In this article, we will discuss the 12 Undervalued Wide Moat Stocks to Buy According to Analysts.
As per BlackRock, European equity gains have managed to outpace the US to start 2025. Despite this, the asset manager expects the US to reclaim leadership this year as the corporate earnings strength and the AI theme broaden out. The US equities have long exceeded the performance of their global peers. BlackRock expects that this has been made possible because of deeper capital markets and relative deregulation which promote risk-taking. The US can keep its edge, despite the S&P 500 lagging so far this year.
Markets to Broaden Out in 2025, Says BofA
As per Savita Subramanian, head of US Equity and Quantitative Strategy for BofA Global Research, the market has been broadening out. Last year and the year before that, the mega-cap tech companies managed to outperform the rest of the S&P. However, in the current year, broader market trends are visible. As per Subramanian, higher productivity and reshoring of manufacturing to the US are the 2 positive forces that are expected to fuel potential market growth beyond the tech sector.
As per Reuters, the volatility is expected to increase due to tariff announcements, policy changes from President Donald Trump, and job cuts, resulting in uncertainty. Anthony Saglimbene, chief market strategist at Ameriprise Financial in Troy, Michigan, has a year-end forecast for the S&P 500 of 6,500 as his “base case.”
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
BlackRock Remains Overweight on US Stocks
BlackRock expects that mega-cap tech and other AI-linked stocks will keep driving the US equity returns, mainly as and when the AI adoption grows. That being said, there are signs of earnings strength broadening beyond technology. The analysts now anticipate tech to post 18% earnings growth this year in comparison to 11% for the broader index. As per the LSEG data, this is a smaller gap versus 2024.
Overall, strong economic growth, broadening of earnings growth and a quality tilt underpin the firm’s conviction and overweight in US stocks as compared to other regions. The valuations for the big tech are backed by healthy earnings, and less lofty valuations for several other sectors. As per Kristy Akullian, CFA, Head of iShares Investment Strategy, there are tailwinds potentially favoring US equities over the rest of the world, mainly large-cap companies. The relatively easy financial conditions, healthy consumer balance sheets, and the expectations of deregulation and tax cuts continue to support the positive view.
With this in mind, we will now have a look at the 12 Undervalued Wide Moat Stocks to Buy According to Analysts.
A financial analyst at his computer monitor, tracking the public company’s investments.
Our Methodology
To list the 12 Undervalued Wide Moat Stocks to Buy According to Analysts, we used a screener and sifted through several media reports to choose companies having an economic moat and that analysts see upside to. Next, we filtered out the ones that trade at a forward P/E of less than ~20.0x. Finally, the stocks are arranged in ascending order of their average upside potential, as of February 28.
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).
12 Undervalued Wide Moat Stocks to Buy According to Analysts
12) Chevron Corporation (NYSE:CVX)
Average Upside Potential: ~10.3%
Forward P/E as of February 28: ~14.0x
Number of Hedge Fund Holders: 81
Chevron Corporation (NYSE:CVX) is engaged in integrated energy and chemicals operations. The company’s economic moat revolves around its strong franchise, healthy supply chain capabilities, and cost efficiencies. Bloomberg reported that the company is exploring an opportunity to acquire Phillips 66’s stake in their 50-50 chemicals JV, CPChem, with activist Elliott Investment Management pushing for an exit. Chevron Corporation (NYSE:CVX)’s CEO Mike Wirth believes that chemicals have strong demand growth.
This is because more people continue to enter the middle class globally, and there is an increased need for energy-efficient, lightweight plastics in airplanes and vehicles, as highlighted by Wirth in an interview with Bloomberg T.V. CPChem has significant growth projects, such as $8.5 billion polymers facility in Orange, Texas, and $6 billion complex in Qatar. Notably, they will utilize low-cost ethane as feedstock, placing them in an advantageous position compared to plants in Europe and Asia that use naphtha. Chevron Corporation (NYSE:CVX) continues to be active in managing its portfolio, as highlighted by the recent Canadian divestment announcement. These strategic initiatives remain focused on optimizing Chevron Corporation (NYSE:CVX)’s asset base and are targeting high-return opportunities.
11) Wells Fargo & Company (NYSE:WFC)
Average Upside Potential: ~12.2%
Forward P/E as of February 28: ~13.5x
Number of Hedge Fund Holders: 96
Wells Fargo & Company (NYSE:WFC) is a financial services company, which provides diversified banking, investment, mortgage, and consumer and commercial finance products and services. The financial services giant enjoys a wide economic moat, stemming from the cost advantages and switching costs. Furthermore, its extensive branch network and healthy market position offer a solid foundation for growth. The focus on efficiency and cost-cutting initiatives resulted in improving operational performance, placing it well to capitalize on economic recovery.
Analyst Glenn Thum from Phillip Securities maintained a “Buy” rating on the company’s stock, providing a price target of $85.00. The rating is backed by a combination of factors, such as Wells Fargo & Company (NYSE:WFC)’s financial performance and strategic initiatives. As per the analyst, the outlook for 2025 is positive, with expected growth in NII due to loan expansion and reduced market funding costs, together with further decrease in expenses. Such factors, along with the continued increase in non-interest income, mainly in investment banking and trading activities, support the rating.
Elsewhere, Bank of America Securities also gave a “Buy” rating on Wells Fargo & Company (NYSE:WFC)’s stock with a price objective of $86.00. For FY 2025, the company expects net interest income to be ~1% – 3% higher than in 2024 and non-interest expense of ~$54.2 billion. Oakmark Funds, advised by Harris Associates, released its Q4 2024 investor letter. Here is what the fund said:
“Wells Fargo & Company (NYSE:WFC) was the top contributor during the quarter. The U.S.-headquartered diversified bank’s stock price rose after reporting what we see as solid third-quarter earnings where the company’s efficiency ratio continued to improve as expenses were well controlled. The fee income segment also performed well, growing 12%. In addition, Wells Fargo had the opportunity to repurchase $3.5 billion in shares during the period, bringing the full-year repurchase to roughly $16 billion. In November, the stock price continued its upward trend following the U.S. presidential election as investors are optimistic that the financials sector will benefit from looser regulations and lower corporate taxes, thus stimulating a better environment for dealmaking. We continue to believe that Wells Fargo is a competitively advantaged bank that can use its superior business mix and return potential to unlock further value.”
10) Caterpillar Inc. (NYSE:CAT)
Average Upside Potential: ~12.6%
Forward P/E as of February 28: ~17.1x
Number of Hedge Fund Holders: 62
Caterpillar Inc. (NYSE:CAT) is engaged in the manufacturing and selling of construction and mining equipment, off-highway diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. Morningstar believes that the company has a wide economic moat, stemming from its significant intellectual property and customer switching costs. Analysts at DA Davidson upped Caterpillar Inc. (NYSE:CAT)’s price target to $357 from $350, keeping a “Neutral” rating. The firm believes that data centers and energy-related projects have been fueling the company’s business throughout all 3 segments.
The company’s brand remains synonymous with durability and reliability, adding significant value to its products. These factors are expected to help contribute to customer loyalty and drive incremental sales. Moving forward, Caterpillar Inc. (NYSE:CAT) is expected to gain significantly from the anticipated upturn in the equipment replacement cycle, mainly in the mining sector. This cycle is fueled by the aging of existing equipment fleets and the requirement for more efficient, technologically advanced machinery.
Given its market position with a healthy brand reputation, Caterpillar Inc. (NYSE:CAT) is well-placed to capture a significant share of this replacement demand. Diamond Hill Capital, an investment management company, released its Q3 2024 investor letter. Here is what the firm said:
“Other top Q3 contributors included HCA Healthcare and Caterpillar Inc. (NYSE:CAT). Heavy construction machinery manufacturer Caterpillar has held up better than industry peers against a challenging macroeconomic backdrop and a generally slowing construction environment.”
9) Cisco Systems, Inc. (NASDAQ:CSCO)
Average Upside Potential: ~12.8%
Forward P/E as of February 28: ~17.2x
Number of Hedge Fund Holders: 84
Cisco Systems, Inc. (NASDAQ:CSCO) is engaged in designing, manufacturing, and selling Internet Protocol-based networking and other products associated with the communications and information technology industry. The company has a strong moat because of its healthy brand reputation, extensive product portfolio, customer switching costs, innovative technology, and global presence. Citi analyst Atif Malik upped the company’s price target to $73 from $71, keeping a “Buy” rating. Nvidia, while reporting its Q4 2025 and FY 2025 results, highlighted that its enterprise data center sales grew two times YoY due to accelerating demand for model finetuning and agentic-AI workflows. Citi opines that such comments aid Cisco Systems, Inc. (NASDAQ:CSCO)’s recent partnership with Nvidia.
Notably, Cisco Systems, Inc. (NASDAQ:CSCO) is Citi’s top communications equipment pick in 2025, thanks to the growing AI opportunity and the relatively undemanding valuation. The company’s strategic emphasis on AI infrastructure and networking solutions places it well to capitalize on the strong demand for AI-related technologies. With enterprises adopting AI workloads, they need strong networking capabilities to support the data-intensive applications. Cisco Systems, Inc. (NASDAQ:CSCO)’s expertise in networking, together with its investments in AI-specific products and services, can result in strong revenue growth. Its ability to offer end-to-end solutions for AI infrastructure might offer a competitive edge and open new market opportunities.
8) Exxon Mobil Corporation (NYSE:XOM)
Average Upside Potential: ~15.7%
Forward P/E as of February 28: ~14.06x
Number of Hedge Fund Holders: 104
Exxon Mobil Corporation (NYSE:XOM) is engaged in the exploration and production of crude oil and natural gas. The company has a wide economic moat, thanks to its strategic assets. This is further strengthened by its scale, technological capabilities, and integration. Jason Gabelman, an analyst from TD Cowen, maintained a “Buy” rating on the company’s stock with the same price target of $128.00. The analyst’s rating is backed by factors such as Exxon Mobil Corporation (NYSE:XOM)’s substantial line-up of projects scheduled to commence in the coming years. These are expected to fuel its earnings.
Furthermore, Exxon Mobil Corporation (NYSE:XOM)’s strategic efforts in upgrading its portfolio while, at the same time, managing the capital expenditures effectively with the help of technology-driven efficiencies and a robust project organization continue to support its financial health. Exxon Mobil Corporation (NYSE:XOM)’s significant resources, technological expertise, and global reach place it well to capitalize on emerging opportunities in areas including carbon capture and storage, biofuels, and hydrogen production. This can diversify the company’s revenue streams, mitigate risks related to the energy transition, and potentially open new growth avenues aligning with broader decarbonization efforts.
7) The Charles Schwab Corporation (NYSE:SCHW)
Average Upside Potential: ~16.9%
Forward P/E as of February 28: ~19.1x
Number of Hedge Fund Holders: 91
The Charles Schwab Corporation (NYSE:SCHW) operates as a savings and loan holding company offering wealth management, securities brokerage, banking, asset management, custody, and financial advisory services. The company, which enjoys a wide economic moat, is expected to tackle competitive pressures and still earn above its cost of capital because of its massive scale and industry-leading cost efficiency, says Morningstar. TD Cowen upped the company’s stock to “Buy” from “Hold” with a price target of $103, an increase from $88.
The Charles Schwab Corporation (NYSE:SCHW) is well-placed to improve its fundamentals, reduce the risk of earnings disappointment and drive disproportionate EPS growth as compared to the market. The company’s ability to provide low-cost products and services can be further enhanced with scale, which can result in attracting customers and maintaining profitability. Therefore, with the help of increased scale, The Charles Schwab Corporation (NYSE:SCHW) can reduce its costs, innovate technology, diversify offerings and capture new customer bases.
Baron Funds, an investment management company, released its Q4 2024 investor letter. Here is what the fund said:
“Brokerage firm The Charles Schwab Corporation (NYSE:SCHW) contributed to performance after a strong quarterly earnings report. Most notably, client cash levels appeared to be stabilizing at Schwab and across the broader industry after a two-year drawdown caused by interest rate hikes and robust equity markets, both of which pulled idle cash off the sidelines and into investments, creating a headwind to Schwab’s net interest income. This cash stabilization should allow Schwab to continue paying down its short-term borrowings, which, in turn, should lead to an increase in net interest income and earnings. The company also participated in the broader rally of financial stocks following the Republican elections sweep, which is expected to lead to more buoyant capital markets and a more business-friendly regulator, both of which should support increased activity and earnings at Schwab. As Schwab continues to improve its balance sheet and earnings, we expect potentially strong earnings growth over a multi-year period.”
6) Alibaba Group Holding Limited (NYSE:BABA)
Average Upside Potential: ~20.5%
Forward P/E as of February 28: ~13.2x
Number of Hedge Fund Holders: 107
Alibaba Group Holding Limited (NYSE:BABA) offers technology infrastructure and marketing reach to help merchants, brands, retailers, and other businesses engage with their users and customers. The company continues to enjoy a wide economic moat, thanks to its strong network effect. Morgan Stanley upped the company’s stock to “Overweight” from “Equal weight” with a price target of $180, an increase from $100.
The firm believes that it has underestimated the surge in Alibaba Group Holding Limited (NYSE:BABA)’s Al-driven cloud demand and resiliency of its core Taobao and Tmall Group business. As per the analyst, the company’s cloud revenue is expected to double in 3 years. With the broader market shifting its focus from weak consumption to technological breakthrough in China, the analyst opines that the Chinese internet companies continue to offer superior exposure to AI enablers/adopters.
Alibaba Group Holding Limited (NYSE:BABA)’s strong investment in AI goes over and above its cloud business. The company continues to leverage AI to enhance the e-commerce platforms, improving the ad tech capabilities. With Al becoming increasingly critical to the business operations throughout industries, Alibaba Group Holding Limited (NYSE:BABA)’s early investments can result in a significant competitive advantage and fuel substantial long-term growth. The integration of AI throughout its platforms can result in enhanced operational efficiency, improved user experiences, and new revenue streams.
Alluvium Asset Management, an asset management company, released its Q3 2024 investor letter. Here is what the fund said:
“On 24 September the People’s Bank of China unveiled a massive three part stimulus package involving: (1) slashing the amount of cash banks need to hold in reserve and lowering the main policy interest rate; (2) cutting mortgage rates on existing home loans by 0.5% and reducing down payment requirements for second homes from 25% to 15%; and (3) supporting equity markets by a USD 114b lending pool to encourage companies to buy back shares and non-bank financial institutions to buy local equities (which may be expanded by the same amount two more times)5 . We are flabbergasted. But we shouldn’t be. After all, these types of arrangements have been all too common over the last 15 years. The local equity markets responded with gusto, and for the last week of the quarter the CSI 300 Index (Shanghai and Shenzen listed companies) was up 25.1%. Alibaba Group Holding Limited (NYSE:BABA) was not lost in all this, and returned 26.8% over that one week period. But Alibaba had already performed well so during the whole September quarter it was up a staggering 56.0%. As a result, Alibaba is no longer the cheap stock it once was. It now trades at a premium to our valuation – a valuation which admittedly had been progressively reduced over our holding period as a result of deteriorating business fundamentals. As a result of Alibaba’s significant outperformance, by the end of the quarter it had reached 3.7% of the Fund. We are weighing up our options here, considering the relative risk.”
5) QUALCOMM Incorporated (NASDAQ:QCOM)
Average Upside Potential: ~24.3%
Forward P/E as of February 28: ~13.5x
Number of Hedge Fund Holders: 79
QUALCOMM Incorporated (NASDAQ:QCOM) is engaged in the development and commercialization of foundational technologies for the wireless industry. The company’s patent portfolio continues to strengthen its wide economic moat. Also, its intellectual property and R&D expertise in wireless technologies are some of the factors that offer the company a competitive edge. QUALCOMM Incorporated (NASDAQ:QCOM)’s healthy position in 5G technology offers a strong foundation for future growth. With 5G networks expanding globally, demand for the company’s modem and RF front-end solutions is projected to remain strong.
Its technological leadership in this area can enable it to maintain a robust market position despite higher competition. QUALCOMM Incorporated (NASDAQ:QCOM)’s Snapdragon processors appear to be well-suited for AI-enabled PCs requiring a balance of performance and energy efficiency. In the smartphone market, the company’s focus on AI capabilities in its mobile processors can help maintain a healthy position. With AI becoming important in mobile devices, QUALCOMM, Incorporated (NASDAQ:QCOM)’s ability to offer integrated solutions combining 5G connectivity with advanced AI processing can act as a critical differentiator.
Madison Investments, an investment advisor, released its Q3 2024 investor letter. Here is what the fund said:
“Alphabet Inc., Eli Lilly and Company, QUALCOMM Incorporated (NASDAQ:QCOM), Microsoft Corporation, and Apple Inc. were the largest detractors. Qualcomm has given back some of its first half gains after the CFO commented at a conference that its entrance into the AI PC business would take time to ramp. We continue to see Qualcomm as well positioned with growth from AI moving into the mobile phone, from new opportunities in the Internet of Things (IoT), and within the Auto industry but will also look to future growth as they enter the PC market.”
4) Merck & Co., Inc. (NYSE:MRK)
Average Upside Potential: ~24.6%
Forward P/E as of February 28: ~10.2x
Number of Hedge Fund Holders: 91
Merck & Co., Inc. (NYSE:MRK) operates as a healthcare company. The company has a wide economic moat, which stems from its patents, economies of scale, and a powerful intellectual base. It continues to make investments in expanding KEYTRUDA’s indications, extending its lifecycle and market dominance. Merck & Co., Inc. (NYSE:MRK)’s healthy track record in oncology and a deep pipeline of candidates place it well to maintain a strong market presence.
In a significant development, the company announced that the US FDA has accepted for priority review a new supplemental Biologics License Application (sBLA) seeking approval for KEYTRUDA® (pembrolizumab), Merck & Co., Inc. (NYSE:MRK)’s anti-PD-1 therapy, for the treatment of patients with resectable locally advanced head and neck squamous cell carcinoma (LA-HNSCC) as neoadjuvant treatment, then continued as adjuvant treatment in combination with standard of care radiotherapy with or without cisplatin and then as the single agent. Merck & Co., Inc. (NYSE:MRK)’s 2024 results were aided by demand for its innovative portfolio, which includes KEYTRUDA, which has been benefiting more patients with cancer globally, the successful roll-out of WINREVAIR and healthy performance of its Animal Health business.
Merck & Co., Inc. (NYSE:MRK) continues to progress its pipeline, advance key clinical programs and augment the pipeline via promising business development. Therefore, it expects FY 2025 sales of $64.1 billion to $65.6 billion and non-GAAP gross margin of ~82.5%. GreensKeeper Asset Management, an investment management company, released its Q3 investor letter. Here is what the fund said:
“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.”
3) PDD Holdings Inc. (NASDAQ:PDD)
Average Upside Potential: ~26.2%
Forward P/E as of February 28: ~11.2x
Number of Hedge Fund Holders: 85
PDD Holdings Inc. (NASDAQ:PDD), is a multinational commerce group, which is engaged in owning and operating a portfolio of businesses. The company’s economic moat stems from its network effect. Its continuing investments in its ecosystem, including merchant support and logistics enhancements, could yield significant long-term benefits. Its business model focuses on providing deals that are better when more people tend to participate.
PDD Holdings Inc. (NASDAQ:PDD)’s team purchase model tends to encourage users to invite others to indulge in group purchases to get lower prices. There will be a creation of a positive feedback loop—more buyers joining in will attract sellers, which in turn, increases the range of services and products available to users. Overall, as PDD Holdings Inc. (NASDAQ:PDD) continues to build the user base, attract more sellers and improve the user engagement, the network effect is expected to drive a growth cycle and value creation.
Also, improvements in logistics and fulfillment capabilities can result in faster delivery times and better customer satisfaction, fueling customer loyalty and repeat purchases. Through its investments in merchant support systems, PDD Holdings Inc. (NASDAQ:PDD) can attract and retain high-quality sellers, enhancing product offerings and improving the marketplace quality. Baron Funds, an investment management firm, released its Q3 2024 investor letter. Here is what the fund said:
“During the third quarter we re-initiated a small investment in PDD Holdings Inc. (NASDAQ:PDD). We believe the company is truly unique in the global e-commerce landscape, with an innovative business model, and very strong growth prospects. Founded in 2015 as Pinduoduo, the company has grown into China’s second-largest e-commerce player, capturing over 20% market share. PDD’s Consumer-to-Manufacturer (C2M) model, which connects manufacturers directly to consumers eliminated intermediaries, allowing for ultra-low prices that attract price-sensitive consumers and small merchants. Its discovery-based, algorithm-driven shopping experience has created a highly engaging platform, driving user and merchant growth in a virtuous cycle. We expect PDD to continue gaining share in China given its dominance in the value-for-money segment, growing branded product offerings at affordable prices, and high operational efficiency. PDD’s network effects and cost advantage, supported by its lean structure and efficient C2M model, are set to grow as it scales, both domestically and internationally. Its cross-border e-commerce platform, Temu, launched in September 2022, has rapidly become one of the world’s fastest-growing apps. Leveraging China’s excess capacity and PDD’s supply-chain efficiency, Temu wields strong pricing power over Chinese suppliers and attracts overseas consumers with competitively priced products. While still in early stage, Temu has achieved 2% of the global ex-China e-commerce market and a variable breakeven in the U.S. market, underscoring PDD’s focus on sustainable growth. Despite its rapid growth and profitability, PDD trades at a double-digit free cash flow yield (despite losses from the early-stage international expansion through Temu), significantly below sector peers. While concerns over geopolitical tensions exist, we believe PDD’s growing competitive edge, strong cash flow, and disciplined management position it to create substantial long-term value for shareholders.”
2) Alphabet Inc. (NASDAQ:GOOGL)
Average Upside Potential: ~29.4%
Forward P/E as of February 28: ~19.2x
Number of Hedge Fund Holders: 234
As per Morningstar, Alphabet Inc. (NASDAQ:GOOGL) has a wide moat, thanks to the intangible assets, network effect, cost advantage, and customer switching costs. The firm anticipates Google Search to see growth at a mid-to-high-single-digit level over the upcoming 5 years as and when the broader digital advertising market matures and growth rates slow down. Notably, YouTube is expected to grow at a low-double-digit rate over the next 5 years as robust advertising business continues to be supported by increased subscription business, says Morningstar. Alphabet Inc. (NASDAQ:GOOGL)’s core advertising business is significantly involved in the advertising budgets, allowing the company to benefit from a secular increase in digital advertising spending.
The cash flows generated by Alphabet Inc. (NASDAQ:GOOGL)’s advertising business can be reinvested in growth areas including Google Cloud Platform, AI-infused search, and dynamic projects like Waymo. Apart from this, Alphabet Inc. (NASDAQ:GOOGL) is well-placed to capture significant opportunity in the ever-evolving public cloud space given its position as a critical cloud vendor for enterprises focused on digitizing their workloads.
Qualivian Investment Partners, an investment partnership focused on long-only public equities, released its Q3 2024 investor letter. Here is what the fund said:
“Alphabet Inc. (NASDAQ:GOOGL): Q2 2024 revenues and EPS beat expectations, with total revenues growing 14%, Search ad revenues growing 14%, YouTube ads growing 13%, and Google Cloud revenues growing 29%. Revenue growth in the quarter constituted a continued sequential improvement from earlier quarters in the year, suggesting a continued rebound in Alphabet’s core business except for YouTube ad revenues, which missed expectations and showed deceleration in the growth rate as compared to Q1 when it grew 21%. Operating margins improved by 310 bps vs. the same quarter last year.
Management continued to highlight developments with their generative AI program, which is seen as a foundational platform with opportunities across their businesses but particularly in search and cloud. However, this comes with material capex investment well ahead of the expected economic benefits from Gen AI, and the level of spending is leading investors to worry about the ROI on that spend for Alphabet, as well as the other hyperscalers (Microsoft and Amazon). We continue to have confidence in Alphabet’s ability to generate strong revenue, earnings, and cash flow growth well above the S&P 500’s in the years to come and view it as a core holding for the long term.”
1) UnitedHealth Group Incorporated (NYSE:UNH)
Average Upside Potential: ~36.5%
Forward P/E as of February 28: ~15.7x
Number of Hedge Fund Holders: 150
UnitedHealth Group Incorporated (NYSE:UNH) operates as a diversified health care company in the US. The company has a strong economic moat, which stems from the cost advantage and network effects. TD Cowen analyst Ryan Langston maintained a “Buy” rating on the company’s stock, setting a price target of $609.00. The rating is backed by strategic initiatives and pricing strategies that are expected to fuel growth. Furthermore, UnitedHealth Group Incorporated (NYSE:UNH) managed to improve its operating cost ratio, mainly because of its strategic portfolio initiatives, which continues to act as a positive indicator for future profitability.
The company’s diversified portfolio, spanning health insurance, healthcare services, and pharmacy benefits management, places it well for continued growth. The synergies between such segments enable UnitedHealth Group Incorporated (NYSE:UNH) for cross-selling opportunities and integrated care delivery models. With healthcare evolving towards value-based care, the company’s Optum segment remains well-positioned to capitalize on such a trend. Its strong Medicare Advantage growth and expanding presence in Medicaid markets can offer several avenues for revenue expansion and market share gains. Overall, UnitedHealth Group Incorporated (NYSE:UNH)’s strategy, which includes expansion of value-based care models and leveraging its scale and analytics capabilities to enhance its market share, is expected to fuel long-term growth.
Bretton Capital Management, an investment management company, released its Q4 2024 investor letter. Here is what the fund said:
“We invest in UnitedHealth Group Incorporated (NYSE:UNH) because we believe this revealed preference is real. The regulatory landscape changes constantly, there is plenty of noise in the system, and it is possible to imagine a world where health insurers would not be necessary. However, the massive healthcare system we’re in today structurally relies on private companies to play the crucial role of managing care and negotiating prices, and we don’t think the US government is prepared to take all that over. It was a bad year for our investment, as the stock returned a negative 2.4%, but it trades for a meaningful discount to the market despite consistently delivering double digit earnings growth for years, including 10% last year.
First, the elephant in the room. On December 4, Brian Thompson, who ran UnitedHealth’s insurance business, was assassinated in New York City. Shell casings had the words “deny” and “depose” written on them, a bullet was inscribed with “delay.” Five days later, Luigi Mangione was arrested in Pennsylvania with what appears to be the murder weapon and a manifesto criticizing the American healthcare system. Mangione has since become a cult celebrity.
Healthcare is not a normal market. Governments have decided that healthcare is worth intervening in to achieve noneconomic outcomes, most notably providing care for people who can’t afford it. Each country’s regulatory system designs its system and rations healthcare in its own way: the UK employs providers directly and attempts a central triage function to allocate care; continental European systems typically have private providers but some version of all-payer rate setting; and the US has a decentralized model where providers can charge whatever they want, but payers can choose not to pay it, plus government-run systems like Medicare and Medicaid that cover about 35% of Americans. Every system implements some type of brake on costs, usually a combination of the government and private companies, and the US system leans more on the private sector for this than others. Our system is not without its benefits. It is vastly more lucrative for providers like surgeons and medical device companies. It also allows for some measure of money signal; if you are a rich weekend warrior with an orthopedic issue, the American system will offer a dizzying array of cutting-edge specialists where the UK would suggest getting used to the feeling of aging and stiffening one’s upper lip. However, our system violates the social expectation of the word “insurance…” (Click here to read the full text)
While we acknowledge the potential of UNH as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than UNH but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and Complete List of 59 AI Companies Under $2 Billion in Market Cap.
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