Below we presented the list of 5 best beaten down stocks to buy now. For our detailed discussion and a more comprehensive list please see 15 best beaten down stocks to buy now.
At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, lithium mining is one of the fastest growing industries right now, so we are checking out stock pitches like this emerging lithium stock. We go through lists like the 10 best hydrogen fuel cell stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let’s take a look at the best beaten down stocks to buy:
5. Raytheon Technologies (NYSE:RTX)
No of HFs: 55
Total Value of HF Holdings: $2.98 Billion
RTX lost 25% since 2019. An insider recently purchased 1,000 shares at around $52 in October 2020. The stock is up 28% since then. In an article, United Technologies Corporation mentioned a few comments on the stock.
“We are pleased that the Board of Directors decided to split United Technologies Corp. (“UTC”) into three separate, focused companies. Unfortunately, the initial announcement caused confusion and created uncertainty about the free cash flow generation of newly-acquired Rockwell Collins. We believe management has largely rectified this by shortening the time to separation and providing better disclosure on Rockwell Collins’s free cash flow generation. We have urged management to quantify the elimination of stranded costs and explore a highly value-creating transaction for Carrier,and believe they are receptive to these suggestions. Despite the separation announcement, UTC’s sum-of-the parts discount has continued to widen and the valuation gap versus UTC’s closest multi-industry peer, Honeywell International, has reached a new 10-year high. The coming separation will shine a greater spotlight on the large valuation gap to UTC’s pure-play peers.During the separation process, we expect the management team to highlight UTC’s asset quality and to increase transparency around Pratt & Whitney’s very significant multi-year inflection in free cash flow generation.
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4. Marathon Petroleum (NYSE:MPC)
No of HFs: 56
Total Value of HF Holdings: $1.07 Billion
MPC lost 23% since 2019. The top hedge fund holder of this stock is Brandon Haley’s Holocene Advisors which had $95 million invested in the stock at the end of September. An insider recently purchased 12,500 shares at around $48 in June 2019. The stock is down 6% since then. MPC is mentioned as one of the 10 Best Dividend Paying Stocks to Buy Under $50. First Eagle Investment Management mentioned a few of their comments on the stock in their Q1 2020 investor letter.
“Pervasive weakness across the energy sector, and in global refining markets and crack spreads specifically, pulled down Marathon Petroleum during the quarter. The stock was further hurt by early-March news that Japanese retailer Seven & i Holdings was scrapping plans to acquire Marathon’s Speedway gas station/convenience stores for $22 billion.”
3. FirstEnergy Corporation (NYSE:FE)
No of HFs: 59
Total Value of HF Holdings: $1.28 Billion
FE lost 32% since the end of 2019. The top hedge fund holder of this stock is Stuart J. Zimmer’s Zimmer Partners which had $161 million invested in the stock at the end of September. An insider recently purchased 100 shares at around $41 in May 2019. The stock is down 24% since then. FE was mentioned as one of the 5 Best Utility Stocks to Buy Now. FE was mentioned in Heartland Mid Cap Value Fund’s Q3 2020 investor letter.
“The portfolio’s Utility names lagged on a relative basis with the shortfall stemming from a stock-specific issue in the group. FirstEnergy (FE) is a business we’ve owned in the past and sold out of after shares had appreciated following its successful transition to a pure regulated utility through the divestiture of its merchant power unit.
We initiated a new stake in FirstEnergy in March after shares sold off due to concerns that the recession would have an outsized impact on the company’s industrial-oriented client base. Similar to our successful experience in the past, we felt that the company was attractive given its meaningful discount to its peers.
Subsequent to our investment, FirstEnergy was named in an investigation related to $60 million of payments made by the merchant power entity to Ohio politicians. Our initial reaction when news broke was to reduce our exposure to the company, however, we continued our due diligence on the matter and believe that market reaction overestimated the likely fallout from the investigation.
As shares fell in price, we added to our position in the belief that as the matter proceeds, some of the clouds casting a shadow on the business will subside.”
2. Boston Scientific (NYSE:BSX)
No of HFs: 61
Total Value of HF Holdings: $2.53 Billion
BSX lost 20% since 2019. The company was mentioned as one of the 10 Best Cheap Stocks to Buy Now According to Ray Dalio. In an article, Diamond Hill Capital mentioned that the demand for BSX products is fairly inelastic.
“Medical device manufacturer Boston Scientific Corp. is a high-quality company that we own in several other portfolios. The company has experienced disruption from canceled elective procedures due to COVID-19, but demand for its products is fairly inelastic (e.g. if a pacemaker is needed, it can wait several weeks, but not years).”
1. Wells Fargo and Company (NYSE:WFC)
No of HFs: 90
Total Value of HF Holdings: $8.46
WFC lost 38% since 2019 and ranks 1st on our list of best beaten-down stocks to buy now. The top hedge fund holder of this stock is Warren Buffett’s Berkshire Hathaway which had $2.99 billion invested in the stock at the end of September. An insider recently purchased 60 shares at around $26 in November 2019. The stock is up 19% since then. In an article, Argosy Investors mentioned WFC.
“Most of us are familiar with Wells Fargo (WFC); they are one of the top 5 banks in the U.S. with nearly $2 trillion in assets. The last 5 years have not been good to Wells. They are on their 3rd CEO during that time, and the current one stays in New York City despite headquarters being in San Francisco. Wells Fargo opened millions of fake accounts for customers over several years, driven by an incentive system that compensated branches based on their account openings. This goes to show you the perverse power of incentives, if not properly balanced. To atone for their sins, Wells Fargo is operating under an asset cap which prevents the bank from growing and must demonstrate stronger risk management. Not that long ago, Wells Fargo was the most admired large bank on Wall Street, with the highest valuation and glowing reviews about its low cost of funds driving sustainably high returns on equity. Now, it has the lowest valuation on Wall Street and no one talks about the good old days with Wells.
I believe that there is nothing fundamentally wrong with Wells Fargo’s business that cannot be fixed, and once they can return to normal operations without the fake account nonsense then I expect they will return to earning returns slightly lower than historical norms. If Wells Fargo uses 100% of its earnings to repurchase share over the next 3 years, Wells can retire 25% of its outstanding stock. By 2023, WFC could earn $6+ per share. At 10x earnings, a very low multiple given the rest of the stock market trades at 22x earnings, Wells Fargo could fetch $60 per share. WFC’s current share price is $33 and our cost basis is around $25 per share. If it takes 5 years for Wells to get out of the penalty box and trade at $60 per share, we can earn a 20% annual return on our investment, including dividends.”
Please also see 10 Best Dividend Stocks to Buy According to Billionaire Ken Fisher and 15 Best Dividend Stocks with Upside Potential.
