In this article, we will discuss the 16 Most Undervalued Stocks to Buy Now.
With the US stock market touching record highs, mainly driven by significant contributions from big technology sectors, domestic and global investors continue to observe market dynamics to tap potential opportunities. Therefore, identifying undervalued stocks becomes important as they might provide substantial value amidst high valuations across sectors.
Concentration of S&P 500
Courtesy of “Magnificent 7” stocks that captured investor attention in 2024, the market cap concentration in the leading US equities is the highest in decades. Strategists at Goldman Sachs believe the 10 largest US stocks now constitute ~33% of the S&P 500 index’s market value. This is well above the ~27% share reached at the peak of the tech bubble which was seen in 2000.
The present concentration helped in driving a period of strong US market returns. The market saw an annualized total return of ~16% over the previous 5 years. This compares to the 30-year annual average of 10%. As per Goldman Sachs, the top 10 stocks made up for over a third of that gain. That being said, “today’s top stocks are trading at lower valuations than the largest stocks did at the peak of the tech bubble in 2000.”
Despite healthy returns, investors are anxious regarding the extreme current degree of market concentration relative to the recent history.
There appear to be similarities between the current conditions today and the episodes in 1973 and 2000. The labor market seems to be in a decent state, and concentration has been rising along with robust equity market returns. In these episodes, the peak of equity market concentration also led to the peak of a bull market, and the US economy saw recessionary fears in the subsequent year.
However, the 1964 experience reflects that an ongoing bull market might continue to move higher despite a decline in market concentration. After the market concentration peaked, stock prices and the US economy were resilient for an extended period.
Are The US Stocks Overvalued or Undervalued?
The valuations of the largest stocks are well below the previous highs. As of now, the 10 largest stocks continue to trade at the collective forward P/E multiple of ~25x, well below the peak valuations seen in the largest stocks in 2000, 2020, and the middle of 2023.
The valuations are also lower based on the premium the largest stocks are trading at relative to the rest of the market. That is to say that the ~35% valuation premium today remains well below the 80% premium seen in the middle of 2023 and the 100% premium of 2000. Though the degree of market cap concentration is indeed higher today as compared to the peak touched in 2000, the largest stocks are trading at much lower multiples than during the technology bubble.
Our methodology
We used the Finviz screener to extract the list of 16 Most Undervalued Stocks to Buy Now. We have shortlisted the stocks that are expected to report earnings growth this year and have a forward P/E multiple of less than ~21.66x (as the market trades at the forward multiple of ~21.66x). We ranked the stocks in ascending order of their hedge fund sentiment.
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 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
16 Most Undervalued Stocks to Buy Now
16) Barclays PLC (NYSE:BCS)
Forward P/E as of August 22: 7.19x
Number of Hedge Fund Holders: 20
Expected EPS Growth this Year: 10.1%
Barclays PLC (NYSE:BCS) is a global financial services provider engaged in retail banking, credit cards, wholesale banking, investment banking, and investment management services.
Wall Street analysts believe that Barclays PLC (NYSE:BCS) is now ready to take off as it announced a new 3-year strategy which is designed to improve its performance and increase its share price. This strategy revolves around cost cuts, a management overhaul, and asset disposals. In this regard, it plans to reduce ~£1bn in group costs in 2024 and targets achieving total cost savings of ~£2bn by 2026. These cost reductions should come from investment bank and UK consumer bank.
Meanwhile, Barclays PLC (NYSE:BCS) plans to focus on more profitable consumer and business lending operations. At the same time, it will reduce the proportion of assets made up by its investment bank. Barclays PLC (NYSE:BCS ) targets returning at least £10 billion of capital to shareholders between 2024 and 2026 in the form of dividends and share buybacks.
Recently, Barclays PLC (NYSE:BCS) announced that a fall in inflation positively impacted consumer confidence regarding household finances. Notably, consumer card spending went up by 1% in May alone. On the other hand, the Insider Monkey database indicates that 20 hedge funds held stakes in the company as of the end of Q2 2024.
15) Dow Inc. (NYSE:DOW)
Forward P/E as of August 22: 19.05x
Number of Hedge Fund Holders: 32
Expected EPS Growth this Year: 15.6%
Dow Inc. (NYSE:DOW) is a diversified chemical manufacturing company. It combines science and technology for the development of innovative solutions which are essential to human progress.
Downstream plastic prices in Asia are still a problem, but the company’s ability to manufacture chemicals at a lower price point as compared to smaller competitors appears to be of durable advantage.
Dow Inc. (NYSE:DOW) continues to make significant investments in low-carbon efforts and new markets. Therefore, energy transition should act as a potential growth driver, which includes chemicals and materials to make EVs. By 2030, the company aims to grow capacity by 20%, while EBITDA by more than $3 billion per year. Also, it plans to reduce its directly and indirectly produced emissions by ~15% in comparison to 2020 levels.
Wall Street analysts opine that Dow Inc. (NYSE:DOW) appears to be in an expansion phase, and capital expenditures are at record levels. The took advantage of outsize earnings by bringing its down debt. It reduced its net debt and pension liability by ~$9 billion over the previous 5 years.
The average price target for shares of Dow Inc. (NYSE:DOW) comes out to be $58.21. The forecasts range from a low of $54.00 to a high of $64.00. Insider Monkey’s data revealed that 32 hedge funds had stakes in the shares of Dow Inc. (NYSE:DOW) at the close of 2Q 2024.
14) UBS Group AG (NYSE:UBS)
Forward P/E as of August 22: 20.83x
Number of Hedge Fund Holders: 33
Expected EPS Growth this Year: 350.99%
UBS Group AG (NYSE:UBS) is the world’s largest wealth manager and is the product of multiple mergers over the years. Apart from wealth and asset management, the company operates a universal bank in Switzerland and a global investment bank.
UBS Group AG (NYSE:UBS) saw a net profit of $2.9 billion for 1H 2024, with a return on CET1 capital of 9.2%. The company’s management highlighted its successful strides in integrating Credit Suisse, and its commitment to wrap up the process by 2026 end. UBS Group AG (NYSE:UBS) saw a strong performance in its core businesses and is on track with the capital return plans, such as dividends and buybacks.
The company is now focused on reducing its costs by focusing on client account and platform migrations. Notably, integration-related expenses are expected to be ~70% of the total cost to achieve 2026 efficiency targets by year-end. It continues to make strong progress post the acquisition of Credit Suisse, maintaining a healthy financial position and advancing toward the integration goals.
In 2H 2024, as a result of the acquisition, UBS Group AG (NYSE:UBS) is expected to unlock the next phase of cost, capital, funding, and tax benefits. Three analysts have given a “Hold” rating and 4 analysts have assigned a “Buy” rating to the stock. 33 out of 920 hedge funds tracked by Insider Monkey held stakes in UBS Group AG (NYSE:UBS) as of the end of the second quarter.
Patient Capital Management, a value investing firm, released its 4Q 2023 investor letter and mentioned UBS Group AG (NYSE:UBS). Here is what the fund said:
“UBS Group AG (NYSE:UBS) is a name we opportunistically purchased following the banking crisis earlier in the year. UBS benefited from buying its largest local competitor, Credit Suisse, for an 80% discount from where it was trading before the crisis. We bought after the deal, believing the market’s myopic focus on short-term integration risks failed to properly value the attractive set of assets. While the stock has done well since then, we still believe it is underappreciating the long-term return potential of the business.”
13) Truist Financial Corporation (NYSE:TFC)
Forward P/E as of August 22: 12.08x
Number of Hedge Fund Holders: 42
Expected EPS Growth this Year: 399.69%
Truist Financial Corporation (NYSE:TFC) is an American bank holding company, which has its headquartered in Charlotte, North Carolina.
It has released its 2Q 2024 results, with total revenues declining $6.5 billion mainly because of its securities losses. Its net interest income went up by 4.5% because of balance sheet repositioning and increased rates on earning assets. Its net interest margin rose 14 basis points. Moving forward, the company’s core banking businesses are expected to drive growth, with primary enablers being investment banking and trading revenue and continued expense discipline.
Overall, Truist Financial Corporation (NYSE:TFC)’s market position, capital strength, and strong execution are expected to act as tailwinds. The company has strong exposure to attractive geographies in Southeast and Mid-Atlantic and to the insurance brokerage business which should enable the company to achieve healthy growth in FY 2024.
The client deposits continue to stabilize, and asset quality metrics are within the company’s expectations. Despite muted loan demand, Truist Financial Corporation (NYSE:TFC) is optimistic about the dialogue with clients and its expanded capacity to support their needs.
Bank of America increased their price target on shares of Truist Financial Corporation (NYSE:TFC) from $45.00 to $50.00, giving the company a “Buy” rating on 23rd July.
Diamond Hill Capital, an investment management company, released its fourth-quarter 2023 investor letter. Here is what the fund said about Truist Financial Corporation (NYSE:TFC):
“On an individual holdings’ basis, top contributors to return in Q4 were all from our long book, including KKR, Citigroup and Truist Financial Corporation (NYSE:TFC). Banking and financial services companies Citigroup and Truist Financial rallied alongside large-cap banks broadly in Q4 as the market focused less on interest-rate risks amid the Fed’s announcement it was likely done raising interest rates. Banks also likely benefited from a relief rally following three-plus quarters of negative sentiment to start the year. Industry trends aside, however, we maintain our conviction in both companies. Under new leadership, Citigroup continues improving its position relative to competitors and has an attractive opportunity to close its valuation gap relative to peers, while Truist has compelling exposure to attractive geographies in the Southeast and Mid-Atlantic as well as to the insurance brokerage business which should allow the company to generate above average returns over time.”
12) United Parcel Service, Inc. (NYSE:UPS)
Forward P/E as of August 22: 16.86x
Number of Hedge Fund Holders: 44
Expected EPS Growth this Year: 14.8%
United Parcel Service, Inc. (NYSE:UPS) provides logistics services. It offers shipping, tracking, brokerage, freight forwarding, billing, and goods transportation services.
Wall Street analysts opine that the company is at an inflection point. Its US volume increased in 2Q 2024 for the first time across nine quarters. With this, average daily volume went up YoY in 11 of its top 20 export countries. The company should see solid earnings growth in 2H 2024. The company returned to volume growth in the US for the first time in 9 quarters.
United Parcel Service, Inc. (NYSE:UPS)’s business is expected to benefit from the high barriers to entry in the courier industry. Such barriers include the need for extensive transportation infrastructure together with established customer relationships. Not all companies can afford to invest millions and billions in scaling up the shipping network. The company plans to acquire Estafeta and this should help it expand its footprint in Mexico and enhance logistics orchestration. Also, it expects to save from the sale of Coyote and reduce spending. This should help free up cash for repurchases.
For 2024, United Parcel Service, Inc. (NYSE:UPS) expects consolidated revenue of ~$93.0 billion and consolidated adjusted operating margin of ~9.4%. HSBC upped the price target for the company’s shares from $150.00 to $170.00 on 25th April. They raised their rating from a “Hold” to a “Buy.”
ClearBridge Investments, an investment management company, released its second quarter 2024 investor letter. Here is what the fund said:
“Our industrials holdings weighed on relative performance as we are more exposed to transports such as “less than truckload” provider XPO and parcel delivery company United Parcel Service, Inc. (NYSE:UPS), which are struggling with weak volumes during the post-COVID freight recession. With industry volumes down to pre-COVID levels and strong pricing power in the LTL space in particular, we believe that the next upcycle will prove to be very strong for earnings. As a result, we added to XPO in the quarter while reducing our position in UPS on concerns that industry capacity remains excessive. Meanwhile, we have less exposure to electrical equipment stocks, which have been rewarded by views that they will benefit from the buildout of AI data centers.”
11) Super Micro Computer, Inc. (NASDAQ:SMCI)
Forward P/E as of August 22: 18.35x
Number of Hedge Fund Holders: 47
Expected EPS Growth this Year: 58.3%
Super Micro Computer, Inc. (NASDAQ:SMCI) designs, develops, manufactures, and sells server solutions based on modular and open-standard architecture. It provides servers, motherboards, chassis, and accessories.
With higher investments in AI infrastructure, Super Micro Computer, Inc. (NASDAQ:SMCI) continues to benefit from higher orders for memory and storage products. In 2Q 2024, the firm delivered year-on-year growth of 143% in sales to $5.3 billion.
The company was earlier included in the S&P 500 this year. As we know, to be included in this list, a company is required to have positive earnings for 4 consecutive quarters. The massive surge in the stock price was primarily backed by its partnership with NVIDIA Corporation (NASDAQ:NVDA) and the placing of its AI chips in the servers. As a result of such industry trends, the stock gained over ~3000% in 5 years. Now, the company’s board has approved a 10-for-1 stock split.
In the latest fiscal year, the company saw revenues of $14.9 billion, exhibiting a huge rise over its FY 2023 revenue of $7.1 billion. The company’s results were supported by strong demand for its AI servers. Moving forward, Super Micro Computer, Inc. (NASDAQ:SMCI) might post strong sales figure given that it plans to bring a new manufacturing facility in Malaysia online later this year. The company is also quite optimistic about the growing demand for DLC servers. The company believes it can help data center operators reduce energy costs by up to 40%. At the same time, it will also improve computing performance.
As a result, Super Micro Computer, Inc. (NASDAQ:SMCI) decided to quickly add more DLC server rack capacity. This should help the company achieve long-term gains.
Analysts at The Goldman Sachs Group gave the price target of $675.00 and provided a “Neutral” rating for the company on 8th August. As per Insider Monkey’s 2Q 2024 database, Super Micro Computer, Inc. (NASDAQ:SMCI) was part of 47 hedge funds’ portfolios, up from 35 in the preceding quarter.
Polen Capital, an investment management company, released its second-quarter 2024 investor letter and mentioned Super Micro Computer, Inc. (NASDAQ:SMCI). Here is what the fund said:
“The second largest contributor to the Portfolio’s relative performance was Super Micro Computer, Inc. (NASDAQ:SMCI), a provider of high- performance, energy-efficient servers, which the Portfolio does not own. The stock declined notably in the quarter, providing a tailwind to relative performance. On a YTD basis, however, Super Micro is still our largest relative detractor, given its robust 1Q return.”
10) The Bank of New York Mellon Corporation (NYSE:BK)
Forward P/E as of August 22: 11.95x
Number of Hedge Fund Holders: 50
Expected EPS Growth this Year: 11.6%
The Bank of New York Mellon Corporation (NYSE:BK) is a global investment company, which is involved in managing and servicing financial assets across the investment lifecycle. It provides financial services for institutions, corporations, and individual investors and offers investment management and investment services.
The company announced its 2Q 2024 earnings and posted revenue of $4.6 billion, exhibiting a 2% growth on a YoY basis. This revenue growth was because of higher investment services fees and a significant boost from foreign exchange sales. It saw positive operating leverage on the back of solid fee growth and continued expense discipline. Total revenue went up by 2%, which mainly reflects fee revenue growth of 4%, and higher investment and other revenue.
The Bank of New York Mellon Corporation (NYSE:BK) mentioned that it is forming strategic partnerships to strengthen its investment portfolio. For example, it has joined hands with BlackRock, Inc. (NYSE:BLK) to revamp AIA Group Ltd.’s investment platform. Thus, the company continues to focus on integrating various sectors of the business to enhance client experience and operational efficiency.
The Bank of New York Mellon Corporation (NYSE:BK) plans to expand its global footprint and service capabilities with the help of strategic acquisitions and partnerships. By collaborating with fintech companies or other financial institutions, it can gain access to emerging markets, and diversify the product portfolio.
Barclays increased its price target on shares of The Bank of New York Mellon Corporation (NYSE:BK) from $68.00 to $75.00, giving the stock an “Overweight” rating on 15th July. As per Insider Monkey’s 2Q 2024 database, 50 hedge funds were long The Bank of New York Mellon Corporation (NYSE:BK).
9) Emerson Electric Co. (NYSE:EMR)
Forward P/E as of August 22: 17.54x
Number of Hedge Fund Holders: 51
Expected EPS Growth this Year: 23.4%
Emerson Electric Co. (NYSE:EMR) is a multi-industrial conglomerate that operates under 2 business platforms: automation solutions and commercial and residential solutions.
The company has a clear focus on streamlining its portfolio and strengthening its position as a global leader in automation. As a result, it has finalized an agreement to exit the Copeland business entirely. In addition, Emerson Electric Co. (NYSE:EMR) has maintained its focus on higher growth and higher margin automation portfolio.
Emerson Electric Co. (NYSE:EMR) has further strengthened its competitive edge as a result of strategic acquisitions and divestitures. The acquisition of NI together with the divestiture of non-core businesses, like the Climate Technologies segment, has placed the company as a leader in global automation. The acquisition of NI should open new growth avenues in automated test and measurement systems. This is the market with increased relevance in the era of the Internet of Things (IoT) and smart manufacturing.
For FY 2024, the company expects net sales growth of ~15% and underlying sales growth of ~6% on a YoY basis. The demand in process and hybrid markets, led by a constructive capex cycle, should continue to meet its expectations. Emerson Electric Co. (NYSE:EMR)’s operating leverage performance exhibits the benefits of its highly differentiated technology.
Emerson Electric Co. (NYSE:EMR) was a part of 51 hedge fund portfolios at the end of Q2 2024, according to Insider Monkey’s database. Loop Capital upped its price objective on the shares of Emerson Electric Co. (NYSE:EMR) from $130.00 to $135.00, giving it a “Buy” rating on 10th May.
8) Block, Inc. (NYSE:SQ)
Forward P/E as of August 22: 18.94x
Number of Hedge Fund Holders: 59
Expected EPS Growth this Year: 100%
Block, Inc. (NYSE:SQ) provides payment services to merchants and related services. It also launched Cash App, a person-to-person payment network.
Block, Inc. (NYSE:SQ) targets to be on the growth path. The company’s “Rule of 40” by 2026 plan places the bar high, with gross profit and adjusted operating income targets set at ~15% and ~25% (the sum equates to 40%), respectively. Adjusted EBITDA margin of the company increased from 17% in 2020 to reach 24% in 2023.
Block, Inc. (NYSE:SQ) anticipates that figure to increase to 33% this year, with the company focusing on cutting costs instead of increasing sales. The management anticipates a combined total addressable market (based on gross profit) of $190 billion between Square and Cash App. It will utilize its typical playbook to attract customers and boost usage via the introduction of new product features and expansion in new markets.
Block, Inc. (NYSE:SQ) is expected to benefit from switching costs. The merchants who lean on Square mission-critical partners are somewhat locked in the ecosystem. Also, consumers handling basic banking needs through Cash App don’t feel like changing the providers. Apart from switching costs, the company’s network effects are also expected to drive growth. Its ecosystem has features for every business, from point-of-sale to financial support.
Analysts at Citigroup upped their price objective on shares of Block, Inc. (NYSE:SQ) from $86.00 to $90.00. They gave a “Buy” rating on 6th May. In Q2 2024, there were 59 hedge fund holders in the company.
Baron Funds, an investment management company, released its second-quarter 2024 investor letter. Here is what the fund said:
“Block, Inc. (NYSE:SQ) provides point-of-sale technology to small businesses and operates the Cash App ecosystem of financial services for individuals. Shares gave back gains from earlier this year despite reporting strong quarterly results and raising full-year guidance. In the first quarter, gross profit grew 22% and EBITDA grew 91%, both exceeding Street expectations. Given the strong start to the year, second-quarter guidance of 16% to 17% gross profit growth may have disappointed some investors. Management remains committed to a “Rule of 40” investment framework in 2026 with at least mid-teens gross profit growth and a mid-20% operating margin. We continue to own the stock due to Block’s long runway for growth, durable competitive advantages, and innovative product offering.”
7) American International Group, Inc. (NYSE:AIG)
Forward P/E as of August 22: 12.33x
Number of Hedge Fund Holders: 61
Expected EPS Growth this Year: 21.6%
American International Group, Inc. (NYSE:AIG) is one of the largest insurance and financial services firms with a global footprint. The company operates through various subsidiaries that provide property, casualty, and life insurance.
The company’s homeowners insurance seeks to benefit from scale and allows it to provide features like high deductibles which can reach as much as $10,000. American International Group, Inc. (NYSE:AIG) has reported a strong 2Q 2024, announcing a 38% YoY increase in adjusted after-tax income, reaching $775 million. The company has been focusing on achieving a 10% plus return on equity (ROE) target via underwriting discipline, expense management, and capital optimization.
The company has made more progress by selling its stake in life insurer Corebridge recently while repositioning the portfolio through several divestitures. Therefore, this turnaround in the business is expected to support American International Group, Inc. (NYSE:AIG) moving forward.
The company’s earnings growth is expected to be driven by its focus on underwriting excellence and continued expense discipline. The repositioning of the underwriting portfolio enabled it to deliver high-quality growth in both admitted and non-admitted markets with several points of entry to deploy capital towards the most attractive risk-adjusted returns.
Analysts at BMO Capital Markets increased their price target on the shares of American International Group, Inc. (NYSE:AIG) from $88.00 to $89.00. They gave the company an “Outperform” rating on 13th May. Additionally, a total of 61 hedge funds held stakes in American International Group, Inc. (NYSE:AIG) as of the end of the second quarter, according to the Insider Monkey database.
ClearBridge Investments, an investment management company, released first quarter 2024 investor letter. Here is what the fund said:
“One example of our internal return engine is our continued large position in American International Group, Inc. (NYSE:AIG), which we have owned for roughly 10 years. We originally bought AIG at a greater than 30% discount to our initial estimate of business value. This entry point assumed minimal improvements in the business but allowed us to absorb some inevitable downdrafts along the way that we took advantage of to build our position. The key, however, is that during this period AIG management dramatically improved their business. The company has compounded intrinsic business value per share at a double-digit rate by reducing risks as management overhauled their underwriting process, strengthened their balance sheet, cut expenses and operational complexity and structurally improved returns on equity. A major source of added lift came from intelligent capital allocation: shares outstanding have been more than cut in half during this period, as management bought back roughly 5% of the company annually below intrinsic business value.
However, this valuation-driven return engine can only create so much lift on its own. We are always looking for big opportunities to create external lift in our returns from dramatic shifts in markets. The first comes from exploiting market extremes, where the long-term probabilities are very much in our favor, while the second comes from investor underreactions to big shifts in pricing power that can be exploited through our valuation-driven lens.”
6) General Motors Company (NYSE:GM)
Forward P/E as of August 22: 4.78x
Number of Hedge Fund Holders: 72
Expected EPS Growth this Year: 30.5%
General Motors Company (NYSE:GM) designs, builds, and sells cars, trucks, crossovers, and automobile parts. It offers vehicle protection, parts, accessories, maintenance, satellite radio, and automotive financing services.
General Motors Company (NYSE:GM) focuses on capitalizing on the shift to electric vehicles. At the same time, the company is also maintaining its strength in the core gas-engine truck and SUV business. The company is well-placed relative to secular tailwinds in the automobile business. With Sierra joining the EV lineup of the company, General Motors Company (NYSE:GM)–owned GMC brand plans to become a leader in all-electric truck sales in the US.
Therefore, its aggressive pivot towards electric vehicles and autonomous driving technologies places it at the forefront of the rapidly evolving market. Its Ultium battery platform, which is a modular system underpinning the entire future EV lineup, supplements its commitment to innovation. The company plans to expand its manufacturing capabilities in a way that this business can produce 1 million EV units in 2025.
For FY 2024, General Motors Company (NYSE:GM) is expected to post net income attributable to stockholders of between $10.0 billion – $11.4 billion and EBIT-adjusted of between $13.0 billion – $15.0 billion. Automotive operating cash flow is expected to come in the range of $19.2 billion – $22.2 billion.
Analysts at Mizuho increased their price target on shares of General Motors Company (NYSE:GM) from $48.00 to $52.00, giving it a “Buy” rating on 24th April. Diamond Hill Capital, an investment management company, released its first-quarter 2024 investor letter and mentioned General Motors Company (NYSE:GM). Here is what the fund said:
“Other top contributors included Allstate, Caterpillar and General Motors Company (NYSE:GM). Automobile manufacturer General Motors continues capitalizing on the shift to electric vehicles (EVs) while maintaining the strength of its core gas-engine truck and SUV business. Though it has experienced some setbacks — such as needing to roll back its Cruise driverless car project — we believe the company remains well-positioned relative to secular tailwinds within the automobile business.”
5) Apollo Global Management, Inc. (NYSE:APO)
Forward P/E as of August 22: 15.13x
Number of Hedge Fund Holders: 79
Expected EPS Growth this Year: 4.9%
Apollo Global Management, Inc. (NYSE:APO) is an alternative investment manager. The company serves several sectors like chemicals, manufacturing and industrial, natural resources, consumer and retail, consumer services, and business services, among others.
Over the last decade or so, the company’s primary growth driver has been its investment-grade credit business, which is closely linked to the rise of its insurance subsidiary, Athene. Moving forward, the company’s earnings and revenues are expected to be driven by the disruptive trends in financial services, mainly the shift of retirement assets to higher-yielding private credit. This is because it plays a dual role as an asset manager and annuity provider.
Moving forward, Apollo Global Management, Inc. (NYSE:APO)’s innovative products, like fixed indexed annuities and multi-year guaranteed annuities, should act as principal growth drivers.
The company released its 2Q 2024 results, highlighting significant capital deployment and inflows, with $70 billion invested and record inflows of $39 billion. The company has a positive strategic outlook, with expectations of healthy growth over the next decade across sectors, such as infrastructure and energy transition, and in the retirement services market. Apollo Global Management, Inc. (NYSE:APO)’s debt origination and hybrid and equity strategies are expected to act as tailwinds.
TD Cowen increased its price objective on shares of Apollo Global Management, Inc. (NYSE:APO) from $146.00 to $147.00, giving the stock a “Buy” rating on 8th July. The Insider Monkey database indicates that 79 hedge funds held stakes in the company as of the end of Q2 2024.
Baron Funds, an investment management company, released its second-quarter 2024 investor letter. Here is what the fund said:
“Strength in Tech-Enabled Financials was broad based, led by gains from alternative asset manager Apollo Global Management, Inc. (NYSE:APO) and specialty insurer Arch Capital Group Ltd. Apollo continues to benefit from disruptive trends in financial services, most notably the shift of retirement assets into higher-yielding private credit given the company’s dual role as an asset manager and an annuity provider.”
4) Citigroup Inc. (NYSE:C)
Forward P/E as of August 22: 10.70x
Number of Hedge Fund Holders: 85
Expected EPS Growth this Year: 40.6%
Citigroup Inc. (NYSE:C) is a global financial services company doing business in over 100 countries and jurisdictions. Its operations are organized into 2 primary segments: the global consumer banking segment and the institutional clients group.
The banking company’s restructuring appears to be well underway. In March, it had sold or wound down 9 of its 14 consumer franchises. Its Mexico consumer business is on track for the planned IPO by the next year. Therefore, it continues to make progress, and the stock trades at a discount, making it an appealing opportunity. The stock trades at ~10.7x its forward earnings, well below the sectoral average of ~16.5x.
In 2Q 2024, it saw a net income of $3.2 billion and earnings per share (EPS) of $1.52. Its revenues went up by 4%, with healthy growth in its Services, Markets, Wealth, and US Personal Banking divisions. The banking company has been focusing on normalizing credit costs and expects losses to decline in the medium term. Citigroup Inc. (NYSE:C) anticipates seeing a decline in its expenses in 2H 2024. Therefore, its outlook appears to be promising.
Analysts at Piper Sandler initiated the coverage of the shares of Citigroup Inc. (NYSE:C), raising the price target from $70.00 to $73.00. They gave an “Overweight” rating on 15th July.
Diamond Hill Capital, an investment management company, released its first-quarter 2024 investor letter and mentioned Citigroup Inc. (NYSE:C). Here is what the fund said:
“Other top Q1 contributors included Meta Platforms, Citigroup Inc. (NYSE:C) and Walt Disney. Banking and financial services company Citigroup’s restructuring efforts are ongoing, and it continues remediating regulatory issues and building capital in anticipation of increased requirements. The company expects to see expenses fall meaningfully in the second half of 2024, bolstering the outlook from here.”
3) PDD Holdings Inc. (NASDAQ:PDD)
Forward P/E ratio as on 22nd August: 12.48x
Expected EPS Growth this Year: 86.1%
Number of Hedge Fund Holders: 86
PDD Holdings Inc. (NASDAQ:PDD) is a multinational e-commerce group that owns and operates a portfolio of businesses. It continues to focus on the digital economy so that local communities and small businesses can reap the benefits of increased productivity and new opportunities.
The company used the higher penetration of smartphones and innovative business models to reach millions of customers in China.
However, the analysts and investing communities are not supporting Chinese companies due to the general slowdown in the broader economy. On the positive side, this means that most of the Chinese companies continue to trade at attractive valuations. For example, PDD Holdings Inc. (NASDAQ: PDD)’s stock trades at ~12.4x its forward earnings, which is at a deep discount to the sectoral average of ~18.8x.
The company uses the group-buy business model. This allows the users to invite family and friends for bulk purchases of the products directly from the concerned manufacturers. Therefore, the manufacturers can receive bulk orders, and customers tend to benefit from rock-bottom prices. This strategy of the company provides a significant competitive advantage which should help it in witnessing earnings growth moving forward.
As per Insider Monkey’s 2Q 2024 database, PDD Holdings Inc. (NASDAQ:PDD) was in the portfolios of 86 hedge funds.
Baron Funds, an investment management company, released its fourth quarter 2023 investor letter. Here is what the fund said:
“We added to our digitization theme by building a position in PDD Holdings Inc. (NASDAQ:PDD), a leading Chinese e-commerce platform. Founded in 2015, the company has emerged as China’s second largest e-commerce player, capturing approximately 20% market share. In our view, PDD’s competitive moat lies in its team purchase model that facilitates bulk buying through direct partnerships with manufacturers, thereby eliminating intermediaries (e.g., distributors and middlemen) and lowering costs. Key factors driving the company’s meteoric growth include rising consumer demand for affordable products in China amid an economic slowdown, small-scale merchants seeking alternatives to Alibaba, and superior management execution. PDD’s revenue growth outpaces gross merchandize value growth owing to rising take rates as merchants aggressively compete for consumer traffic on the platform. In our view, PDD should continue to gain market share given its dominance in the value-for-money segment, growing affordable branded product offerings, and high operational efficiency. We believe the company’s growth will be further supported by the recent launch of its international e-commerce platform, Temu, which has become one of the fastest growing apps globally. Leveraging China’s excess manufacturing capacity, Temu has strong negotiating power with domestic suppliers and attracts global consumers with competitively priced products. Temu’s recent initiatives to improve unit economics, coupled with achieving variable breakeven in the sizable U.S. market, showcase management’s skill and commitment to sustained growth. We expect PDD to at least double its earnings and free cash flow in the next three years, with the potential for continued compounding thereafter.”
2) Merck & Co., Inc. (NYSE:MRK)
Forward P/E as of 22 August: 14.47x
Expected EPS Growth this Year: 434.4%
Number of Hedge Fund Holders: 96
Merck & Co., Inc. (NYSE:MRK) is engaged in making pharmaceutical products to treat several conditions in several therapeutic areas, such as cardiometabolic disease, cancer, and infections.
Wall Street analysts believe that the company has done a great job by diversifying its drug portfolio and expanding throughout different geographies. After all, it mints money from vaccines and immunotherapy drugs. Moving forward, the company’s earnings growth is expected to stem from its recent acquisition of a biotech firm, Harpoon Therapeutics. This acquisition should help Merck & Co., Inc. (NYSE:MRK) in boosting its oncology pipeline directly.
Additionally, it might develop several other opportunities for the development of powerful new combination therapies. Harpoon’s technology platform is quite versatile and effective at creating cancer-fighting therapies.
Harpoon’s strategies are likely to be compatible or even synergistic with several other old and new cancer medicines such as chemotherapies, cell therapies, and antibody-drug conjugates. This means that the company might not be required to steal the market share to gain traction.
For FY 2024, Merck & Co., Inc. (NYSE:MRK) raised and narrowed its expected worldwide sales range to be between $63.4 billion – $64.4 billion. It expects non-GAAP EPS of between $7.94 and $8.04. Analysts at Cantor Fitzgerald reaffirmed an “Overweight” rating on the shares of Merck & Co., Inc. (NYSE:MRK), giving it a price target of $155.00 on 18th June.
Carillon Tower Advisers, an investment management company, released its first quarter 2024 investor letter. Here is what the fund said:
“After posting lackluster returns in 2023, Merck & Co., Inc. (NYSE:MRK) got off to a strong start in January by raising the long-term sales forecasts for its oncology and cardiology pipelines and reporting solid fourth-quarter results, coupled with strong financial guidance for 2024. Merck shares also finished the quarter strong after receiving U.S. Food and Drug Administration approval in late March for a new cardiology medicine with the potential to contribute significantly to sales growth over the next several years.”
1) Micron Technology, Inc. (NASDAQ:MU)
Forward P/E as of 22 August: 12.58x
Expected EPS Growth this Year: Over 100%
Number of Hedge Fund Holders: 120
Micron Technology, Inc. (NASDAQ:MU) historically focused on designing and manufacturing DRAM for PCs. The firm then expanded into NAND flash memory market.
The company’s management believes that Micron Technology, Inc. (NASDAQ:MU) should generate “several hundred million dollars” in HBM (high-bandwidth memory) revenue in FY24. The management is even optimistic for FY25. They believe the company has the potential to earn “multiple billions of dollars in revenue from HBM.”
Micron Technology, Inc. (NASDAQ:MU) has sold out its HBM capacity for this year and the following year.
Now, it focuses on winning a bigger share of the HBM market. This is expected to take place by expanding the customer base and developing HBM chips which could deliver more power and efficiency. The growth in the HBM market is directly related to the increased Al-chip demand. Therefore, an Al-fueled rally in the memory market should help the company in delivering earnings growth.
The rebound in memory prices and favorable inventory balances continue to work in the favor of Micron Technology, Inc. (NASDAQ: MU), helping it to post strong revenues. In 3Q 2024, the company saw 17% sequential revenue growth, exceeding its guidance range, to $6.81 billion. This was seen on the back of strong Al demand and healthy execution.
Analysts at Rosenblatt Securities gave a “Buy” rating on the shares of Micron Technology, Inc. (NASDAQ:MU), issuing a $225.00 price objective on 25th June.
ClearBridge Investments, an investment management company, released its second quarter 2024 investor letter and mentioned Micron Technology, Inc. (NASDAQ:MU). Here is what the fund said:
“Stock selection in the IT sector proved to be the largest contributor to performance, particularly driven by the strong performance of Micron Technology, Inc. (NASDAQ:MU) The company, which designs, develops, manufactures and sells memory and storage products, continued its strong performance alongside other AI beneficiaries as the anticipated demand for new and additional storage essential for housing and training large language AI models continues to grow.”
While we acknowledge the potential of MU 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 timeframe. If you are looking for a deeply undervalued AI stock that is more promising than NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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