This article presents an overview of the 5 Most Undervalued Quality Stocks To Buy According To Hedge Funds. For a detailed overview of such stocks, read our article, 16 Most Undervalued Quality Stocks To Buy According To Hedge Funds.
5. Qualcomm Inc (NASDAQ:QCOM)
Number of Hedge Fund Investors: 67
Barclays recently increased its price target for several stocks, including Qualcomm Inc (NASDAQ:QCOM), it believes will benefit from the “second wave” of AI. Here is what Barclays said in a note about these stocks:
“We think investor focus has already shifted to ’25 where we are rolling out numbers across our coverage and assuming a robust positive inflection for most end markets. Even factoring in a strong growth year in ’25, there isn’t a ton of low-hanging fruit at these levels. With this said, we are picking our spots into next year and prefer names levered to the ‘2nd Wave of AI.'”
As of the end of the third quarter of 2023, 67 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in Qualcomm Inc (NASDAQ:QCOM).
Earlier this month, Qualcomm Inc (NASDAQ:QCOM) CEO and president Cristiano Amon sold 8,100 shares of the company worth over $1.2 million.
In its third quarter 2023 investor letter, Bonsai Partners stated the following regarding QUALCOMM Incorporated (NASDAQ:QCOM):
“Robustness at the product level exists differently than in other layers of the value chain. Product diversification follows the same principle, but product control isn’t related to vertical integration. Product control exists in multiple forms, such as switching costs or happy customers who don’t want to buy elsewhere. However, one often overlooked dimension of product-level robustness is adaptability. Some businesses offer goods and services that behave like shapeshifters; they naturally adapt to the market’s needs regardless of how the world changes. Adaptability also serves as a hedge against the unknown.
Consider our investment in Taiwan Semiconductor, which enjoys a highly adaptive product portfolio. If we compare TSMC to a fabless chip maker like QUALCOMM Incorporated (NASDAQ:QCOM), investing in Qualcomm is a bet that its products will retain their technological advantage over time. Meanwhile, TSMC sells a service that naturally produces whatever the end customer wants. There is little need for brilliant product-level foresight; TSMC just needs to maintain its process and service level advantages, allowing it to manufacture whatever the market demands. TSMC’s product portfolio is robust compared to most other semiconductor companies because it naturally adapts to technological and market-driven shifts. Instead of product-level risk, TSMC’s core risks are geopolitical.
In the past, I would have been more drawn to a company like Qualcomm given its clear technological lead in baseband modems, but if I’m honest with myself, I don’t know if their technologies will retain their dominance ten years from now. Qualcomm’s products express a relatively high degree of rigidity in a fast-changing industry, and this is something I prefer to avoid.
While robustness isn’t a guarantee of company survival, it acts as a natural buffer that insulates the companies we invest in against the unknown. The better we are at identifying robustness for our portfolio, the longer we also will endure.”
4. Applied Materials Inc. (NASDAQ:AMAT)
Number of Hedge Fund Investors: 68
Earlier this month Citi published a list of large-cap stock recommendations for 2024. Applied Materials Inc. (NASDAQ:AMAT) was part of this list.
As of the end of the third quarter of 2023, 68 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in Applied Materials Inc. (NASDAQ:AMAT). The biggest hedge fund stakeholder of Applied Materials Inc. (NASDAQ:AMAT) during this period was Generation Investment Management with a $1.2 billion stake.
Generation Investment Management made the following comment about Applied Materials, Inc. (NASDAQ:AMAT) in its Q2 2023 investor letter:
Applied Materials, Inc. (NASDAQ:AMAT): Semiconductor revenue has grown 6% per year since 2010, driven by increasing demand for smartphones, datacentres and electronic content in vehicles and industrial settings.4 Through work spanning six roadmaps covering many sub-themes within semiconductors (including industry consolidation, capital equipment and generative AI), we are confident that these trends will continue or even accelerate in the coming decades. The rise of generative AI in particular will require high-performing semiconductors, such as Nvidia’s GPUs, in datacentres.
Traditionally the industry relied on semiconductor manufacturers to deliver steady advances in semiconductor performance while reducing costs. This phenomenon is known as Moore’s Law, which was identified by Intel founder Gordon Moore. Traditionally, Moore’s Law relied on shrinking the light source used to expose photosensitive material on a silicon wafer to make smaller semiconductors, which in turn led to falling costs.
In recent years, however, Moore’s Law has slowed. Manufacturing has run up against the limits of physics. Making semiconductors smaller more cheaply has therefore become difficult. The latest generation of lithography machines that create this light source are marvels of modern science, but they are also expensive to produce, not to mention power-hungry. Delivering performance improvements in the most advanced semiconductors is now becoming costlier. This presents a risk, both to generative AI and a net zero world.
All is not lost, however. The semiconductor industry attracts some of the best minds in the world, many of whom are looking at alternative ways to continue to deliver more power-efficient and cheaper semiconductors. A key area of focus is around developing new materials used in manufacturing semiconductors, and new ways of applying (‘deposition’) and selectively removing (‘etch’) these materials to create the desired semiconductor. Applied Materials is one of the companies in the vanguard of these developments…” (Click here to read the full text)
3. Nike Inc (NYSE:NKE)
Number of Hedge Fund Investors: 69
Morgan Stanley earlier this month added Nike Inc (NYSE:NKE) in its list of top quality growth stocks poised to outperform this year.
As of the end of the third quarter of 2023, 69 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in Nike Inc (NYSE:NKE).
Ensemble Capital Management stated the following regarding NIKE, Inc. (NYSE:NKE) in its fourth quarter 2023 investor letter:
“NIKE, Inc. (NYSE:NKE) (2.79% weight in the Fund): More speculatively, we believe that in the years ahead Nike will be able to use generative AI to allow their customers to craft custom shoe designs. Nike already offers Nike By You, their custom shoe design service. But one of the amazing things about generative AI is its ability to create entirely novel and realistic images based on very limited information entered by the user. For instance, today the DALL-E AI offered by OpenAI can be prompted with statements such as “create a Nike shoe design inspired by the work of the painter Van Gogh.” By empowering everyday people to create novel concepts based on their ideas alone and without any design expertise, Nike can create entirely new, premium products in a way never before seen.”
2. TJX Companies Inc (NYSE:TJX)
Number of Hedge Fund Investors: 71
Morgan Stanley earlier this month said in its U.S. Equity Strategy Weekly Warm-Up report that it prefers quality growth stocks over lower quality cyclicals.
TJX Companies Inc (NYSE:TJX) is one of the stocks Morgan Stanley is bullish on.
As of the end of the third quarter of 2023, 71 hedge funds out of the 910 funds tracked by Insider Monkey had stakes in TJX Companies Inc (NYSE:TJX). The most notable hedge fund stakeholder of TJX Companies Inc (NYSE:TJX) during this period was Panayotis Takis Sparaggis’s Alkeon Capital Management which owns a $476 million stake in TJX Companies Inc (NYSE:TJX).
ClearBridge Multi Cap Growth Strategy made the following comment about The TJX Companies, Inc. (NYSE:TJX) in its Q2 2023 investor letter:
“Top heavy leadership has overshadowed weakness across much of the equity market. We took advantage of the narrow breadth in the second quarter to increase our exposure to the consumer discretionary sector with two purchases that further enhance portfolio diversification and should help support consistent performance through a full cycle.
The TJX Companies, Inc. (NYSE:TJX) is the leading off-price apparel and home furnishings retailer known for its TJ Maxx, Marshalls and HomeGoods brands, with 4,800 global locations. We see TJX as a differentiated retailer offering shoppers a combination of value and convenience with continued share gain opportunity against large addressable U.S. markets for apparel and home decor. We also see room for TJX to modestly expand margins on the back of sales leverage and as freight, shrink and wage pressures ease. While TJX is not immune to macro risks, we see the company as relatively well-positioned even in the event of an economic deterioration as benefits from better inventory availability and consumer trade-down accrue.”
1. Walmart Inc (NYSE:WMT)
Number of Hedge Fund Investors: 80
Earlier this month Citi published a list of its top large-cap recommendations for 2024. Walmart Inc (NYSE:WMT) made it to the list. Here is what Citi said in a note about these stocks:
“We consider growth prospects relative to the valuation set up, health of the balance sheet. We look for operating leverage with a resultant impact on profitability.”
Insider Monkey focuses on uncovering the best investment ideas of hedge funds and insiders. Please subscribe to our free daily e-newsletter to get the latest investment ideas from hedge funds’ investor letters by entering your email address below. You can also look at the 15 Undervalued Defensive Stocks For 2024 and the 12 Best Undervalued Stocks to Buy According to Reddit.
