5 Out of Favor Stocks That Hedge Funds Love

In this article, we will be taking a look at 5 out of favor stocks that hedge funds love. To read our detailed analysis of investing moves today, you can go directly to see the 12 Out of Favor Stocks That Hedge Funds Love.

5. NIKE, Inc. (NYSE:NKE)

Two-year performance: -34.6%

Number of Hedge Fund Holders: 81

NIKE, Inc. (NYSE:NKE) is a consumer discretionary footwear company based in Beaverton, Oregon.

John Staszak at Argus Research maintains a Hold rating on NIKE, Inc. (NYSE:NKE) shares as of July 5.

Our hedge fund data shows 81 funds long NIKE, Inc. (NYSE:NKE) in the first quarter. Their total stake value was $2.4 billion

4. Bank of America Corporation (NYSE:BAC)

Two-year performance: -25.9%

Number of Hedge Fund Holders: 91

As of July 7, Betsy Graseck at Morgan Stanley has an Equal Weight rating on Bank of America Corporation (NYSE:BAC) shares, alongside a $33 price target.

Bank of America Corporation (NYSE:BAC) is a diversified banking and financial services company. It is based in Charlotte, North Carolina.

There were 91 hedge funds long Bank of America Corporation (NYSE:BAC) during the first quarter, with a total stake value of $31.7 billion.

Oakmark Funds mentioned Bank of America Corporation (NYSE:BAC) in its second-quarter 2023 investor letter:

“Two financial industry companies led the six-month detractors’ list, however. Charles Schwab and Bank of America Corporation (NYSE:BAC) both reported material mark-to-market unrealized losses in their marketable securities holdings, an outcome of the increase in interest rates early in the year.”

3. The Walt Disney Company (NYSE:DIS)

Two-year performance: -23.25%

Number of Hedge Fund Holders: 95

A total of 95 hedge funds held stakes in The Walt Disney Company (NYSE:DIS) at the end of the first quarter, with a total stake value of $3.1 billion.

The Walt Disney Company (NYSE:DIS) is a communication services company offering entertainment products and services. It is based in Burbank, California.

A Buy rating was reiterated on The Walt Disney Company (NYSE:DIS) shares on July 11 by Barton Crockett at Rosenblatt. The analyst also holds a $111 price target on the stock.

2. Paypal Holdings, Inc. (NASDAQ:PYPL)

Two-year performance: -77.3%

Number of Hedge Fund Holders: 103

Paypal Holdings, Inc. (NASDAQ:PYPL) is a transaction and payment processing services company. It is based in San Jose, California.

Paypal Holdings, Inc. (NASDAQ:PYPL) had 103 hedge funds long its stock during the first quarter. Their total stake value was $3.7 billion.

On July 6, Kevin Barket at Piper Sandler maintained a Neutral rating on Paypal Holdings, Inc. (NASDAQ:PYPL) shares, alongside an $80 price target.

Here’s what Manole Capital Management said about Paypal Holdings, Inc. (NASDAQ:PYPL) in its second-quarter 2023 investor letter:

“For our purposes, we are just going to focus on software digital wallets, as they are much more common and accessible. If you own an iPhone, then you have an Apple Pay pre-loaded digital wallet. If you have a Samsung phone, you have Samsung Pay available for use. Those two, along with Google Pay and PayPal Holdings, Inc. (NASDAQ:PYPL), are the four most popular digital wallets today. According to the Payments Journal, PayPal has been used (over the last 12 months) by 62% of American consumers, followed by Apple Pay at 41% and Google Pay at 32%

Over the last several years, P2P payments have made tremendous strides in adoption and usage. Whenever something becomes a verb, like just Venmo me $10, you know that it has been widely embraced by society. The concept of allowing individuals to pay each other, via our smartphones, has clearly taken off.

However, the biggest flaw or issue (that we’ve identified) is interoperability. Digital wallets allow users to pick their favorite card to make payments with. P2P acts as a bit of a “walled garden” and its funding source is still siloed. This is a critical aspect for future P2P growth, as Venmo users can’t pay Cash App users who can’t pay Zelle users. Visa is launching Visa+ next year and it has already signed up PayPal and Venmo as its initial customer. The global card networks seem like the perfect piece to solve this interoperability puzzle. Of course, this will only work if banks allow an independent network to serve as the gateway between disparate user bases…” (Click here to read the full text)

1. Alibaba Group Holding Limited (NYSE:BABA)

Two-year performance: -54.21%

Number of Hedge Fund Holders: 128

A Buy rating was maintained on Alibaba Group Holding Limited (NYSE:BABA) shares on July 12 by Eddie Leung at BofA. The analyst also holds a price target of $137 on the stock.

Alibaba Group Holding Limited (NYSE:BABA) is a Chinese broadline retail company based in Hangzhou. The company provides tech infrastructure and marketing reach to merchants, brands, retailers, and businesses in China and abroad.

In the first quarter, 128 hedge funds were long Alibaba Group Holding Limited (NYSE:BABA). Their total stake value was $5.9 billion.

Oakmark Funds noted the following about Alibaba Group Holding Limited (NYSE:BABA) in its second-quarter 2023 investor letter:

“Alibaba Group Holding Limited (NYSE:BABA) (China) was the top detractor for the quarter. Sentiment in Chinese equities has degraded after the initial excitement from China’s reopening earlier in the year. Incremental macroeconomic data coming out of China indicates that the Covid-19 re-opening bounce is fading, and the economy is struggling to sustain healthy growth. Political tensions between the U.S. and China are also further weighing on investor sentiment. As the largest e-commerce platform in China, Alibaba’s share price has been caught up in this storm. The company has also continued to face intense competition from the likes of short video players and traditional e-commerce companies. Indeed, Alibaba has lost market share, which we expect will continue. But despite these negative factors, it remains an extremely important platform in China and continues to generate significant free cash flow. In the most recent completed fiscal year, the company generated $25B of free cash flow, which is 12% of the current market capitalization. Today, its core commerce business trades at approximately 5x EBITA, a valuation we deem much too cheap, even with the headwinds noted above. But valuation alone is often not enough to unlock value. Alibaba’s management team is proactively working for minority shareholders. The company has been aggressive with share repurchases and with the recent formation of a capital management committee. Our conversations with the company indicate there is a high probability that more shareholder returns will be coming. In addition, the company recently announced a major restructuring that will effectively break up the company and separately list various businesses within Alibaba. Today, the market is assigning little to no value to these businesses and having a market quote may force investors to give Alibaba value for these assets. Whether or not the restructuring works, we appreciate management’s efforts to help unlock value in what is clearly an undervalued stock.”

See also 10 Stocks That Will Skyrocket and 25 Most Owned Stocks by Hedge Funds.