In this article, we will discuss the 7 Best Cheap Stocks to Buy According to Billionaire Ray Dalio.
Born in 1949, Ray Dalio bought his first stock, Northeast Airlines, at the age of 12. Later, the investment manager graduated from Long Island University in 1971. Before going to Harvard Business School, he spent some time as a clerk on the NYSE. In 1973, he became Director of Commodities at Dominick & Dominick LLC. After working there for 1 year, he then spent one-year trading futures at the brokerage firm of Shearson Hayden Stone before founding Bridgewater Associates. He has been serving as co-CIO, a position he shares with Robert Prince and Greg Jensen.
As of now, Bridgewater Associates is being tagged as a premier asset management firm, which is focused on delivering unique insight and partnership for the most sophisticated global institutional investors. The firm’s investment process revolves around understanding how the world markets and economies work, leveraging cutting-edge technology to validate timeless and universal investment principles.
Understanding Ray Dalio’s Investment Philosophy
The broader understanding of the “Economic Machine ” influences Ray Dalio’s investment philosophy. The investment manager believes that understanding the working of the economy forms the fundamental part of successful investing. According to him, the economic cycle is divided into 3 main phases: 1) Inflationary, 2) Disinflationary, and 3) Deflationary. The investors must adapt their strategies after considering where the economy is in this cycle. Ray Dalio’s deep understanding of the broader global economy led him to correctly predict Mexico’s 1980s financial crisis, reflecting that he can spot risks and opportunities. He also believes that debt cycles have an important role to play in shaping economic and market conditions.
Ray Dalio realized that the economy tends to move in cycles, fluctuating between periods of growth and decline. This led to the development of the “All Weather” portfolio at Bridgewater Associates, which targets to minimize volatility throughout market environments. According to him, assets like stocks, bonds, and currencies respond differently to broader conditions. This is known as inverse correlation. Therefore, Dalio emphasizes that diversification remains a key in managing risk in an investment portfolio.
Next, Ray Dalio believes in systematic decision-making. At the time of research, his principles use a very data-driven approach. This means that he conducts research using historical pricing, financial figures, and economic indicators so that market direction can be accurately predicted. He continues to focus on maintaining principle-based decision-making processes, algorithms, and data-driven analysis.
Ray Dalio’s investment principle of “Strategic Selling for Maximum Profit” focuses on the idea of making informed decisions regarding when to sell investments in a bid to maximize the returns while, at the same time, managing risk. As of the end of Q2 2024, Bridgewater Associates has ~21.7% exposure to the services industry, ~19.6% to the technology sector, and ~12.1% to the consumer goods business.
Bridgewater Associates’ View on US Equities
Since 2010, while the broader tech sector saw an outsized impact, the US outperformance was broad-based throughout sectors. The US outperformance concerning sales and margin growth was roughly half because of the US tech sector and half as a result of other sectors, while the impact on P/E expansion remained even higher for tech. In contribution terms, Bridgewater Associates stated that technology made up for ~54% of the total 74% US equity outperformance since 2010 as compared to the developed world.
The investment firm believes that some of the largest drivers of US equity outperformance should not be relied upon moving forward. The direction of the markets depends on the ability of the US tech to deliver and Al to unleash productivity throughout sectors. This is for both (a) the US Big Tech directly, which now makes up over ~30% of the index and increased expectations, and (b) how the Al/ML technology will help the companies and how much of it gets captured as margins by these companies across the various non-tech sectors.
Ray Dalio of Bridgewater Associates
Our methodology
To list the 7 Best Cheap Stocks to Buy According to Billionaire Ray Dalio, we sifted through Bridgewater Associates’ Q2 2024 13F portfolio. After extracting the list of his holdings, we chose the stocks that are trading at a forward earnings multiple of less than ~23.52x (since the broader market trades at a forward earnings multiple of ~23.52x, as per WSJ) and selected the 7 best cheap stocks to buy. Finally, the stocks are ranked in ascending order of the fund’s stakes in them.
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7 Best Cheap Stocks to Buy According to Billionaire Ray Dalio
7) Mondelez International, Inc. (NASDAQ:MDLZ)
Bridgewater Associates’ Stake Value: $130,752,392
Number of Hedge Fund Holders: 47
Forward P/E Ratio as of 4 October: 19.76x
Mondelez International, Inc. (NASDAQ:MDLZ) is engaged in manufacturing, marketing, and selling snack food and beverage products in Latin America, North America, Asia, the Middle East, Africa, and Europe.
Mondelez International, Inc. (NASDAQ:MDLZ)’s long-term growth should continue to stem from a significant range of category offerings, a strong brand reputation among households, and an international footprint. Wall Street believes that the company remains well-placed for long-term growth as a result of effective cost management strategies and successful pricing execution. Furthermore, Mondelez International, Inc. (NASDAQ:MDLZ) announced strategic partnerships with Lotus Bakeries and BISCOFF to co-brand chocolate products and expand the biscuit business in India.
Mondelez International, Inc. (NASDAQ:MDLZ) remains focused on driving sales and market share with the help of strategic promotions and increased distribution. The company continues to expect a strong second half, with positive volume growth in Europe and the US biscuit category. The company continues to reinvest in its brands, expand distribution, drive M&A, and scale sustainable snacking. Mondelez International, Inc. (NASDAQ:MDLZ) remains on track to deliver 90% of revenue through its core categories of chocolate, biscuits, and baked snacks by 2030.
Mondelez International, Inc. (NASDAQ:MDLZ) announced that it signed an agreement to acquire a significant majority stake in Evirth. This move reflects an important step forward in Mondelez International, Inc. (NASDAQ:MDLZ)’s strategy to accelerate growth in the cakes and pastries category. This category remains a core focus for the company, alongside chocolate and biscuits.
The Goldman Sachs Group initiated coverage on the shares of Mondelez International, Inc. (NASDAQ:MDLZ), issuing a “Buy” rating and a $80.00 price objective on 12th August. Carillon Tower Advisers, an investment management company, released its first quarter 2024 investor letter. Here is what the fund said:
“As a major producer of chocolate, Mondelez International, Inc. (NASDAQ:MDLZ) saw its shares drop as investors worried about a dramatic rise in the price of cocoa. Mondelez does have hedges in place, but the company will need to raise prices to offset rising costs, particularly in Europe. Consumers across the globe are dealing with high cumulative inflation in the products that the company produces. In many cases consumers are buying less volume.”
6) McKesson Corporation (NYSE:MCK)
Bridgewater Associates’ Stake Value: $150,253,051
Number of Hedge Fund Holders: 70
Forward P/E Ratio as of 4 October: 15.06x
McKesson Corporation (NYSE:MCK) offers healthcare services in the United States and internationally. It carries out operations via 4 segments: US Pharmaceutical, Prescription Technology Solutions (RxTS), Medical-Surgical Solutions, and International.
McKesson Corporation (NYSE:MCK)’s sustainable competitive advantages and barriers to entry as a result of economies of scale and demand advantage continue to underpin its long-term growth trajectory. In Q1 2025, the company’s US Pharmaceutical segment exhibited growth, mainly in oncology and specialty capabilities. McKesson Corporation (NYSE:MCK) continues to focus on improving patient access, affordability, and adherence to medications with the help of technology-enabled solutions.
While the company’s US Oncology Network operates in more than 600 sites, McKesson Corporation (NYSE:MCK) has plans for further expansion. The company continues to integrate various oncology assets in a bid to create a more coordinated and efficient ecosystem. Its strategic initiatives focused on enhancing operations and the growth of the US Oncology Network place the company well for FY 2025.
McKesson Corporation (NYSE:MCK) raised its FY 2025 adjusted EPS guidance to $31.75-$32.55, while expecting revenue growth of between 13% – 15%, and operating profit growth of 10% – 15%. The company announced that it signed a definitive agreement to acquire a controlling interest in Community Oncology Revitalization Enterprise Ventures, LLC (Core Ventures). Following the completion, Core Ventures will be part of the Oncology platform. By growing the Oncology platform, McKesson Corporation (NYSE:MCK) plans to bring advanced treatments and improved care experiences to patients, while reducing the overall cost of care.
Barclays upped its target price on the shares of McKesson Corporation (NYSE:MCK) from $596.00 to $616.00, giving an “Overweight” rating on 8th August. Alluvium Asset Management, an asset management company, released its second-quarter 2024 investor letter. Here is what the fund said:
“McKesson Corporation (NYSE:MCK), the drug distributor, was up 8.9%. We wrote in our March report (after it reported third quarter earnings and returned 16.1%) that we would defer updates until the full year result was released, and that we anticipated an increase to our valuation. And indeed that is what happened, with our estimates of “owner’s earnings” increasing by low double digits and our valuation increasing by 15%. Although it trades at a premium of 13% to that valuation, we are very much aware of our conservatism and feel comfortable in maintaining our 7.1% position.”