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.”
5) PDD Holdings Inc. (NASDAQ:PDD)
Bridgewater Associates’ Stake Value: $166,834,435
Number of Hedge Fund Holders: 86
Forward P/E Ratio as of 4 October: 10.91x
PDD Holdings Inc. (NASDAQ:PDD) is a multinational commerce group that owns and operates a portfolio of businesses and is active in the online retailing industry.
PDD Holdings Inc. (NASDAQ:PDD) uses the group-buy business model. It enables the users to invite family and friends for bulk purchases of the products directly from the concerned manufacturers. As a result, the manufacturers can get bulk orders, and customers tend to benefit from rock-bottom prices. This strategy of the company offers a significant competitive advantage which should help it in strong revenue growth in the near term.
PDD Holdings Inc. (NASDAQ:PDD) continues to prepare itself to enter a new phase prioritizing the health of its platform ecosystem rather than short-term profitability. The company focuses on high-quality development, supply chain improvements, and merchant support. Its long-term growth should stem from increased consumer demand for affordable products in China, small-scale merchants who continue to seek alternatives to Alibaba and healthy management execution.
In a recent earnings call, PDD Holdings Inc. (NASDAQ:PDD) highlighted significant growth in online marketing services and transaction services. It also emphasized long-term patient investments for achieving sustainable growth.
According to Wall Street, the shares of PDD Holdings Inc. (NASDAQ:PDD) have an average target price of $166.68. Hayden Capital, an investment management firm, released its second-quarter 2024 investment letter. Here is what the fund said:
“PDD Holdings Inc. (NASDAQ:PDD): A few weeks ago, Latepost (a leading Chinese technology news outlet) confirmed Pinduoduo’s online grocery initiative is solidly profitable (LINK). According to the article, Duoduo Grocery is able to achieve ~5% net profit margins in competitive markets (where they go up against Meituan Select). In non-competitive markets, they can achieve ~10 – 15% net margins.
The company doesn’t disclose the exact scale of Duoduo Grocery, but our calculations indicate it’s likely around ~RMB 300BN this year, and still growing in the double-digits. At that level, the division is likely contributing ~US $2.5BN in annual profits.
It’s an impressive result, but admittedly, not a huge needle-mover in light of the total $17.6BN net profits the company is expected to make this year (~14% of overall profits)…” (Click here to read the full text)
4) Merck & Co., Inc. (NYSE:MRK)
Bridgewater Associates’ Stake Value: $223,086,486
Number of Hedge Fund Holders: 96
Forward P/E Ratio as of 4 October: 11.00x
Merck & Co., Inc. (NYSE:MRK) operates as a healthcare company worldwide. It carries out operations via 2 segments, Pharmaceutical and Animal Health.
Wall Street analysts remain optimistic about the growth prospects of Merck & Co., Inc. (NYSE:MRK) as the company has diversified its drug portfolio and expanded throughout different geographies. Moving forward, Merck & Co., Inc. (NYSE:MRK)’s earnings are expected to be fueled by its recent acquisition of a biotech firm, Harpoon Therapeutics. This acquisition should help Merck & Co., Inc. (NYSE:MRK) in boosting its oncology pipeline.
Additionally, Merck & Co., Inc. (NYSE:MRK) possesses strong potential to develop several other opportunities for the development of powerful new combination therapies. Harpoon’s technology platform is versatile and effective at creating cancer-fighting therapies. Merck & Co., Inc. (NYSE:MRK) has announced strategic portfolio changes, targeting a sustainable long-term growth trajectory. It recently highlighted the divestiture of Surface Solutions and an improved focus on high-tech applications in electronics and life science technologies.
Merck & Co., Inc. (NYSE:MRK) saw an improvement in order intake and in book-to-bill ratio, which hints at potential future revenue growth. The company exhibited resilience in its strategy to balance investment in internal R&D with external innovation. This ensures a strong pipeline for future growth. For FY 2024, the company raised and narrowed its expected worldwide sales range to $63.4 billion – $64.4 billion. It expects non-GAAP EPS of between $7.94 – $8.04.
Cantor Fitzgerald reaffirmed an “Overweight” rating, setting a price target of $155.00 on 3rd October.
Carillon Tower Advisers, an investment management company, released its first quarter 2024 investor letter. Here is what the fund said:
“After posting lackluster returns in 2023, Merck & Co., Inc. (NYSE:MRK) got off to a strong start in January by raising the long-term sales forecasts for its oncology and cardiology pipelines and reporting solid fourth-quarter results, coupled with strong financial guidance for 2024. Merck shares also finished the quarter strong after receiving U.S. Food and Drug Administration approval in late March for a new cardiology medicine with the potential to contribute significantly to sales growth over the next several years.”
3) PepsiCo, Inc. (NYSE:PEP)
Bridgewater Associates’ Stake Value: $307,622,818
Number of Hedge Fund Holders: 65
Forward P/E Ratio as of 4 October: 19.23x
PepsiCo, Inc. (NYSE:PEP) is engaged in the manufacturing, marketing, distributing, and selling of various beverages and convenient foods worldwide.
Market experts believe that the recovery of the Quaker supply chain, strong international growth, and targeted consumer value tactics should continue to act as principal growth drivers for PepsiCo, Inc. (NYSE:PEP). In the recent earnings call, the company’s management highlighted the healthy performance of the Gatorade and Mountain Dew brands and the growth of the Zero portfolio. PepsiCo, Inc. (NYSE:PEP) continues to focus on value-oriented strategies to meet consumer demand. Moreover, Frito-Lay North America is expected to address the value gap through promotions and interventions.
PepsiCo, Inc. (NYSE:PEP) targets achieving short-term growth in Q3 2024 and Q4 2024 by implementing various strategies and anticipates that the majority of growth in H2 2024 will come from North America. Also, investments in marketing, execution, and availability should continue to drive category growth. PepsiCo, Inc. (NYSE:PEP)’s international beverage business is expected to be a growth engine in the near term. Wall Street analysts remain optimistic about Europe’s resilience and performance and India’s significant growth space.
PepsiCo, Inc. (NYSE:PEP) focuses on deploying resources to reignite growth and cater to consumer needs in a segmented and data-driven way. The company has entered into a definitive agreement to acquire Garza Food Ventures LLC, dba Siete Foods. Wall Street believes that the acquisition will complement PepsiCo, Inc. (NYSE:PEP)’s portfolio with the addition of an authentic, Mexican-American brand, while also growing its better-for-you food offerings.
JPMorgan Chase & Co. upped its price objective on the shares of the company from $182.00 to $185.00, giving a “Neutral” rating on 1st October.
Artisan Partners, an investment management company, released its first quarter 2024 investor letter. Here is what the fund has to say about the company:
“In the demographics/consumer trends theme, slowing sales volumes led us to focus more on services versus goods. As an example, we sold our position in food and beverage leader PepsiCo, Inc. (NASDAQ:PEP) given slowing growth in its underperforming core beverage business, one which generates about 60% of revenues. Adding to the uncertainty of growth prospects beverages, PepsiCo was forced by local lawmakers and industry wholesalers to shift to a new distribution model during the rollout of Hard Mtn Dew, a new line of drinks that combines Mountain Dew with malt liquor. We also exited our position in Wal-Mart de Mexico as the company regroups after Hurricane Otis devastated parts of Mexico’s west coast last fall. The damages will likely affect earnings over the medium term. We also sold consumer food and beverage giant Nestle due to slowing sales volume growth. Food inflation over the last two years has increased consumer price sensitivity, putting pressure on many in the industry. In contrast to these goods providers, we bought shares of TUI, an online travel agency that provides custom travel experiences via dynamically priced services such as airfare, lodging and local activities on one platform. We believe the addition of Ryanair to the platform, Europe’s largest airline, will strengthen TUI’s service offering at a time when travel spending is predicted to remain elevated at least through the summer.”
2) Johnson & Johnson (NYSE:JNJ)
Bridgewater Associates’ Stake Value: $468,341,219
Number of Hedge Fund Holders: 80
Forward P/E Ratio as of 4 October: 14.77x
Johnson & Johnson (NYSE:JNJ) is engaged in researching, developing, manufacturing, and selling various products in the healthcare field worldwide.
The market experts opine that Johnson & Johnson (NYSE:JNJ)’s long-term growth trajectory should continue to be aided by its diverse revenue base, strong pipeline, and healthy cash flow generation. Its Innovative Medicine business is expected to continue to be a significant growth catalyst. Johnson & Johnson (NYSE:JNJ) expects that MedTech segment growth should be aided by various factors, including new product integrations. The experts are optimistic about the positive advancements in the MedTech pipeline and recent acquisitions.
In Q2 2024, Innovative Medicine margin saw an improvement as a result of the AbleData partnership. Johnson & Johnson (NYSE:JNJ) remains confident in maintaining its growth guidance of more than 3% in 2025 and 5% – 7% through 2030. While the company is optimistic about securing premium pricing for differentiated innovations, its market leadership should help it in tackling competition and challenges. Johnson & Johnson (NYSE:JNJ) remains focused on the Chinese market and believes in the market’s long-term growth potential.
Johnson & Johnson (NYSE:JNJ)’s financial health, demonstrated by significant sales growth and healthy earnings, reflects its strategic initiatives and robust product pipeline. The market players are quite optimistic about the company’s recent acquisition of V-Wave Ltd. This acquisition is expected to extend MedTech’s position as an innovation leader in addressing cardiovascular disease. It should also accelerate its shift into high-growth and high-opportunity markets and deepen the relationships with structural interventional cardiologists and heart failure specialists.
Analysts at Cantor Fitzgerald reaffirmed an “Overweight” rating on the shares of Johnson & Johnson (NYSE:JNJ), issuing a $215.00 target price on 30th September 2024.
1) Alphabet Inc. (NASDAQ:GOOGL)
Bridgewater Associates’ Stake Value: $827,010,363
Number of Hedge Fund Holders: 216
Forward P/E Ratio as of 4 October: 18.94x
Wall Street believes that Alphabet Inc. (NASDAQ:GOOGL)’s growth momentum is expected to be aided by Google’s Search and Cloud services. Moreover, its innovation in Al and infrastructure leadership should continue to aid its revenues and earnings. The company remains focused on re-engineering its cost base.
The analysts have seen positive trends throughout the engagement, Al-embedded Search, and GCP. Experts opine that ads business momentum and the growth of its subscriptions business should continue to act as principal tailwinds. Investments will be made towards technical infrastructure and cloud growth.
Alphabet Inc. (NASDAQ:GOOGL)’s strong competitive positioning, supplemented by its dominant core search business, is expected to further strengthen user inclination moving forward. The company’s prospects are further cemented by its potential to lead in consumer Al assistant use, considering the widespread global device presence. Alphabet Inc. (NASDAQ:GOOGL)’s prowess in Al and its financial strength enable it to provide greater financial incentives to handset manufacturers to go for default Al placement.
Wall Street believes that Alphabet Inc. (NASDAQ:GOOGL) remains well-placed to achieve healthy financial growth and generate a reasonable Al return on invested capital (ROIC), even if the development of Al revenue-generating applications might take longer than expected. Recently, the company highlighted that new products and features in Google Cloud and YouTube continue to attract partnerships and increase paid subscribers.
Wolfe Research initiated coverage on the shares of Alphabet Inc. (NASDAQ:GOOGL) on 16th July. The firm gave an “Outperform” rating with a price target of $240.00.
Patient Capital Management, a value investing firm, released its second quarter 2024 investor letter. Here is what the fund said:
“Alphabet Inc. (NASDAQ:GOOGL) was a top contributor in the second quarter, finally catching up to its peers in the Magnificent 7. The company gained 20.8% in the period following strong first quarter earnings, a new $70B repurchase program (3% of shares outstanding) and the initiation of a cash dividend ($0.20 per share; 0.42% yield). We continue to believe the market underappreciates Google’s exposure to AI with its Gemini model being integrated into search results, YouTube advertising and its cloud offering. We continue to think that the cloud players will be the AI winners in the long-term, with Google being well positioned to take advantage. While the company trades at 24x 2024 earnings, if you remove the money-losing and under-earning businesses, you realize that you are paying below a market multiple for the core Google business. We do not believe there are many other AI winners trading at such an attractive multiple.”
While we acknowledge the potential of GOOGL as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than GOOGL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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