In this article, we discuss the 5 best undervalued stocks according to hedge funds. If you want to read our detailed analysis of these stocks, go directly to the 10 Best Undervalued Stocks According to Hedge Funds.
5. Morgan Stanley (NYSE:MS)
Number of Hedge Fund Holders: 65
PE Ratio: 11.88
Morgan Stanley (NYSE:MS) is a New York-based financial services firm. It is one of the most popular finance stocks on Wall Street. 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.
On January 3, Barclays analyst Jason Goldberg maintained an Overweight rating on Morgan Stanley (NYSE:MS) stock and raised the price target to $123 from $110, noting that the bank was poised to outperform the market in 2022 as loan growth accelerates and net interest margins benefit from higher interest rates.
In its Q1 2021 investor letter, Artisan Partners Limited Partnership, an asset management firm, highlighted a few stocks and Morgan Stanley (NYSE:MS) was one of them. Here is what the fund said:
“Top three contributor Morgan Stanley, a leading global financial services company, came into the portfolio in Q4 as a result of its purchase of E*TRADE. E*TRADE is a great fit on Morgan Stanley’s wealth management platform and provides a considerable amount of non-interest-bearing deposit funding. James Gorman, chairman and CEO, has steadily de-risked Morgan Stanley’s business by adding less volatile fee streams and deemphasizing the risk-obtuse culture of prior management. We believe the market will come to appreciate this mix shift over time.”
4. HCA Healthcare, Inc. (NYSE:HCA)
Number of Hedge Fund Holders: 66
PE Ratio: 11.54
HCA Healthcare, Inc. (NYSE:HCA) provides healthcare services. On January 21, Citi analyst Jason Cassorla reiterated a Buy rating on the stock with a price target of $277, underlining that the firm was a prudent set up for 2022 given the continued fluid backdrop and the shares could “grind higher as the company returns to a path to execution as COVID-19 rolls over.”
HCA Healthcare, Inc. (NYSE:HCA) is one of the favorite health stocks in the hedge fund universe. At the end of the fourth quarter of 2021, 66 hedge funds in the database of Insider Monkey held stakes worth $2.9 billion in HCA Healthcare, Inc. (NYSE:HCA), compared to 72 the preceding quarter worth $3.3 billion.
In its Q4 2020 investor letter, Bireme Capital, an asset management firm, highlighted a few stocks and HCA Healthcare, Inc. (NYSE:HCA) was one of them. Here is what the fund said:
“Since March we have increasingly tilted the long book towards stocks whose businesses will improve as the pandemic fades, a strategy we first discussed in our 1Q20 letter. Now that 2020 is — thankfully — over, let’s take a look back at some of our predictions from Q1.
HCA Healthcare (HCA) runs for-profit hospitals. In Q1, we said:
“We were shocked to see HCA initially trade down more than 50% in mid-March, in line with hotel companies and online travel agents. HCA will likely earn $11-12 in EPS when the COVID-19 crisis recedes, and we think the stock will trade back towards $150. Therefore, during Q1 we added we added ~80% to our shareholdings at an average price of roughly $90.”
If anything, this prediction was pessimistic. Despite the raging pandemic, 2020 revenue of $51.5b was actually up year-over-year. Earnings increased as well, with 2020 EPS of $10.93 and guidance of $12.10-13.10 in EPS for 2021. Said another way, in March HCA was trading for about 5 times 2021 earnings. We think that at $175 this stock is still cheap today and should trade at well over $200 per share.”
3. Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Holders: 94
PE Ratio: 11.24
Wells Fargo & Company (NYSE:WFC) is a diversified financial services firm. Hedge funds have been loading up on the stock in recent months. At the end of the fourth quarter of 2021, 94 hedge funds in the database of Insider Monkey held stakes worth $6.11 billion in Wells Fargo & Company (NYSE:WFC), compared to 88 the preceding quarter worth $6.18 billion.
Wells Fargo & Company (NYSE:WFC) has embarked on an ambitious plan recently to reduce expenses. The fourth quarter results of the firm indicate that the company has been successful in cutting costs and generating a gain from asset sales. Amid rising interest rates, deposits and lending at the bank have also increased.
In its Q4 2020 investor letter, Davis Funds, an asset management firm, highlighted a few stocks and Wells Fargo & Company (NYSE:WFC) was one of them. Here is what the fund said:
“Detractors to performance relative to the index include financial services holdings such as Wells Fargo. While banks in general have suffered due to the recession and experienced credit losses, Wells Fargo also suffered from operational missteps. It is our expectation, however, that our bank holdings in general will benefit from stronger economic growth as the pandemic recedes; and we believe Wells Fargo in particular, will, over time, lower their costs and successfully grow their businesses.”
2. Laboratory Corporation of America Holdings (NYSE:LH)
Number of Hedge Fund Holders: 60
PE Ratio: 10.84
Laboratory Corporation of America Holdings (NYSE:LH) is an independent clinical laboratory firm. The company generates over 60% of annual revenue from the diagnostics market and is set to grow in this domain for the coming ten years despite a decrease in COVID-related diagnostic revenue. The firm registered over 12% revenue growth and more than 20% EPS growth per year in the last decade.
Elite hedge funds hold large stakes in Laboratory Corporation of America Holdings (NYSE:LH). Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Melvin Capital Management is a leading shareholder in Laboratory Corporation of America Holdings (NYSE:LH) with 1.9 million shares worth more than $620 million.
1. Verizon Communications Inc. (NYSE:VZ)
Number of Hedge Fund Holders: 63
PE Ratio: 10.12
Verizon Communications Inc. (NYSE:VZ) is a communications firm. Hedge funds have been piling into the stock. At the end of the third quarter of 2021, 63 hedge funds in the database of Insider Monkey held stakes worth $10.8 billion in Verizon Communications Inc. (NYSE:VZ), compared to 57 in the previous quarter worth $10.3 billion.
Verizon Communications Inc. (NYSE:VZ) has a dividend history stretching back more than two decades. Over the last seventeen years, it has grown the payout consistently. On February 28, the company declared a quarterly dividend of $0.64 per share, in line with previous. The forward yield was 4.73%.
In its Q1 2021 investor letter, Miller/Howard Investments, an asset management firm, highlighted a few stocks and Verizon Communications Inc. (NYSE:VZ) was one of them. Here is what the fund said:
“We sold Verizon (VZ) based on concerns over how much they might spend in ongoing spectrum auctions. Management may legitimately view spending billions of dollars to expand their spectrum holdings as necessary, but we believe the payoff will be slow and will make it challenging to grow the dividend at a good pace.”
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