In this article, we will take a look at the 5 best under-the-radar stocks to buy according to hedge funds. To see more such companies, go to 10 Best Under-The-Radar Stocks To Buy According To Hedge Funds.
5. Five Below, Inc. (NASDAQ:FIVE)
Number of Hedge Fund Holders: 28
Pennsylvania-based Five Below, Inc. (NASDAQ:FIVE) operates discount stores which sell most of their products under $5. As recession fears mount and inflation increases, consumers are more likely to visit discount stores. Last month, Bank of America counted Five Below, Inc. (NASDAQ:FIVE) among the three stocks it recommends to investors for 2023.
“Within our coverage universe, these are the companies with the best combination of company-specific growth initiatives, a relatively favorable macro backdrop, and attractive valuation,” BofA said.
As of the end of the second quarter of 2022, Five Below, Inc. (NASDAQ:FIVE) operated about 1,200 stores across 40 states in the US. The company’s revenue has increased at a 17% CAGR in the past five years. The company’s stores have attractive products for teens and tweens.
As of the end of the third quarter of last year, 28 hedge funds tracked by Insider Monkey had stakes in the company, compared to 31 funds in the previous quarter.
Wasatch Global Investors made the following comment about Five Below, Inc. (NASDAQ:FIVE) in its Q3 2022 investor letter:
“Another top contributor was Five Below, Inc. (NASDAQ:FIVE). The company operates a chain of specialty discount stores aimed at “tweens” and teens that sell products that cost up to $5, plus a small assortment of products priced from $6 to $25. While the company lowered guidance for the full year and missed consensus estimates in its most recent quarterly earnings report, guidance for the all-important fourth-quarter holiday season included some positive takeaways. Management also said it expects operating margin expansion due to tight expense controls. In addition, the company is accelerating new store openings, following a pandemic-driven slowdown and construction challenges, which we think will provide future revenue growth.”
4. Vertiv Holdings Co. (NYSE:VRT)
Number of Hedge Fund Holders: 32
Vertiv Holdings Co. (NYSE:VRT) is one of the best under-the-radar stocks as the company is operating in a high-growth market. Vertiv Holdings Co. (NYSE:VRT) sells services and equipment for data centers. In October last year, the stock shot up after Jeff Smith’s Starboard Value revealed a 7.4% stake in the company via 27.8 million shares. A Bloomberg report said that the activist fund will be pushing the company for operational improvements.
A total of 32 hedge funds tracked by Insider Monkey reported having stakes in Vertiv Holdings Co. (NYSE:VRT). The total value of these stakes was $362 million.
Renaissance Investment made the following comment about Vertiv Holdings Co (NYSE:VRT) in its Q3 2022 investor letter:
“Vertiv Holdings Co (NYSE:VRT) was another strong performer after returning 62.9%. The company reported solid quarterly results and showed progress in managing through the raw materials inflationary environment that negatively impacted margins over the past several quarters.”
3. PBF Energy Inc. (NYSE:PBF)
Number of Hedge Fund Holders: 32
PBF Energy Inc. (NYSE:PBF) is a petroleum refinery company and a supplier of unbranded transportation fuels, heating oils, lubricants and petrochemical feedstocks. PBF Energy Inc. (NYSE:PBF) is one of the biggest independent petroleum refiners and suppliers of unbranded transportation fuels, heating oil, petrochemical feedstocks, lubricants, and other petroleum products in the US.
A total of 32 hedge funds tracked by Insider Monkey reported having stakes in PBF Energy Inc. (NYSE:PBF). The total value of these stakes was $509 million. Several notable hedge funds have stakes in the company. These funds include billionaire Izzy Englander’s Millennium Management ($82 million stake), Ken Griffin’s Citadel Investment Group ($82 million stake) and Peter Rathjens’ Arrowstreet Capital ($73 million stake).
In December, PBF stock gained after the company’s board authorized the repurchase of up to $500 million of its class A stock, sending its shares 7.3% higher.
2. Lantheus Holdings, Inc. (NASDAQ:LNTH)
Number of Hedge Fund Holders: 35
Ranking 2nd in our list of the 10 best under-the-radar stocks to buy according to hedge funds is Lantheus Holdings, Inc. (NASDAQ:LNTH), which makes AI-based diagnostic and therapeutic products. Lantheus Holdings, Inc. (NASDAQ:LNTH) has gained a whopping 81% over the past 12 months. However, in November, the stock fell despite the company posting strong Q3 results and giving an upbeat outlook. The company said that in the third quarter, its worldwide revenue jumped 134% YoY to $239.3 million.
In the quarter, Lantheus Holdings, Inc. (NASDAQ:LNTH) swung to a $61.2 million of net income from $13.4 million of net loss in the prior year quarter. For the full year, the company raised its revenue and adjusted earnings per share guidance to $915 million – $919 million and $3.80 – $3.83, better than the consensus of $899.35 million and $3.55, respectively.
Lantheus stock is owned by 35 hedge funds of the 920 tracked by Insider Monkey. The total value of the stakes of these hedge funds in the company is $422 million.
1. Twilio Inc. (NYSE:TWLO)
Number of Hedge Fund Holders: 58
Twilio Inc. (NYSE:TWLO) is one of the notable under-the-radar stocks to buy according to hedge funds. The Cloud communications technology company is used by thousands of companies and developers all over the world to build communication pipelines for customer support, chatbots, text messages and other forms of communication. Twilio’s Cloud communication service is used by major companies including Lyft, the American Red Cross, Dell and Airbnb.
Twilio Inc. (NYSE:TWLO) is currently under pressure amid macroeconomic headwinds and the launch of ChatGPT, which many believe would give a tough competition to Twilio. However, many analysts believe that Twilio is operating in a different domain than ChatGPT and the company has an established developer and customer base.
A total of 58 hedge funds tracked by Insider Monkey had stakes in Twilio Inc. (NYSE:TWLO) as of the end of the September quarter. The total value of these stakes was $2.1 billion. Cathie Wood’s ARK is the biggest stakeholder of the company, with a $472 million stake.
Here is what RiverPark Funds specifically said about Twilio Inc. (NYSE:TWLO) in its Q2 2022 investor letter:
“Twilio Inc. (NYSE:TWLO) offers a full suite of cloud-based communications software, services and tools that allows companies in a wide range of businesses to build omni-channel communications capabilities (video, chat, voice, SMS, fax and email) directly into their customer facing applications without needing to build back-end infrastructure and interfaces. The company also provides software tools that allow its users to gather and categorize customer data (its Segments offering) and to create next generation call centers (Flex) to utilize this data in customer interactions. Twilio is the leader in this fast growing $80 billion Communications-Platform-as-a-Service (or CPaaS) market, having grown its customer base 5x in the past five years to 268,000 customers and to a $3.5 billion run rate revenue for 1Q22. The company’s net revenue retention rate has exceeded 125% every year since its 2016 IPO and its customer churn remains less than 4% (for customers with > $30,000 revenue), evidence of the loyalty of Twilio’s customers to its platform (and a high switching cost) as well as the company’s increasing number of offerings. The company’s revenue is generated from both recurring revenue from subscription fees as well as volume-based charges for usage.
TWLO expects to maintain a +30% annual organic revenue growth rate through at least 2024, with long-term gross margin expansion from 56% to 60%-65%, and EBITDA margins approaching 35% as revenue scales. As of 1Q22, TWLO had $4.2 billion net cash, and should turn FCF positive this year. Over the next several years, we expect the company to grow its excess cash significantly as the company operates an asset light business model with low capital needs of just over 1% of current revenue.
We forecast 30% annual revenue growth through 2027, with EBITDA margins approaching the company’s long-term model guidance of 27% to generate $11.49 of EPS. At its current stock price, TWLO trades at about 5x this 2027 EPS projection (and trades at only 3x our 2030 EPS estimate). We project that the company will generate nearly 65% of its current enterprise value in excess free cash over the next five years and all of its current enterprise value in excess cash by the end of the decade…” (Click Here to read the full text)
You can also take a peek at 10 Best Diversified Dividend Stocks To Buy and 11 Best Dividend Stocks Under $50.
