In this article, we discuss 10 value stocks that analysts are upgrading. If you want to skip our analysis of value investing and check out some popular value stocks, click Analysts Are Upgrading These 5 Value Stocks.
In the currently tumultuous stock market, amid rising rates, inflation, and the Russia-Ukraine war, investors are moving away from growth stocks and shifting their investments to value plays.
The shift to value plays was noticed in the beginning of 2022, and it only escalated as the stock market conditions became more volatile. The technology sector has been the hardest hit in this rotation of investors from growth to value, and this is especially evident from the portfolio of Cathie Wood, a tech and innovation bull, whose Ark Innovation ETF nearly halved in value over the last year.
In January, value stocks outperformed the broader US market by almost 3%, and inflation and interest rates in the upcoming months will be the deciding factor when it comes to investing in value stocks or their growth counterparts. Christopher Wood, chief global head of equity strategy at Jefferies, told The Economic Times on February 19 that the shift to value plays will not be absolute until market leaders and elite hedge funds decide to let go of their bullish sentiments for FAANG stocks.
“Stealth Bear Market”
The outperformance of value stocks over growth stocks has been observed not only in the United States, but in Europe and Australia as well, where most value subfactors surpassed the market benchmarks, while growth subfactors lagged.
Liz Ann Sonders, chief investment strategist at Charles Schwab, told Bloomberg on March 15 that investors should dispose of poor quality stocks from their portfolios and actively purchase value stocks amidst what she referred to as a “stealth” bear market.
Some of the most notable value stocks to look out for in the current market include Berkshire Hathaway Inc. (NYSE:BRK-A), Morgan Stanley (NYSE:MS), and General Motors Company (NYSE:GM), among others discussed extensively below.
Our Methodology
After a detailed assessment of value stocks that were recently observed by analysts, we picked securities that were upgraded in the last week, ensuring that all companies have a price to earnings ratio of less than 20. We have ranked the list according to the hedge fund sentiment around the stocks, which was gauged from the database of 924 elite funds tracked by Insider Monkey at the end of December 2021.
Analysts Are Upgrading These Value Stocks
10. Ternium S.A. (NYSE:TX)
Number of Hedge Fund Holders: 13
P/E Ratio as of March 14: 2.04
Ternium S.A. (NYSE:TX) is based in Luxembourg, and the company manufactures and processes various products like steel, cast iron, coke (fuel), and slag. The company reported fourth quarter earnings per share of $5.08 on February 15, topping estimates by $0.08. The $4.33 billion revenue missed market consensus.
Wolfe Research analyst Timna Tanners upgraded Ternium S.A. (NYSE:TX) on March 11 to Peer Perform from Underperform with a price target of $43, up from $38. The analyst stated that Ternium S.A. (NYSE:TX)’s strong raw material position and the stock’s underperformance led to her upgrade.
Among the hedge funds tracked by Insider Monkey, 13 funds reported owning stakes in Ternium S.A. (NYSE:TX) at the end of December 2021, compared to 18 funds in the previous quarter. Arrowstreet Capital held the biggest stake in Ternium S.A. (NYSE:TX), with 1.18 million shares worth $51.3 million.
In addition to Berkshire Hathaway Inc. (NYSE:BRK-A), Morgan Stanley (NYSE:MS), and General Motors Company (NYSE:GM), institutional investors are piling steadily into Ternium S.A. (NYSE:TX) as they continue to prefer value plays.
9. Deutsche Bank Aktiengesellschaft (NYSE:DB)
Number of Hedge Fund Holders: 14
P/E Ratio as of March 14: 9.24
Deutsche Bank Aktiengesellschaft (NYSE:DB) is a German investment banking company that provides wealth management, banking services, risk management, and consulting services to private customers, corporations, and institutional clients worldwide.
On March 14, Berenberg analyst Eoin Mullany upgraded Deutsche Bank Aktiengesellschaft (NYSE:DB) to Hold from Sell, lifting the price target from €10.50 to €11. The analyst noted that Deutsche Bank Aktiengesellschaft (NYSE:DB) is performing well and its revenue has been stronger than expected. According to Mullany, market concerns are already factored into the current valuation levels.
Deutsche Bank Aktiengesellschaft (NYSE:DB) on March 10 raised its return on average tangible equity target to more than 10% by 2025, and the company will realize this goal by means of revenue growth, efficiencies, and self-financed investments. Amid the Russia-Ukraine crisis, Deutsche Bank Aktiengesellschaft (NYSE:DB) also exited all new operations in Russia, following the footsteps of market leaders like JPMorgan Chase and Goldman Sachs.
At the close of the December quarter, Hudson Executive Capital was the leading shareholder of Deutsche Bank Aktiengesellschaft (NYSE:DB), with 67.3 million shares worth $844.6 million. Overall, 14 hedge funds were bullish on the stock during the fourth quarter of 2021.
Here is what Third Avenue Management has to say about Deutsche Bank Aktiengesellschaft (NYSE:DB) in its Q3 2021 investor letter:
“Deutsche Bank AG (4.5% portfolio weight) – Similarly, Deutsche Bank Aktiengesellschaft (NYSE:DB) has in recent years undertaken profound cost cutting initiatives, albeit, in Deutsche’s case, as a result of scandal, business underperformance and a need to deleverage. Deutsche Bank, and other investment banks with large fixed income trading operations, clearly benefited from the pandemic in 2020 as a result of unusually large fixed income trading volumes and market volatility. This is one of the primary arguments for having trading operations alongside more traditional banking and asset management businesses—i.e., that their business performances are not correlated and strong trading performance can, at times, offset challenges in other parts of the business. And times are still challenging for Deutsche’s more traditional corporate and private banking businesses as a result of the interest rate environment. Clearly a higher (or even less negative) German rate environment would help, but it must be said that Germany has to be among the least attractive banking markets in Europe. The industry structure is unique and frustrates the ability of private banks to produce profit, which in turn limits the ability to accumulate capital, making the entire system more fragile than it ought to be. We value Deutsche’s various banking business lines accordingly. But, turning back to things Deutsche can control, it is indisputable that Deutsche Bank Aktiengesellschaft (NYSE:DB), under CEO Christian Sewing, has made considerable progress towards its critical cost cutting, deleveraging and capital accumulation goals. At the outset of our investment in Deutsche, our single largest concern was that the bank’s necessary exit from certain lines of business, along with sizable headcount reduction in others, could cause clients to seek other relationships with banks offering a full range of services and without any perception of counterparty risk. In a worst case scenario the result could have been an erosion of revenue even faster than the cost reduction, possibly precipitating a downward spiral. As we emerge from the pandemic with Deutsche Bank Aktiengesellschaft (NYSE:DB) now far down the road of transformation, and clear evidence that it is regaining market share in various lines of business, the largest risks appear to be behind us. To that point, in recent public comments Deutsche management has indicated that it intends to resume returning excess capital to shareholders in 2022.”
8. Tenaris S.A. (NYSE:TS)
Number of Hedge Fund Holders: 16
P/E Ratio as of March 14: 14.76
Tenaris S.A. (NYSE:TS) is a Luxembourg-based company that supplies steel pipes and products for the energy and automotive industries. Tenaris S.A. (NYSE:TS) is one of the value stocks that were recently upgraded, with a price to earnings ratio of 14.76.
Wolfe Research analyst Timna Tanners on March 14 upgraded Tenaris S.A. (NYSE:TS) to Peer Perform from Underperform, raising the price target to $43 from $38. The analyst observed that U.S. steel mills announced unusually high prices this past week as benchmark scrap prices for pig iron reportedly rose, which is a key alternative input used by small scale steel mills and approximately two-thirds of the supply is sourced from Russia and Ukraine. However, the stock benefits from sanctions implemented on Russia, as Tenaris S.A. (NYSE:TS) does not rely on pig iron and uses its own direct reduced iron, giving it an “advantaged raw material position”, Tanners told investors is a bullish case for the stock.
In the Q4 earnings report, published on February 16, Tenaris S.A. (NYSE:TS) posted an EPS of $0.64, exceeding estimates by $0.18. The fourth quarter revenue jumped approximately 82% year-over-year to $2.06 billion, surpassing market predictions by close to $57 million.
Among the hedge funds tracked by Insider Monkey in the fourth quarter of 2021, Renaissance Technologies is the largest shareholder of Tenaris S.A. (NYSE:TS), owning 3.42 million shares of the company, worth $71.3 million. Overall, 16 hedge funds were long Tenaris S.A. (NYSE:TS) at the end of December 2021.
Here is what Artisan Partners has to say about Tenaris S.A. (NYSE:TS) in its Q2 2021 investor letter:
“The holdings that dampened returns in Q2 (includes) Tenaris. The share price was down less than 4% in local currency, and there was no significant fundamental reason to point to. Year to date, the share price of the company is up significantly.”
7. TFI International Inc. (NYSE:TFII)
Number of Hedge Fund Holders: 19
P/E Ratio as of March 14: 13.33
TFI International Inc. (NYSE:TFII) is a Canadian company that provides transport and logistics services across the United States, Canada, and Mexico. In Q4 2021, 19 hedge funds were bullish on TFI International Inc. (NYSE:TFII), compared to 23 funds in the quarter earlier. Total stakes owned by hedge funds in TFI International Inc. (NYSE:TFII) during the fourth quarter amounted to $178.6 million.
On March 14, Wolfe Research analyst Scott Group upgraded TFI International Inc. (NYSE:TFII) from Peer Perform to Outperform with a $115 price target. Although TFI International Inc. (NYSE:TFII) stock has declined 17% year-to-date and remains one of the worst performing names in his transport coverage despite “one of the best 4Q reports in the group”, the analyst recommends investing in TFI International Inc. (NYSE:TFII) owing to its LTL margin improvement capacity and attractive valuation.
Among the hedge funds tracked by Insider Monkey, Maple Rock Capital is the largest shareholder of TFI International Inc. (NYSE:TFII) as of Q4 2021. The fund owns 362,000 shares of the company, worth $40.5 million.
Here is what LRT Capital has to say about TFI International Inc. (NYSE:TFII) in its Q2 2021 investor letter:
“TFII International (formerly known as Transforce) is a recent addition to our portfolio – it is a Canadian logistics company with exceptional management operating in a consolidating industry. TFII came to our attention when they announced their purchase of the US operations of UPS Freight on January 25th, 2021. The company has a long history of growth through acquisition. Long time CEO Alain Bedard is fond of telling investors that he would rather own Scotiabank and get a 3% dividend than make deals that result in 3% returns 57. This Canadian company also recently dual-listed in the United States.
UPS Freight, recently acquired by TFI International Inc. (NYSE:TFII), is a less-than-truckload (LTL) operation. LTL operations can build scale-based cost advantages as they require the consolidation of shipments in local hubs. This lends LTL operators to develop competitive moats based on local network density creating barriers to entry, as opposed to pure long-term trucking which is open to competition from anyone able to lease a truck. Pure play LTL companies such as SAIA, Inc. (SAIA) and Old Dominion Freight Line (ODFL) have historically generated very attractive returns for shareholders. Prior to the announced acquisition TFI already generated excellent returns for shareholders through very efficient operations and good capital allocation. Through the acquisition of UPS Freight US, the company immediately became one of the largest players in the US LTL market. The relatively low price paid for the asset (5.3x EBITDA pre-synergies, and the fact that UPS is taking a $500 million accounting charge on the deal) suggests TFII got a good deal. ODFL and SAIA both trade at over 15x EV/EBITDA.
We expect earnings to rise sharply at TFI International Inc. (NYSE:TFII) over the next twelve months as the economy accelerates post-Covid. We are currently also long shares of Saia, Inc. (SAIA), the LTL operator headquartered in Georgia, based on the same investment thesis. Shares of Saia, Inc., are up +25 % year-to-date and +87.3% over the past twelve months.
Shares are +118.42% year-to-date and +165.39% over the past twelve months.”
6. Unilever PLC (NYSE:UL)
Number of Hedge Fund Holders: 23
P/E Ratio as of March 14: 16.83
Unilever PLC (NYSE:UL) is a London-based multinational FMCG corporation that markets and sells beauty and personal care products, convenient foods and refreshments, and home care goods. Unilever PLC (NYSE:UL) announced on March 8 that the company has suspended all imports and exports of products into and out of Russia as a condemnation of war, in line with Western sanctions on the country.
Bernstein analyst Bruno Monteyne upgraded Unilever PLC (NYSE:UL) on March 14 to Market Perform from Underperform but slashed the price target to £3,300 from £3,500. After the recent pullback in Unilever PLC (NYSE:UL) shares, the valuation is now attractive, which was the reason for the upgrade according to the analyst.
On February 23, Unilever PLC (NYSE:UL) declared a $0.482 per share quarterly dividend, a 2.2% decrease from its prior dividend of $0.493. The dividend will be distributed on March 22, to shareholders of record on February 25.
Elite hedge funds remain bullish on Unilever PLC (NYSE:UL). In the fourth quarter of 2021, the long positions of smart investors in Unilever PLC (NYSE:UL) increased to 23 from 17 in the prior quarter. Total stakes held in the company at the end of December amounted to $1.78 billion, up from $876.6 million. Gardner Russo & Gardner is the largest shareholder of the company, with 8.50 million shares worth $457.28 million.
Unilever PLC (NYSE:UL) experienced positive hedge fund sentiment in the fourth quarter of 2021, just like Berkshire Hathaway Inc. (NYSE:BRK-A), Morgan Stanley (NYSE:MS), and General Motors Company (NYSE:GM).
Here is what Fundsmith Equity Fund has to say about Unilever PLC (NYSE:UL) in its Q4 2021 investor letter:
“Unilever PLC (NYSE:UL) seems to be laboring under the weight of a management which is obsessed with publicly displaying sustainability credentials at the expense of focusing on the fundamentals of the business. The most obvious manifestation of this is the public spat it has become embroiled in over the refusal to supply Ben & Jerry’s ice cream in the West Bank. However, we think there are far more ludicrous examples which illustrate the problem. A company which feels it has to define the purpose of Hellmann’s mayonnaise has in our view clearly lost the plot. The Hellmann’s brand has existed since 1913 so we would guess that by now consumers have figured out its purpose (spoiler alert — salads and sandwiches). Although Unilever had by far the worst performance of our consumer staples stocks during the pandemic, we continue to hold the shares because we think that its strong brands and distribution will triumph in the end.”
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Disclosure: None. Analysts Are Upgrading These 10 Value Stocks is originally published on Insider Monkey.
