We recently compiled a list of the 10 Best Very Cheap Stocks To Buy Now According To Hedge Funds. In this article, we are going to take a look at where AerCap Holdings N.V. (NYSE:AER) stands against the other very cheap stocks to buy according to hedge funds.
As we approach the third half of 2024, the market’s performance continues to draw in both investors and analysts alike. After rising by an average of 24% the year before, the 500 largest-cap US equities finished the second quarter of this year with an impressive gain of over 3%, on average. Overall, the unexpectedly resilient U.S. economy and the frenzied AI boom have propelled equities to unprecedented levels.
Even though the markets are currently worried about a slowdown, most recent economic indicators complement this market performance, demonstrating the US economy’s resilience. The Commerce Department revealed a 3.1% YoY gain in Q4,2023 for the economy, primarily due to solid consumer expenditure on dining out, healthcare, and automobiles. The world’s largest economy’s growth prediction was slightly revised by the IMF to 2.6% this year, pointing out the country’s robust and adaptable nature to changes in the global economy. According to Economic Intelligence’s consumer goods and retail outlook study for 2024, global retail sales are projected to rise by 6.7% in 2024, bolstered by a 2% increase in volume, regardless of a dip in inflation.
This brings us to industries that are selling at a discount, of which, broadcasting is one, at an EV to EBITDA ratio of 7.31. According to The Business Research Company, the television and radio broadcasting markets have expanded significantly in recent years. It is expected to grow from $439.41 billion in 2023 to $466.83 billion in 2024, at a CAGR of 6.2%. According to Future Market Insights, North America has the largest market share globally for television broadcasting services, followed by Asia Pacific.
The introduction of digital transmission and the Internet caused a major transformation in the television industry. Broadcast television and cable coexist with cable substitutes like HBO Max, Netflix, and Amazon Prime Video. Many others have completely cut their cable connections, opting to get all of their television needs met online. The Motion Picture Association of America reports that the film and television industries have a major economic impact, employing 2.5 million people annually and paying out over US$ 188 billion in compensation.
Another industry trading at a reduced price is air transportation, which has an EV to EBITDA ratio of 6.17. The Business Research Company reports that the size of the air transport market has expanded dramatically in recent years. The projected CAGR is 6.8%, which would see it rise from $1,016.38 billion in 2023 to $1,085.37 billion in 2024. Furthermore, it is anticipated that during the next several years, the size of the air transport sector will rise significantly. With a 6.5% CAGR, it will reach $1,394.51 billion in 2028.
The future expansion of the air transport market is anticipated to be driven by the growth of e-commerce and online shopping. For example, in September 2022, the US Department of Commerce’s International Trade Administration reported that consumer e-commerce accounted for 30% of the UK’s total retail market (up from 20% in 2020), with over $120 billion in e-commerce sales annually. In the UK, 82% of individuals will have made at least one online transaction by 2021.
Methodology:
We selected stocks with an institutional ownership of over 70% and a PE ratio under 10, as of June 25 for our list of 10 Best Very Cheap Stocks To Buy Now According To Hedge Funds. We narrowed down our selection to 10 stocks that were the most widely held by institutional investors and ranked them in ascending order of the number of hedge funds that have stakes in them as of Q1 of 2024. In cases where two or more stocks have the same number of hedge funds, we’ve used the PE ratio as a tie-breaker.
In order to identify cheap stocks, we searched for companies with a strong earnings track record by evaluating their EPS over the last two to three years. Secondly, we only considered stocks that received “buy” or “strong buy” recommendations from analysts.
Why are we interested in 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.)
A commercial jetliner taking off, highlighting the advanced airframe and engine parts produced by the company.
AerCap Holdings N.V. (NYSE:AER)
Number of Hedge Fund Holders: 65
PE Ratio as of August 1: 5.71
Leading aircraft leasing provider, AerCap Holdings N.V. (NYSE:AER). AerCap, based in Dublin, Ireland, has solidified itself as a leading participant in the global aircraft leasing industry, offering a diverse variety of aircraft and engine leasing services to airlines globally. The first three of fifteen new Airbus A321neo aircraft have been delivered to AirAsia Group* (AirAsia) on a long-term lease, according to a recent announcement from the company. Delivery of the final 12 units is anticipated between 2024 and 2025. The company possesses more than 1,700 aircraft, 1,000 engines, 300 helicopters, and an order book with 327 aircraft globally. The company provides full fleet solutions to over 300 customers worldwide.
Since AER’s PE ratio of 5.71 is less than the industry’s average PE ratio of 12.03, it is currently regarded as a cheap company to buy now.
With a PE ratio of 5.71 and hedge fund sentiment of 65 in the first quarter, up from 61 in the previous quarter, it is among the best extremely cheap stocks. Frank Fu’s CaaS Capital is the company’s shareholder, owning 27,306 shares valued at $2.54 million. Analysts have a positive outlook, giving AER a “strong buy” recommendation, with an average target price of $103.7 and an upside potential of 19.73% from the current stock price of $86.61.
Aengus Kelly, Chief Executive Officer of AerCap, stated regarding Q2 2024 earnings:
“In an industry environment that has remained positive, AerCap continued to produce strong results in the second quarter. We were pleased to receive credit rating upgrades from Moody’s and S&P reflecting the company’s best-in-class performance. We continue to actively deploy capital for growth opportunities and to return capital through share repurchases and dividends to our shareholders. As a result of our outperformance during the first half of the year and our positive outlook going forward, we have raised our earnings guidance for the full year,”
TD Cowen maintained a “Buy” rating on AerCap and increased its price target from $125.00 to $130.00 in response to the strong earnings announcement.
Overall, the company’s sales, and EPS have all increased during the previous five quarters. Its resistance to industry headwinds highlights its strong financial health.
Middle Coast Investing stated the following regarding AerCap Holdings N.V. (NYSE:AER) in its Q2 2024 investor letter:
“One thing I try to do is apply what I know from one stock to another. AerCap Holdings N.V. (NYSE:AER) has been a long-time holding, and one of the reasons it is attractive to hold onto at a fair price is the huge backlog in planes that need to be built and sold to airlines. Boeing’s problems, the pandemic, supply chain issues, and so on have slowed delivery of planes and jets (Airbus is also struggling to get up to its production goals). That delay is good for Aercap’s business as the world’s biggest owner of planes, an in-demand commodity, but at some point, the manufacturers will have to figure it out.”
L1 Capital International Fund stated the following regarding AerCap Holdings N.V. (NYSE:AER) in its Q2 2024 investor letter:
“We made a number of relatively modest adjustments to the Portfolio in the June 2024 quarter, totalling less than 10% of the Fund’s investments. We added to our investment in AerCap Holdings N.V. (NYSE:AER), with the company entering the top ten Fund holdings. We consider the current share price to be highly attractive. The investment thesis for AerCap is profiled in detail in the next section of this quarterly report
Every time you catch a flight, you probably don’t spend a huge amount of time thinking about whether the plane you are sitting in was bought or leased by the airline. Yet this is an important decision for the airline management team. Aircraft leasing is a well-established, but highly specialised niche of the secured asset lending industry. There are a wide range of aircraft leasing capital providers, but publicly traded aircraft lessors are limited, and the sector is not well known outside of the industry. While AerCap is by far and away the largest participant in the aircraft leasing industry, we believe it is flying below the radar of most investors…” (Click here to read the full text)
Nonetheless, being one of the best very cheap stocks to buy now, according to hedge funds, investor confidence is strengthened by AerCap Holdings N.V. (NYSE:AER)’s outstanding financial results, raised forecast, and strong position in the aircraft leasing industry.
Overall AER ranks 3rd on our list of the very cheap stocks to buy. You can visit 10 Best Very Cheap Stocks To Buy Now According To Hedge Funds to see the other very cheap stocks to buy that are on hedge funds’ radar. While we acknowledge the potential of AER as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than AER but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
