In this article, we will take a look at the 5 most undervalued financial stocks to buy according to hedge funds. To see more such companies, go directly to 11 Most Undervalued Financial Stocks To Buy According To Hedge Funds.
5. The Goldman Sachs Group, Inc. (NYSE:GS)
Number of Hedge Fund Holders: 74
At the end of the fourth quarter of 2022, 74 hedge funds tracked by Insider Monkey had stakes in The Goldman Sachs Group, Inc. (NYSE:GS). The total worth of these stakes was about $5 billion. The biggest hedge fund stakeholder of The Goldman Sachs Group, Inc. (NYSE:GS) at the end of 2022 was Boykin Curry’s Eagle Capital Management which had a $1.1 billion stake in the firm.
Earlier this month, The Wall Street Journal reported The Goldman Sachs Group, Inc. (NYSE:GS) paused its plan to acquire new credit card programs.
Recently, The Goldman Sachs Group, Inc. (NYSE:GS) disclosed in a filing that its Chairman and CEO David Solomon’s annual salary for 2022 was cut to $25 million from $35 million.
4. Citigroup Inc. (NYSE:C)
Number of Hedge Fund Holders: 81
Citigroup Inc. (NYSE:C) is a highly popular financial stock among hedge funds tracked by Insider Monkey. As of the end of the fourth quarter of 2022, 81 of the 943 hedge funds in Insider Monkey’s proprietary database had stakes in Citigroup Inc. (NYSE:C). The net worth of these stakes was over $7.5 billion.
For the fourth quarter, Citigroup Inc. (NYSE:C)’s EPS came in at $1.10, missing estimates by $0.10. Revenue in the quarter jumped about 5.8% on a YoY basis to reach $18 billion, beating estimates by $30 million.
However, the growth in revenue was driven by Citigroup Inc. (NYSE:C)’s sale of its Thailand consumer business.
At the end of the fourth quarter of 2022, Warren Buffett’s Berkshire Hathaway had a $2.4 billion stake in Citigroup Inc. (NYSE:C). The second biggest hedge fund stakeholder was Boykin Curry’s Eagle Capital Management which owns an $874 million stake in Citigroup Inc. (NYSE:C).
3. Wells Fargo & Company (NYSE:WFC)
Number of Hedge Fund Holders: 87
With a PE ratio of 14.7 as of February 22, Wells Fargo & Company (NYSE:WFC) is a notable financial stock that looks undervalued. Wells Fargo & Company (NYSE:WFC) saw a sharp spike in hedge fund sentiment during the last quarter of 2022, as 87 hedge funds reported owning stakes in the company at the end of the period, compared to 77 hedge funds in the previous quarter. The total value of these hedge funds’ stakes was over $5.5 billion. The biggest stakeholder of Wells Fargo & Company (NYSE:WFC) during this period was Boykin Curry’s Eagle Capital Management which owns a stake worth over $1.1 billion in the company.
Wells Fargo & Company (NYSE:WFC) CFO Mike Santomassimo recently said at a conference that “it’s going to get worse” in 2023. He was pointing to persistent inflation, tight labor market and a slowing housing market. However, the executive said that consumer spending remains healthy, driven by travel and entertainment.
Here is what Oakmark Funds specifically said about Wells Fargo & Company (NYSE:WFC) in its Q3 2022 investor letter:
“Wells Fargo & Company (NYSE:WFC) has been a long-time holding in the Oakmark Fund. Despite the positives of higher interest rates and the company making good progress on reducing expenses and regulatory consent orders, Wells Fargo shares have fallen one-third from their highs earlier this year to roughly 6.5x our estimate of normalized earnings power, and the stock ended the quarter at ~1x next year’s tangible book value. We find this is far too cheap for a strong banking franchise capable of tangible returns in the low-to-mid teens across business cycles.”
2. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Holders: 100
Bank of America Corporation (NYSE:BAC) ranks 2nd in our list of the most undervalued financial stocks to buy according to hedge funds. Recently, Bloomberg reported that Bank of America Corporation (NYSE:BAC) was mulling laying off 200 investment bankers globally amid an uncertain economic outlook and rising interest rates. The report said that the number of job cuts are still “being reviewed” and they can start in the coming weeks.
Earlier this month, KBW analyst David Konrad downgraded Bank of America Corporation (NYSE:BAC) to Underperform from Market Perform.
While Bank of America Corporation (NYSE:BAC) is facing short-term pressures on the back of rising interest rates, the stock could be a long-term winner for those who are looking for stability and dividends.
A total of 100 hedge funds in Insider Monkey’s database reported owning stakes in Bank of America Corporation (NYSE:BAC) at the end of the fourth quarter of 2022. The biggest stakeholder of the bank was Warren Buffett’s Berkshire Hathaway which had a whopping $33 billion stake in Bank of America Corporation (NYSE:BAC).
Ariel Investment made the following comment about Bank of America Corporation (NYSE:BAC) in its Q3 2022 investor letter:
“We initiated three new positions in the quarter. We added leading financial institution Bank of America Corporation (NYSE:BAC) which serves individual consumers, small and middle-market businesses, and large corporations with a full range of banking, investing, asset management, and other financial and risk management products and services. The current company was formed through various mergers including NationsBank, FleetBoston, US Trust, Countrywide Financial, and Merrill Lynch with the legacy commercial bank to form a national banking powerhouse and bulge bracket investment firm. As one of the ‘Big Four’ U.S. banks it enjoys scale driven cost advantages and economies of scale which provide meaningful competitive advantages and potential for strong returns in the largely commoditized banking industry. A survivor of the financial crisis, BAC has emerged with a solid capital base and stands to benefit from a rising interest rate environment.”
1. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 100
JPMorgan Chase & Co. (NYSE:JPM) is one of the biggest banks in the world and its PE ratio shows that it’s also one of the most undervalued. Insider Monkey’s database of over 940 hedge funds and their holdings shows that 100 elite hedge funds had stakes in JPMorgan Chase & Co. (NYSE:JPM) as of the end of the fourth quarter of 2022. The total worth of these stakes was about $5.2 billion. The biggest stakeholder of JPMorgan Chase & Co. (NYSE:JPM) during this period was Edgar Wachenheim’s Greenhaven Associates which owned about 4.8 million shares of the company.
Earlier this month, data showed that JPMorgan Chase & Co. (NYSE:JPM)’s credit card delinquency rate in January came in at 0.83%, compared to 0.76% in December.
JPMorgan Chase & Co. (NYSE:JPM) is also a dividend-paying stock. JPMorgan Chase & Co. (NYSE:JPM) has upped its dividend consistently for over a decade now.
Here is what Vltava Fund has to say about JPMorgan Chase & Co. (NYSE:JPM) in its Q3 2022 investor letter:
“We regard JPM to be the strongest and best- managed bank in the world. It is a leader in investment banking, commercial banking, credit cards, and asset management. Its size (the largest bank in the USA, with nearly USD 4,000 billion in assets) and diversification give it a strong competitive advantage that is compounded by its cost advantages and the high costs to clients associated with switching banks. JPM’s management prides itself on running the only large bank to avoid major instability over the long term.
JP Morgan’s quality and strength first became fully evident in 2008 under the leadership of its CEO Jamie Dimon. Not only did JP Morgan help to stabilize the market by taking over the failing Bear Stearns in the spring of that year, but throughout the Great Financial Crisis it was the only big US bank that did not require government assistance and it was highly profitable even in the difficult year of 2008.
A well-functioning and efficient bank can be a very good long-term investment, because the interest compounding effect works well here. JPM’s return on equity (ROE) is well into the double digits and this puts it in a good position to continue producing better long-term returns than does the market. JPM has been very profitable even during years when interest rates were close to zero. The current – and perhaps not temporary – return to somewhat more normal, higher interest rates should have a significantly positive impact on the bank’s interest income and overall profitability.”
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