In this article, we discuss the 5 best undervalued large-cap stocks according to hedge funds. If you want to read about some more undervalued stocks popular among hedge funds, go directly to 10 Best Undervalued Large-Cap Stocks According to Hedge Funds.
5. Morgan Stanley (NYSE:MS)
Number of Hedge Fund Holders: 65
PE Ratio: 10.62
Morgan Stanley (NYSE:MS) is a financial holding firm based in New York. The company beat market estimates on earnings for the fourth quarter of 2021 in January and also raised the target for return on tangible common equity to over 20%, boosting the shares. As interest rates rise, the earnings of Morgan Stanely are expected to get a further boost. The firm is also a reliable dividend play in the high interest rates environment, with a history stretching back more than two decades. In late January, it declared a quarterly dividend of $0.70 per share, in line with previous. The forward yield was 2.92%.
On April 5, Piper Sandler analyst Jeffrey Harte kept a Neutral rating on Morgan Stanley (NYSE:MS) stock with a price target of $100, lowering the universal estimates for bank earnings amid “capital markets related revenue headwinds and an increase in macro uncertainty and market volatility”.
At the end of the fourth quarter of 2021, 65 hedge funds in the database of Insider Monkey held stakes worth $4.5 billion in Morgan Stanley (NYSE:MS), the same as in the preceding quarter worth $4.9 billion.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Eagle Capital Management is a leading shareholder in Morgan Stanley (NYSE:MS) with 14.5 million shares worth more than $1.4 billion.
In its Q3 2021 investor letter, Artisan Partners, an asset management firm, highlighted a few stocks and Morgan Stanley (NYSE:MS) was one of them. Here is what the fund said:
“Morgan Stanley (NYSE:MS), a leading global financial services company, came into the portfolio in late 2020 as a result of its purchase of E*TRADE. The acquisition is a great fit for Morgan Stanley’s wealth management platform and provides a considerable amount of non-interest-bearing deposit funding. James Gorman, chairman and CEO, has steadily derisked the business by adding less volatile fee streams to complement its leading positions in cyclical businesses such as advisory, equities and FICC (fixed income, currencies and commodities). We believe Morgan Stanley (NYSE:MS) will prove its resiliency and value over the long term.”
4. U.S. Bancorp (NYSE:USB)
Number of Hedge Fund Holders: 46
PE Ratio: 10.39
U.S. Bancorp (NYSE:USB) is a financial services holding firm. On February 22, the company announced that it had picked Microsoft Azure as the primary cloud computing platform to power the lending applications of the bank. The company has also expanded the partnership with Microsoft to Microsoft 265 and Microsoft Teams to integrate the professional suite of Microsoft products into the business. The firm is expanding a credit card reward program from fuel stations to EV charging stations as well.
On March 28, Morgan Stanley analyst Betsy Graseck maintained an Equal Weight rating on U.S. Bancorp (NYSE:USB) stock with a price target of $66, noting that “war changes everything” and that longer inflation was also a “credit risk” for banks.
At the end of the fourth quarter of 2021, 46 hedge funds in the database of Insider Monkey held stakes worth $7.9 billion in U.S. Bancorp (NYSE: USB), compared to 42 the preceding quarter worth $8.3 billion.
Among the hedge funds being tracked by Insider Monkey, Nebraska-based investment firm Berkshire Hathaway is a leading shareholder in U.S. Bancorp (NYSE:USB) with 126 million shares worth more than $7 billion.
In its Q4 2020 investor letter, Mairs & Power, an asset management firm, highlighted a few stocks and U.S. Bancorp (NYSE:USB) was one of them. Here is what the fund said:
“On the negative side, one of the Fund’s biggest detractor in 2020 was U.S. Bancorp (USB). Like all banks, U.S. Bank was hurt by the difficult interest rate environment and credit cycle concerns. We believe banks are strong enough to survive the current sector doldrums, and they remain some of the market’s most attractive opportunities.”
3. Intel Corporation (NASDAQ:INTC)
Number of Hedge Fund Holders: 72
PE Ratio: 9.90
Intel Corporation (NASDAQ:INTC) makes and sells semiconductor products. On April 4, the firm announced that it was partnering with defense and aviation firm Lockheed Martin to develop 5G capable communications solutions. Intel products already power the Hybrid Base Station of the US military that handles critical communication with emerging platforms such as satellites, aircraft, ships and ground vehicles. In late March, Intel had also signed an agreement to purchase Granulate Cloud Solutions, an Israel-based software optimization firm.
On February 23, Raymond James analyst Chris Caso upgraded Intel Corporation (NASDAQ:INTC) stock to Sector Perform from Underperform without a price target, noting that the firm’s long-term plan to dominate the chip market was “long and expensive” but little chance of underperformance.
At the end of the fourth quarter of 2021, 72 hedge funds in the database of Insider Monkey held stakes worth $5.5 billion in Intel Corporation (NASDAQ:INTC), compared to 66 in the previous quarter worth $6.4 billion.
Among the hedge funds being tracked by Insider Monkey, Boston-based investment firm Baupost Group is a leading shareholder in Intel Corporation (NASDAQ:INTC) with 18 million shares worth more than $928 million.
In its Q4 2021 investor letter, Davis Funds, an asset management firm, highlighted a few stocks and Intel Corporation (NASDAQ:INTC) was one of them. Here is what the fund said:
“Within technology and communication services, we own a number of online businesses and semiconductor related companies, including Alphabet, Amazon, Intel Corporation (NASDAQ:INTC), Applied Materials and Texas Instruments. Within the realm of high technology, we believe that leadership positions reflect enduring and widening competitive advantages over smaller competitors, with few exceptions. This is because online businesses, as well as semiconductor companies, benefit from economies of scale. An online search and advertising engine will, in general, be more profitable per unit of cost as it grows larger in terms of users and advertising dollars. It is a hub-and-spoke model, in other words, where it is generally not necessary to grow expenses at the same rate that revenues grow beyond a certain threshold. Therefore, returns on capital tend to be higher, the larger and more dominant the online search company is.”
2. Ovintiv Inc. (NYSE:OVV)
Number of Hedge Fund Holders: 44
PE Ratio: 9.71
Ovintiv Inc. (NYSE:OVV) markets oil and natural gas. On February 24, the company posted earnings for the fourth quarter of 2021, reporting earnings per share of $5.21, beating analyst expectations by $3.66. The firm also said it planned to spend $1.5 billion in capital spending for 2022, largely in line with 2021 levels. It is also expected to generate nearly $3 billion in free cash flow this year, a target that is nearly 30% of the market cap.
On March 31, Mizuho analyst Vincent Lovaglio kept a Buy rating on Ovintiv Inc. (NYSE:OVV) stock and raised the price target to $78 from $54, noting that the target increase wad “driven by an increase in estimated US unconventional oil volume growth and the resulting expected increase in capital intensity”.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Two Sigma Advisors is a leading shareholder in Ovintiv Inc. (NYSE:OVV) with 2.5 million shares worth more than $87 million.
At the end of the fourth quarter of 2021, 44 hedge funds in the database of Insider Monkey held stakes worth $1 billion in Ovintiv Inc. (NYSE:OVV), the same as in the previous quarter worth $684 million.
In its Q4 2021 investor letter, Miller Value Partners, an asset management firm, highlighted a few stocks and Ovintiv Inc. (NYSE:OVV) was one of them. Here is what the fund said:
“The outlook for high multiple favorites depends to a great degree on interest rates. Warren Buffett likened interest rates to the force of gravity for asset prices. At current low levels, high valuations on long-duration assets can be justified. If interest rates move up, the adjustment will be painful. Market action early in the new year, with the swift moves up in interest rates and down in the Nasdaq, offers a taste of the medicine.
We underwrite all our names to have sufficient upside even if risk-free rates move up to 3% (a scenario, not a forecast!). As we evaluate the opportunity set, we find more attractive prospects in the classic value names. We often hear that people think value investing is dead, which only strengthens our conviction. Our gross exposure to classic value has risen from 44% a year ago to 62% currently.
One new name that illustrates the potential we see is Ovintiv Inc. (NYSE:OVV), an oil and gas producer. We’ve seen a huge shift in the industry away from growth towards returns on capital, cash generation, and capacity discipline. Ovintiv Inc. (NYSE:OVV) exemplifies the change.
OVV’s new CEO Brendan McCracken says: “We are at the forefront of driving innovation to produce oil and gas from shale both profitably and sustainably. We will generate superior returns and free cash flow by continuously improving capital efficiency and expanding margins while driving down emissions. We will deliver that value to our shareholders through disciplined capital allocation.”
Based on crude at $65 (well below the current $83.82 as of 1/14/22), Ovintiv Inc. (NYSE:OVV) guides to free cash flow generation of $11B over the next 5 years and $21B in the next 10 years. The company’s market cap is currently $10B and its enterprise value is $16B. It’s returning a significant portion of the capital to shareholders. If crude averages $70 in 2022, the company will return $700M to shareholders (in addition to paying down a significant amount of debt), which implies a yield of 7% at the current $39.53 price. In other words, there’s a good shot the company will return nearly its entire market cap to shareholders over the next 5 years.”
1. Teck Resources Limited (NYSE:TECK)
Number of Hedge Fund Holders: 40
PE Ratio: 9.11
Teck Resources Limited (NYSE:TECK) is a diversified metals and mining firm. The stock, which has key stakes in the copper business, was boosted in the past few months as copper prices climbed to all-time highs in the wake of supply chain disruptions and low stockpiles. In recent weeks, however, a rise in COVID-19 cases from China has renewed investor concerns around demand, leading to a drop in copper price. In the fourth quarter of 2021, the firm posted a 72% year-on-year increase in revenue.
On March 31, investment advisory Raymond James maintained an Outperform rating on Teck Resources Limited (NYSE:TECK) stock and raised the price target to C$58 from C$52. Analyst Brian MacArthur issued the ratings update.
Among the hedge funds being tracked by Insider Monkey, United Kingdom-based investment firm Contrarius Investment Management is a leading shareholder in Teck Resources Limited (NYSE:TECK) with 7.3 million shares worth more than $170 million.
At the end of the fourth quarter of 2021, 40 hedge funds in the database of Insider Monkey held stakes worth $1.6 billion in Teck Resources Limited (NYSE:TECK), compared to 41 in the previous quarter worth $1.3 billion.
You can also take a peek at 10 Stocks Reddit’s WallStreetBets is Buying in July 2021 and Top Robinhood Stocks Popular on Reddit.
