In this piece, we will take a look at 7 dirt cheap stocks to invest in now.
The stock market is at a turning point after one of the longest bull runs in recent history. With major market indices close to all-time highs, valuations are getting out of hand. Likewise, the earnings season has seen increased volatility, though, with some significant selling of semiconductor and artificial intelligence stocks that used to draw investors.
Soaring geopolitical tensions in the Middle East are complicating the situation and triggering risk aversions in the market. Investors are becoming increasingly cautious and resorting to safe-haven assets due to concerns about a full-blown war in the Middle East that could seriously impact the global economy.
READ ALSO: 10 Stocks That Will Make You Rich in 5-10 Years and Bill Ackman Stock Portfolio: 8 Top Stock Picks.
Growing geopolitical tensions have been a factor in the stock market’s erratic start to October. According to Barbara Doran, founder of BD8 Capital Partners, things getting out of hand in the Middle East could cause stocks to decline.
Surveys of public opinion already indicate that jitters are rising in the market. A gauge of consumer confidence saw its most significant one-month drop in over three years last week. Furthermore, the National Federation of Independent Business reports that a recent survey of confidence among small-business owners dropped more than anticipated in early September, maintaining the gauge below its 50-year average for 32 straight months.
“We’re in a Goldilocks moment for the U.S. economy,” said Rich Nuzum, chief investment strategist at Mercer. “But Goldilocks moments are rare, and they tend not to last long. So when does something go bump in the night?”
Bargain Hunting in an Overvalued Market
While the market is priced at a premium due to the artificial intelligence frenzy, it does not mean there are no bargains. There are dozens of dirt cheap stocks to invest in now that are trading at discounted valuations depicted by low price-to-earnings multiple and solid underlying fundamentals.
Interest rate reduction was expected to benefit small-cap stocks. That isn’t happening. The Federal Reserve’s dramatic interest rate cut two weeks ago has caused the small-cap-focused Russell 2000 index to fall by 0.5%, lagging behind the S&P 500’s 1.3% gain.
According to Bank of America, investors should be aware of a few important US stocks while navigating the current market climate. In a note to clients, strategist Nigel Tupper stated that a combination of improving global earnings cycle, easier monetary policy in the US as inflation returns to the target level, and China’s recent multifaceted stimulus appears supportive of equity markets and cyclicals.
It is important to note that not all investments will yield significant returns, considering valuations have gotten out of hand with the S&P 500 at an all-time high. Nevertheless, long-term investors can make substantial gains by selecting solid growth stocks trading at discounted valuations. An undervalued company backed by excellent financial fundamentals, such as robust revenue and earnings growth, will always elicit strong interest from professional investors. Therefore, it is likely to enjoy significant share price appreciations down the line.
The Organization for Economic Cooperation and Development predicts that declining interest rates and rising real wages will contribute to a modest increase in global economic growth this year and next year, which is one of the reasons to be bullish about dirt-cheap stocks.
Source: Pexels
Our Methodology
To compile the list of dirt cheap stocks to invest in now, we sifted through screeners and reports, scanning for high-quality stocks trading at discounted valuations. From an initial list of 20 stocks, we settled on the top seven stocks that were trading under a forward P/E of 10, as of October 7, and were the most widely held by hedge funds. The stocks are ranked in ascending order based on the number of hedge funds that hold them, as of Q2 2024.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Dirt Cheap Stocks to Invest In Now
7. Prudential Financial, Inc. (NYSE:PRU)
Forward Price-to-Earnings Ratio: 8.36
Number of Hedge Fund holders as of Q2: 40
Prudential Financial, Inc. (NYSE:PRU) is a financial services company that provides insurance investment management and other financial products and services. With over $320 billion in bonds and over $28 billion in total net equity, it is in a strong financial position.
Prudential’s allure as one of the best dirt-cheap stocks to invest in now stems from its strong position in developing markets, where demand for its products may rise quickly. A portion of those markets still need to be explored.
However, the performance of Asian economies has been uneven over the last few years, raising serious questions about Prudential Financial, Inc. (NYSE:PRU)’s increased focus. This has raised some questions about the wisdom of Prudential’s plan. Though only by 1%, revenues in the year’s first half decreased from the same period last year, in the interim, profits after tax fell by more than four-fifths compared to the previous year’s first half.
The interim dividend increased by 9%, and since this is normally a very cash-generative business, there is room for future income growth in the long run. Prudential Financial, Inc. (NYSE:PRU) has recognized the financial services sectors where its reputation is strong. It targets markets with large numbers of potential customers that sometimes continue to offer limited competition.
The company has the foundation for an excellent long-term growth story. Nevertheless, its share price does not reflect that fully, given that the stock trades at a discount with a price-to-earnings multiple of 8.36 while yielding 4.37% on dividends.
As per Insider Monkey’s database, 40 hedge funds owned stakes in Prudential Financial, Inc. (NYSE:PRU) at the end of June, up from 33 in the previous quarter. These funds own around $512.88 million worth of stock.
6. Equitable Holdings, Inc. (NYSE:EQH)
Forward Price-to-Earnings Ratio: 6.04
Number of Hedge Fund holders as of Q2: 44
Equitable Holdings, Inc. (NYSE:EQH) is a dirt cheap stock to invest in to diversify an investment portfolio in the financial services sector. The company has been navigating a challenging environment depicted by changing consumer preferences and changes in monetary policy.
To increase cash generation by 50% and EPS growth of 12–15% annually by 2027, Equitable Holdings’ long-term prospects remain solid. Notwithstanding probable obstacles in the financial services industry, the company’s management is still optimistic about accomplishing these objectives.
Equitable Holdings, Inc. (NYSE:EQH) delivered solid second-quarter results driven by Asset under management of $0.9 billion with net inflows of $2.3 billion for Retirement and $1.5 billion in Wealth Management. Net income in the quarter totalled $428 million or $1.23 a share. The company continues to see robust organic growth momentum across businesses, highlighted by record Retirement net inflows.
Analysts upgraded their 2025 EPS projections from $7.19 to $7.30 in June 2024, a sign of optimism over the company’s earnings prospects. With this upward revision, Equitable Holdings, Inc. (NYSE:EQH) appears to be moving closer to its long-term financial goals.
Equitable Holdings has taken the initiative to establish strategic alliances to strengthen its market position and expand its range of products. Notable partnerships include AllianceBernstein (NYSE:AB) and BlackRock (NYSE:BLK), which are anticipated to propel growth in the business’s RILA division. Particularly, the BlackRock Life Path Paycheck product has been cited as having the ability to propel Equitable Holdings’ growth. This novel offering addresses the rising consumer demand for retirement security by combining target-date investments with lifetime income guarantees.
While Equitable Holdings, Inc. (NYSE:EQH) is trading at a price-to-earnings multiple of 6.04, it is trading at a discount, given the combination of robust organic growth and favorable market conditions. Additionally, the company continues to return value to shareholders through dividends with a yield of 2.31%.
For their shareholdings during this year’s second quarter, 44 out of the 912 hedge funds tracked by Insider Monkey were Equitable Holdings, Inc. (NYSE:EQH)’s shareholders, up from 32 in the previous quarter.
5. Vale S.A. (NYSE:VALE)
Forward Price-to-Earnings Ratio: 5.60
Number of Hedge Fund holders as of Q2: 45
Vale S.A. (NYSE:VALE) is a heavy mining company and one of the largest iron ore pellets and nickel producers. While headquartered in Brazil, it operates in more than 20 countries. It is the world’s leading iron and nickel producer, and other metals like manganese and copper are used in battery production.
Consequently, Vale S.A. (NYSE:VALE) is one of the companies well-positioned to benefit from the electric vehicle revolution, fuelling strong demand for nickel used in batteries and iron. The company benefits from the scale of its operations by the impressive results it always generates as demand for basic materials increases.
The company delivered better-than-expected second-quarter results, with net profit soaring to record highs of $2.77 billion, nearly triple what it generated last year in the same quarter. The fact that Q2 net profit was 65% higher than in the first quarter underscores the underlying growth as the company benefits from high commodity prices. Revenues were up 3% to $9.9 billion as iron shipments soared 7%
Vale S.A. (NYSE:VALE) remains in a solid financial position, consistently generating a healthy amount of free cash flow from its operations. With dividend yields expected to surpass 7% in 2024 and 2025 from the current 5, there is no doubt that Vale is one of the dirt cheap stocks to invest in now for passive income—additionally, the stock trades at a discount with a price-to-earnings multiple of 5.60.
Hedge funds with investments in Vale S.A. (NYSE:VALE) were 34 in the quarter, with positions worth $1.15 billion. GQG Partners is the top shareholder in the company as of Q2 of 2024, with a position worth $334.61 million.
4. Charter Communications, Inc. (NASDAQ:CHTR)
Forward Price-to-Earnings Ratio: 8.91
Number of Hedge Fund holders as of Q2: 48
Charter Communications, Inc. (NASDAQ:CHTR) is a communication service company that serves residential and commercial customers as a broadband connectivity and cable operator. Thanks to a government program to increase broadband access in rural areas and its mobile push, the company is seeing some success growing in rural markets. However, a competitive broadband market is hindering the growth of core subscribers.
Consequently, the nation’s second-largest cable company delivered solid second-quarter results that signal solid underlying fundamentals even as it faces challenges in its core cable business. Residential and business internet users combined dropped by 149,000 to 30.4 million, according to Charter Communications, Inc. (NASDAQ:CHTR).
Revenue increased by 0.2% to $13.7 billion, exceeding the $13.6 billion consensus estimate. On the other hand, the company’s mobile line count increased by 557,000 to 8.8 million. Earnings in the quarter were up 2.6% to $5.7 billion. During the quarter, the company also repurchased 1.5 million shares, affirming its ability to return value to shareholders.
While trading at a price-to-earnings multiple of 8.91, Charter Communications, Inc. (NASDAQ:CHTR) is dirt cheap, considering its solid revenue and earnings growth. Despite not paying a dividend, Charter currently appears to be a respectable value investment, particularly if it can reverse the fall in broadband subscribers.
Among the 912 hedge funds tracked by Insider Monkey in their Q2 2024 database, 48 had investments in Charter Communications, Inc. (NASDAQ:CHTR). The most significant stake, worth $1.89 billion, was held by Harris Associates of Natixis Global Asset Management.
3. General Motors Company (NYSE:GM)
Forward P/E Ratio: 4.67
Number of Hedge Fund holders as of Q2: 72
General Motors Company (NYSE:GM) is a dirt cheap stock to invest in now to diversify an investment portfolio in the auto industry. While the company designs, builds and sells trucks, crossovers, cars, and automobile parts, it also provides software-enabled services and subscriptions worldwide.
Even though GM’s internal combustion engine (ICE) pickups and SUVs remain the most profitable models, the company is pursuing growth opportunities around electric vehicles. The progress has been remarkable thus far.
General Motors Company (NYSE:GM) delivered 22,000 electric cars overall in the second quarter, up 40% from the previous year and giving it a 2.2 percentage point larger market share than it had a year earlier. Later this year, several new models will be introduced in dealerships, which might give the company a sustained boost.
The automaker is trading at a discount with a price-to-earnings multiple of 4.59, considering it is profitable, and management has been buying stock as one of the ways of returning value to shareholders.
Due to those share repurchases, the number of shares outstanding has decreased by 18% annually, providing shareholders with a larger stake in the business. A new $6 billion share repurchase authorization was also recently announced by General Motors Company (NYSE:GM).
In the second quarter, the company delivered earnings of $2.55 a share, up from $1.83 a year ago, as adjusted earnings increased 37.2% to $4.44 billion. Revenue came at a record high of $44.75 billion following a 7.2 % increase.
The Detroit automaker raised its earlier guidance of $12.5 billion to $14.5 billion, or $9 and $10, to between $13 billion and $15 billion, or $9.50 and $10.50, for full-year signaling strong growth metrics While trading at a discount General Motors (NYSE:GM) still yields 1.07% in dividends having paid $2.93 billion in dividends in the second quarter.
Based on our Q2 database of over 900 hedge funds, 72 held stakes in General Motors Company (NYSE:GM), totaling $4.07 billion. As of June 30, Harris Associates was the largest shareholder, with 34.36 million shares valued at nearly $1.6 billion.
Diamond Hill Large Cap Concentrated Strategy stated the following regarding General Motors Company (NYSE:GM) in its Q2 2024 investor letter:
“Other top Q2 contributors included Extra Space Storage and General Motors Company (NYSE:GM). Shares of automobile manufacturer General Motors (GM) rose as its internal combustion engine business has also received a boost from the recent slowdown in electric vehicle adoption among consumers. GM also announced additional share repurchases in Q2, reinforcing its commitment to returning cash to shareholders.”
2. Western Digital Corp. (NASDAQ:WDC)
Forward Price-to-Earnings Ratio: 8.13
Number of Hedge Fund holders as of Q2: 80
Western Digital Corporation (NASDAQ:WDC) is a technology company that develops, manufactures, and sells data storage devices. It is one of the dirt cheap stocks to invest in now as it continues to fire on all angles. The company delivered solid fiscal fourth-quarter results that affirmed strong demand for the company’s storage devices.
Revenues in the quarter were up 9% to $3.76 billion, driven by a 21% increase in cloud revenues as client revenue increased 3%. Western Digital Corporation (NASDAQ:WDC) also bounced to profitability with earnings per share of $1.44 compared to a loss of $0.20 a share.
The advent of the AI Data Cycle signals a turning point for Western Digital Corporation, which will cause fundamental changes in end markets and raise storage requirements while generating new sources of demand.
The AI revolution is the first clear catalyst that should catapult the company to new heights. While some businesses are concerned about artificial intelligence, demand for Western Digital storage solutions is expected to increase significantly.
The increasing computational demands of high-compute AI data centers will drive demand for data center storage solutions. It’s also important to keep in mind that enterprise spending on cloud-based platforms is still relatively new.
Western Digital Corporation (NASDAQ:WDC)’s data-center storage products are gaining prominence as cloud spending increases. Unsurprisingly, with a 29% year-over-year increase in sales, the company’s cloud segment was its biggest growth driver in the fiscal third quarter (which ended on March 29).
Amid the tremendous opportunities for growth, Western Digital is still trading at a discount with a price-to-earnings multiple of 8.13 and a sales forecast of over 50%.
In the second quarter, 80 hedge funds tracked by Insider Monkey held positions in Western Digital Corporation (NASDAQ:WDC), with total stakes amounting to nearly $4.06 billion. As of June 30, Millennium Management was the largest shareholder, holding a position valued at $379.707 million.
Here is what Parnassus Mid Cap Fund said about Western Digital Corporation (NASDAQ:WDC) in its Q2 2024 investor letter:
“We re-initiated a position in Western Digital Corporation (NASDAQ:WDC), a manufacturer of memory semiconductor chips and hard disk drives, as we believe earnings expectations are far too low. Semiconductors have been another of our most-alpha-generative industries, thanks to the industry’s secular tailwinds and our in-house expertise. Western Digital stands to benefit from the rapid growth of memory-hungry AI applications. The valuation for Western Digital was low relative to its peers, giving us a way to participate in AI at a reasonable valuation.”
1. Citigroup Inc. (NYSE:C)
Forward Price-to-Earnings Ratio: 8.77
Number of Hedge Fund holders as of Q2: 85
Citigroup Inc. (NYSE:C) is one of the bank stocks trading at a discount while undergoing a restructuring that promises to position the company to generate significant long-term value. Despite its size and scope, Citigroup has yet to keep up with its bigger competitors, with $1.7 trillion in assets.
Its massive global business has turned out to be a big headwind, making it difficult to generate significant value. Nevertheless, the bank has embarked on a restructuring drive that has sold 9 of 14 consumer franchises.
The bank reduced managerial layers from 13 to eight, eliminated 60 committees, and plans to shed thousands of positions as it aims to trim its operational expenditure. The bank also plans to take its Mexico consumer business public as part of its push to generate shareholder value.
Citigroup Inc. (NYSE:C) can move closer to its return on equity goals, which Chief Executive Officer Jane Fraser thinks should be between 11% and 12%. The stock would definitely see a significant rerating if that occurred. If the stock performed similarly to its peers, such as Bank of America and Wells Fargo, it would almost double in value.
Amid the restructuring drive, it delivered solid second-quarter results that beat estimates. Net income was up 10% year over year to $3.22 billion as revenue rose 4% to $20.14, affirming why it is one of the best dirt cheap stocks to invest in now on strong underlying fundamentals.
As the restructuring drive takes shape, Citigroup Inc. (NYSE:C) trades at a significant discount of 45% of its book value. It trades at a price-to-earnings of 8.77 compared to the S&P 500 average of 27.45.
In Q2 2024, 85 hedge funds held positions in the stock, with total stakes reaching $10.64 billion. As of June 30, Berkshire Hathaway was the largest shareholder with a position worth $3.51 billion.
Patient Capital Management stated the following regarding Citigroup Inc. (NYSE:C) in its first quarter 2024 investor letter:
“Citigroup Inc. (NYSE:C) gained 24.1% in the quarter continuing its uptrend from 4Q. The company is on a multi-year journey to reorganize the business and reach a return on tangible common equity of 11-12% by 2026 (and higher further out). Citigroup is finally taking the hard actions necessary, cutting unprofitable departments, taking out middle management layers, and reducing overall headcount. As of early March, the company was 70% done with its business exits and had reduced management layers by 1/4th. We have high confidence Citi will hit its targets. In the meantime, the company is returning cash to shareholders, which could meaningfully increase if the Basel III capital proposal is changed.”
As we acknowledge the growth potential of Citigroup Inc. (NYSE:C), our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than C but that trades at less than 5 times its earnings check out our report about the cheapest AI stock.
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