In this article, we will take a look at the 5 most undervalued dividend stocks to buy according to analysts. To see more such companies, go directly to 12 Most Undervalued Dividend Stocks To Buy According To Analysts.
5. FMC Corporation (NYSE:FMC)
Number of Hedge Fund Holders: 32
Average Analyst Price Estimate: $110
Chemical manufacturing company FMC Corporation (NYSE:FMC) ranks 5th in our list of the most undervalued dividend stocks to buy according to Wall Street analysts. However, FMC Corporation (NYSE:FMC) in September received a downgrade from Redburn Atlantic, which decreased its rating on the stock to Neutral from Buy.
FMC Corporation (NYSE:FMC) talked in detail about its guidance and business updates in its Q2 earnings call:
“EBITDA margins are expected to be up roughly 270 basis points in Q3 and 460 basis points in Q4 with full year 2023 EBITDA margin forecasted to increase by roughly 120 basis points despite the tough first half of the year. Interest expense for the second quarter was $64.5 million, up $29.2 million versus the prior year period. Substantially higher U.S. interest rates were the primary driver of higher interest expense in the quarter, along with higher overall debt levels resulting from elevated working capital. We now expect full year interest expense to be in the range of $220 million to $230 million, an increase of $15 million at the midpoint compared to our prior guidance.
This increase is driven by higher debt balances due to elevated working capital levels. Our effective tax rate on adjusted earnings for…” [ read the full earnings call transcript here]
Out of the 910 hedge funds tracked by Insider Monkey, 32 hedge funds had stakes in FMC Corporation (NYSE:FMC) as of the end of the second quarter of 2023. The biggest stake in FMC Corporation (NYSE:FMC) belongs to Ken Griffin’s Citadel Investment Group which owns a $106 million stake in the company.
TimesSquare U.S. Mid Cap Growth Strategy made the following comment about FMC Corporation (NYSE:FMC) in its Q4 2022 investor letter:
“Within Materials, FMC Corporation (NYSE:FMC) is an agricultural sciences company offering solutions in areas such as crop protection, plant health, professional pest, and turf management. The company delivered solid third quarter results that led to a 19% boost to its stock price. Management continues to view the outlook as favorable, underpinning strong demand. Inflationary pressures appear to be easing and supportive of margin expansion.”
4. East West Bancorp, Inc. (NASDAQ:EWBC)
Number of Hedge Fund Holders: 32
Average Analyst Price Estimate: $82
California-based bank holding company East West Bancorp, Inc. (NASDAQ:EWBC) is one of the most undervalued dividend stocks according to Wall Street analysts. In October, Janney analyst Timothy Coffey started covering East West Bancorp, Inc. (NASDAQ:EWBC) with a Buy rating. Coffey said the bank is expected to benefit from the collapse of Silicon Valley Bank and First Republic Bank.
Here is what Aristotle Capital Management Value Equity has to say about East West Bancorp, Inc. (NASDAQ:EWBC) in its Q1 2022 investor letter:
“We purchased East West Bancorp in the third quarter of 2017; however, our history with the business stretches back further having twice previously invested. Companies we consider to be high-quality like East West tend to remain high quality, and we have long admired the business for its uniqueness among the otherwise homogenous U.S. banking industry. Its dominant market share built over generations in Asian communities – and difficult-to-replicate experience due to culture, geography and business practices – create distinct competitive advantages in our view. During our most recent holding period, the bank achieved sustained loan growth, a catalyst we identified, through its continued leadership position as the financial “bridge” for customers doing business in the U.S. and China. Moreover, East West also realized market share gains in its headquarters state of California. With these catalysts nearing completion, we decided to exit our investment to fund the purchase of Oshkosh. As always, we will continue to study East West and, in the future, may once again find an opportunity to be investors.”
3. The PNC Financial Services Group, Inc. (NYSE:PNC)
Number of Hedge Fund Holders: 52
Average Analyst Price Estimate: $198
American bank holding company The PNC Financial Services Group, Inc. (NYSE:PNC) ranks 3rd in our list of the best undervalued dividend stocks to buy now. The PNC Financial Services Group, Inc. (NYSE:PNC) recently bought a portfolio of capital commitments facilities from Signature Bridge Bank, N.A. for about $16.6 billion in total commitments.
As of the end of the second quarter of 2023, 52 hedge funds tracked by Insider Monkey had stakes in The PNC Financial Services Group, Inc. (NYSE:PNC). The biggest hedge fund stakeholder of The PNC Financial Services Group, Inc. (NYSE:PNC) was Dmitry Balyasny’s Balyasny Asset Management which owns an $120 million stake in the company.
Artisan Value Fund made the following comment about The PNC Financial Services Group, Inc. (NYSE:PNC) in its Q1 2023 investor letter:
“We are taking advantage of the current weakness in bank stocks. In Q1, we purchased The PNC Financial Services Group, Inc. (NYSE:PNC) and US Bancorp. These are banks we have known for years. They are well-managed and have solid capital positions and liquidity. At the end of Q1, we had an ~7% weighting in banks consisting of PNC, US Bancorp and Bank of America. All 3 are among the 10 largest US banks. We believe the range of probabilities and long-term outcomes are tilted in our favor at current prices but are proceeding with caution for several reasons. First, while we believe deposit-runs have likely burned themselves out, there is a non-zero risk these runs spread wider than our base case. Second, we expect more regulation in coming years which will increase the cost of doing business, potentially in exchange for higher FDIC limits. Third, at the very least we expect banks to cease buybacks for the rest of the year to build up liquidity and capital ratios. There is an increasingly more likely outcome that banks issue equity capital and preferred stock once markets stabilize. Fourth, with the banking system in shock, it will likely retrench, which will constrict capital to the US economy. Coupled with the “long and variable lags” of Fed policy, this will slow US economic growth beyond what private credit markets can make up.”
2. RTX Corporation (NYSE:RTX)
Number of Hedge Fund Holders: 56
Average Analyst Price Estimate: $84
Aerospace and defense company RTX Corporation (NYSE:RTX), also known as Raytheon, is one of the top undervalued dividend stocks to buy according to hedge funds. Out of the 910 hedge funds tracked by Insider Monkey, 56 hedge funds had stakes in RTX Corporation (NYSE:RTX). The most significant stakeholder of RTX Corporation (NYSE:RTX) was Ken Griffin’s Citadel Investment Group which owns a $276 million stake in the company.
RTX Corporation (NYSE:RTX) shares were gaining on October 11 amid Israel-Hamas war. Citibank said in a note:
“We continue to expect low-single-digit top-line growth for the [U.S. Department of Defense] and mid-single-digit growth for defense contractors through 2030 as spending mix shifts to the weapons-buying accounts.”
ClearBridge Dividend Strategy made the following comment about RTX Corporation (NYSE:RTX) in its Q3 2023 investor letter:
“On the downside, shares of industrials company RTX Corporation (NYSE:RTX) underperformed significantly. On July 25 RTX announced it had discovered a manufacturing defect in some of its jet engines. RTX would have to ground the engines, replace the parts and reimburse the airlines for the downtime.
While this development weighed on the stock, our active management of the position meaningfully reduced the size of the blow. Earlier in July we had significantly trimmed our position to reflect some cyclical risks, so we were relatively less exposed when shares sold off following the announcement. When RTX delayed a scheduled update in early September, we interpreted it as a modestly negative development and further pared our position. When the update came, the stock sold off significantly on news the debacle would amount to around $3 billion over three years — the high end of investor expectations.
As we sit here today, we think the market’s reaction to RTX is likely overdone. $3 billion is a large sum, but the company’s market cap has declined over $30 billion since first releasing the news in late July. While this is a black eye for the company and will create headwinds for some time, we think it likely that the current level will mark a durable low and see opportunities to add back a small amount of the RTX we sold at higher prices earlier in the summer.”
1. NextEra Energy, Inc. (NYSE:NEE)
Number of Hedge Fund Holders: 59
Average Analyst Price Estimate: $75
NextEra Energy, Inc. (NYSE:NEE) ranks 1st in our list of the most undervalued dividend stocks to buy according to analysts. Morgan Stanley recently met with NextEra Energy, Inc. (NYSE:NEE) management and reiterated an Overweight rating on the stock and a $91 price target. NextEra Energy, Inc. (NYSE:NEE) cited demand for renewables, and the “potential for new disclosures to improve transparency” for its bullish outlook.
As of the end of the second quarter of 2023, 59 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in NextEra Energy, Inc. (NYSE:NEE). The biggest stakeholder of NextEra Energy, Inc. (NYSE:NEE) during this period was John Overdeck and David Siegel’s Two Sigma Advisors which owns a $190 million stake in the company.
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