5 Best Undervalued Small-Cap Stocks According to Hedge Funds

1. Genworth Financial, Inc. (NYSE:GNW)

Number of Hedge Fund Holders: 19     

PE Ratio: 2.19

Genworth Financial, Inc. (NYSE:GNW) provides insurance products. The share price has not registered a significant upside since the company merged with China Oceanwide in 2016. However, this merger was terminated in January last year. Since then, the company has taken a slew of initiatives aimed at strengthening the balance sheet and improving profitability for the long-term aimed at growing dividend payouts and share repurchases. 

On March 14, S&P Global upgraded the credit rating of Genworth Financial, Inc. (NYSE:GNW) to B+ from B.

Among the hedge funds being tracked by Insider Monkey, North Carolina-based investment firm Shah Capital Management is a leading shareholder in Genworth Financial, Inc. (NYSE:GNW) with 11.5 million shares worth more than $46 million.  

At the end of the fourth quarter of 2021, 19 hedge funds in the database of Insider Monkey held stakes worth $128 million in Genworth Financial, Inc. (NYSE:GNW), compared to 23 in the preceding quarter worth $130 million. 

In its Q4 2021 investor letter, Gator Capital Management, an asset management firm, highlighted a few stocks and Genworth Financial, Inc. (NYSE:GNW) was one of them. Here is what the fund said:

“We own positions in both Enact Holdings and its parent company, Genworth Financial, Inc. (NYSE:GNW). Enact is one of six mortgage insurance companies. Mortgage insurance is purchased by borrowers to protect lenders if the borrower defaults on their mortgage. The government mortgage agencies (“GSEs”) require mortgage insurance when the borrower has a down payment of less than 20% of the home’s purchase price. Usually, first-time homeowners are the largest users of mortgage insurance since they often have the most difficult time accumulating enough savings for a 20% down payment. We believe the demand for mortgage insurance will be strong, but the mortgage insurance companies’ stocks are priced as though future earnings will not grow.

Here is our investment thesis on Genworth Financial, Inc. (NYSE:GNW):

Genworth Financial

We also own shares of Enact’s parent company Genworth Financial. We think Genworth is more attractive than Enact. Here is our investment thesis on Genworth:

1. Leveraged return on Enact – Genworth’s main asset is the 132 million shares of Enact it still holds. Genworth also has about $1 billion of net debt at its holding company, so it is a leveraged version of Enact. If Enact stock increases in value, Genworth should increase a greater percentage due to…” (Click here to see the full text)

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