12 Oversold Value Stocks to Buy According to Hedge Funds

8. Regal Rexnord Corporation (NYSE:RRX)

Number of Hedge Fund Holders: 34

Regal Rexnord Corporation (NYSE:RRX) is a global manufacturer of electric motors, bearings, power transmission components, and industrial automation solutions. The company operates through four segments: Motion Control Solutions, Climate Solutions, Commercial Systems, and Industrial Systems. Its products are used in a wide range of applications, including HVAC systems, industrial machinery, food and beverage processing, renewable energy, and automation. RRX serves OEMs, system integrators, and end users across diversified industrial and commercial markets.

Regal Rexnord Corporation (NYSE:RRX) has undergone a significant transformation since 2019, evolving from a $3.6 billion business to a $6 billion enterprise with improved margins and portfolio mix. The company has achieved substantial margin improvements, with gross margins increasing by 1,100 basis points to 38% and EBITDA margins rising 700 basis points to 22%, with further improvements expected to reach 40% gross margins and 25% EBITDA margins by year-end. The company’s portfolio has strategically shifted from being 75% motors-focused to a more diversified mix with 75% now in industrial power transmission and automation.

Looking forward, Regal Rexnord Corporation (NYSE:RRX) expects to generate $1 billion in annual free cash flow, targeting a mid-teens cash flow margin. The company plans to use this cash flow primarily for debt reduction over the next 18 months, which could create significant upside for equity holders. Growth initiatives include increasing new product vitality from 10% in 2024 to 20% in 2027, focusing on solutions and systems, and leveraging cross-selling opportunities. The company has identified nearly 50% of its sales in markets benefiting from secular tailwinds and plans to continue raising this exposure through strategic investments and M&A. Management believes the company is currently undervalued, trading at a free cash flow yield above 8%, with multiple catalysts for revaluation. With a forward P/E of 10.54, RRX is one of the oversold stocks to buy according to hedge funds.