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 Arch Capital Group Ltd. (NASDAQ:ACGL) 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 close-up image of an insurance policy with hands standing firmly on top, conveying security.
Arch Capital Group Ltd. (NASDAQ:ACGL)
Number of Hedge Fund Holders: 45
PE Ratio as of August 1: 7.66
Arch Capital Group Ltd (NASDAQ:ACGL) is a global provider of services in the insurance and reinsurance industries. In Q1 2024, 45 hedge funds held positions in Arch Capital Group Ltd. (NASDAQ:ACGL) stock. The hedge fund with the largest holding was Joe Dimenna’s ZWEIG DIMENNA PARTNERS, which held 204,505 shares worth $20.63 million.
CFRA has recently raised the price objective for Arch Capital from $107 to $120 after upgrading the company’s rating from Buy to Strong Buy.
Operating EPS of $2.57, above both the consensus expectation of $2.21 and CFRA’s estimate of $2.24, was announced by Arch Capital in a robust Q2 2024. This was mostly due to a 26% spike in underwriting income and a 20.2% gain in earned premiums over the same quarter last year. In comparison to the previous quarter’s 79.8%, the combined ratio for the second quarter was 78.7%, or 76.7% before disasters. Pre-tax net investment income surged by 50.4% to $364 million, while gross premiums written increased by 11.1% to $5.38 billion. This resulted in a net income of $1.3 billion, or $3.30 per share.
If approved by authorities, Arch Capital Group Ltd (NASDAQ:ACGL) plans to buy Allianz’s U.S. MidCorp and Entertainment insurance operations, expanding its market footprint.
In Q2, the company’s annualized operating return on equity (ROE) was 20.5%, which was 50% better than the peer average due to its operational and underwriting measures. The stock may be stimulated by solid financial performance and careful underwriting.
Madison Investors Fund stated the following regarding Arch Capital Group Ltd. (NASDAQ:ACGL) in its Q2 2024 investor letter:
At Arch Capital Group Ltd. (NASDAQ:ACGL), earnings continue to grow nicely. As we’ve discussed for the last few years, the supply-demand situation in both reinsurance and primary insurance markets remains favorable, and we expect profits to stay elevated for some time and perhaps even grow moderately from current levels. Furthermore, Arch continues to roll over its fixed income portfolio at more favorable coupon rates.
The forecast for Arch Capital was revised by several other analyst firms. BofA Securities lifted its stock price objective to $119, RBC Capital Markets raised it from $105 to $108, and Citi increased it to $104, all indicating higher EPS forecasts for 2024 and 2025. Arch Capital’s impressive performance and optimistic projections are highlighted by these changes.
Arch Capital is a desirable investment due to its solid Q2 performance, targeted acquisitions, and sound financial indicators. The firm is well-positioned for future development, indicating tremendous upside potential for investors, due to its disciplined underwriting and swift rise in premiums and investment income.
Overall ACGL ranks 8th 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 ACGL 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 ACGL 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.