts and Wall Street analysts. Finally, we chose 12 stocks with the lowest PE ratios and the highest number of hedge fund investors.
Best Very Cheap Stocks To Buy Now According To Hedge Funds
12. The Mosaic Company (NYSE:MOS)
Number of Hedge Fund Holders: 35
PE Ratio: 6.41
The Mosaic Company (NYSE:MOS) is a Florida-based crop nutrition company that is involved in the mining and distribution of phosphate, potash, and animal feed ingredients.
In the third quarter, 35 hedge funds held a stake in The Mosaic Company (NYSE:MOS), down from 38 in the second quarter. However, the total stake value of the funds increased to $396.453 million in Q3 from $293.730 million in Q2.
On November 7, The Mosaic Company (NYSE:MOS) reported its Q3 earnings result with a non-GAAP EPS of $0.68 and revenue of $3.5 billion, which beat the estimates by $280 million. In the quarter, the company generated a free cash flow of $335 million.
The Mosaic Company (NYSE:MOS) is one of the best very cheap stocks to buy now according to hedge funds, along with America Corporation (NYSE:BAC), Citigroup Inc. (NYSE:C), and D.R. Horton, Inc. (NYSE:DHI)
The Mosaic Company (NYSE:MOS) was mentioned in ClearBridge Investments’ second quarter 2023 investor letter. Here is what it said:
“Conversely, stock selection in the materials sector was the primary detractor from relative performance partially due to a decline in The Mosaic Company (NYSE:MOS), a leading provider of potash and phosphate fertilizers. The company has seen faster-than-expected price declines from the highs reached after the outbreak of the Russia-Ukraine war, as supplies from Belarus and Russia gradually found their way around the global sanctions. Also, higher cost inflation has delayed discretionary fertilizer purchases by farmers. However, we believe the global agricultural cycle remains broadly supportive. With fertilizer prices normalizing above the pre-pandemic levels, pent up demand from farmers’ need to replenish diminished soil land banks, and continued pressure on Belarussian and Russian supplies, we believe the company’s earnings power will remain at above-history levels. Additionally, the company’s commitment to share repurchases and debt paydowns has accreted value to existing shareholders and signaled a commitment by management to continue to do so.”
11. Ford Motor Company (NYSE:F)
Number of Hedge Fund Holders: 43
PE Ratio: 1.69
Ford Motor Company (NYSE:F) is a Michigan-based well-known automobile manufacturer. The multinational corporation sells luxury cars under its Lincoln brand, while commercial automobiles and cars are sold under its Ford brand.
On November 21, Ford Motor Company (NYSE:F) announced the authorization of a $51 million worth of share repurchase program of its common stock. The company’s aim is to safeguard shareholders from the dilutive effect of 2023’s share-based compensation.
On November 1, Barclays upgraded the rating on Ford Motor Company (NYSE:F)’s stock to Overweight while keeping a $14 price target. The firm highlighted the stock’s “historically cheap valuation” and analyst Dan Levy mentioned that an attractive upside might emerge if a possible “modest reversal of sharply negative sentiment” happens.
10. EOG Resources, Inc. (NYSE:EOG)
Number of Hedge Fund Holders: 45
PE Ratio: 9.14
EOG Resources, Inc. (NYSE:EOG) is an energy company that is engaged in the exploration of, development, and production of crude oil and natural gas. The corporation operates through its nine offices, which include the corporate office located in Houston.
On November 2, EOG Resources, Inc. (NYSE:EOG) increased its quarterly dividend by 10.3% to $0.91, payable by January 31, 2024, to the shareholders of record on January 17, 2024. The company also announced a $1.50 per share special dividend payable by December 29, 2023, to the stockholders of record on December 15, 2023.
21 Wall Street analysts covered EOG Resources, Inc. (NYSE:EOG)’s stock over the past three months, and 15 kept a Buy rating on the shares. The average price target of $152.22 represents an upside of 23.59% as of the November 23 market close.
On November 2, EOG Resources, Inc. (NYSE:EOG) posted its Q3 non-GAAP EPS of $3.44 and revenue of $6.21 billion, topping the analysts’ estimates by $0.45 and $430 million, respectively. During the quarter, the company’s free cash flow was $1.5 billion.
9. Marathon Oil Corporation (NYSE:MRO)
Number of Hedge Fund Holders: 45
PE Ratio: 9.18
Marathon Oil Corporation (NYSE:MRO) is a Texas-based company involved in the exploration and production of liquid hydrocarbons and natural gas. In the third quarter, 45 hedge funds had a stake in the company, bringing it to the 9th position on our list of very cheap stocks to buy according to hedge funds.
On November 1, Marathon Oil Corporation (NYSE:MRO) reported its Q3 earnings result with a non-GAAP EPS of $0.77, which beat the estimates by $0.08. The revenue of the quarter was $1.81 billion, surpassing the estimates by $50 million. It also announced the authorization of a $2.5 billion share repurchase program. Moreover, for the ninth time, Marathon Oil Corporation (NYSE:MRO) increased its base quarterly dividend by 10% to $0.11.
On November 20, Stifel decreased the price target on Marathon Oil Corporation (NYSE:MRO)’s stock to $39 from $40 and maintained a Buy rating. According to the analyst, the company is the “best-in-class” based on the firm’s 7 variable analysis tool, and has one of the most lucrative capital return programs in the sector.
8. Marathon Petroleum Corporation (NYSE:MPC)
Number of Hedge Fund Holders: 48
PE Ratio: 5.63
Marathon Petroleum Corporation (NYSE:MPC) was spun off from Marathon Oil Corporation (NYSE:MRO) in 2011. It is a downstream oil and gas company headquartered in Ohio. Marathon Petroleum Corporation (NYSE:MPC) is one of the best cheap stocks to buy according to hedge funds, and was one of the best performers of the S&P 500 in the third quarter.
On October 31, Marathon Petroleum Corporation (NYSE:MPC) released its Q3 earnings result with a non-GAAP EPS of $8.14, topping the estimates by $0.39. The revenue of $41.58 billion surpassed the estimates by a whopping $2.61 billion.
On November 14, Marathon Petroleum Corporation (NYSE:MPC) opened its $350 million joint venture soybean processing complex in collaboration with Archer-Daniels-Midland Company (NYSE:ADM). Through the facility, the companies will be able to meet the ever-growing demand for renewable green diesel as the complex will yield approximately 600M lbs/year of refined soybean oil and 75M gal/year of renewable green diesel.
7. Capital One Financial Corporation (NYSE:COF)
Number of Hedge Fund Holders: 49
PE Ratio: 8.00
Capital One Financial Corporation (NYSE:COF) is a Virginia-based financial holding company with a diversified portfolio of products and services like commercial and retail banking, auto financing, and credit cards.
Out of the 910 elite hedge funds that are tracked by Insider Monkey, 49 hedge funds had a stake in Capital One Financial Corporation (NYSE:COF). Natixis Global Asset Management’s Harris Associates was the most prominent shareholder of the company, with 19.4 million shares worth $1.88 billion.
As of November 23, Capital One Financial Corporation (NYSE:COF) has a PE ratio of 8.00, making it a very cheap stock to buy, according to hedge funds.
Davis Funds mentioned Capital One Financial Corporation (NYSE:COF) in its third quarter 2023 investor letter. Here is what it said:
“In spring 2023, a number of high-profile regional banks, none of which we owned, collapsed over the course of a few weeks. In contrast, the select, large banks we own, including Capital One Financial, actually saw deposit inflows and increasing profits, reinforcing our thesis that high-quality financial services companies remain among the most misunderstood and attractive sectors of the market. This stress test models a dramatic recession—one meaningfully worse than the great financial crisis of 2008-2009. It includes a 3.5% decline in gross domestic product, a 10% unemployment rate, a 37% decline in residential real estate, a 40% decline in commercial real estate and a 55% decline in the stock market. The resilience and strength required to weather such an economic storm combined with proven economies of scale in branding and technology should drive DNYVF market share gains and growth for years to come. Trading at some of the lowest valuations in the market, our financial sector holdings—such as Capital One Financial, deserve to be revalued upwards over time. In the meantime, increasing dividends and a shrinking share base create value while we wait.”
6. Devon Energy Corporation (NYSE:DVN)
Number of Hedge Fund Holders: 52
PE Ratio: 7.69
Devon Energy Corporation (NYSE:DVN) is an Oklahoma-based carbon exploration company that has energy assets in the Delaware Basin, Anadarko Basin, Powder River Basin, Williston Basin, and Eagle Ford.
On October 18, Bloomberg reported that Devon Energy Corporation (NYSE:DVN) announced it has eyes on a few acquisition targets to expand in the U.S. shale. The company is in initial talks to combine with Marathon Oil Corporation (NYSE:MRO). Additionally, the company is also interested in CrownRock LP, which is estimated to be valued at around $10 billion.
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Disclosure. None. 12 Best Very Cheap Stocks To Buy Now According To Hedge Funds is originally published on Insider Monkey.
