In this article, we will take a detailed look at the 10 Cheap Stocks According to Billionaire Lee Cooperman.
Leon Cooperman recently shared his conservative outlook on the economy and discussed stocks that he is monitoring during a CNBC interview. He believes the U.S. is heading toward a fiscal disaster due to a lack of attention on rising debt. He also noted that nothing seems overvalued if a 10-year bond is valued at the current rate.
“My assumption is that we are headed into a fiscal disaster in our country. There’s nobody focusing on debt creation in the economy. My second assumption is that nothing is overvalued if a 10-year bond belongs at the current rate of 3.9%.”
Cooperman compared this to the 1972 Nifty Fifty period when government bonds were at 6.5%, and several companies which had high earnings multiples, eventually went bankrupt. He pointed out that these companies, despite their high valuations, were acquired by JP Morgan.
“In the Nifty Fifty period of 1972, the government bond went 6.5%, Avon products was 65x earnings, it has declared bankruptcy. Eastman Kodak went bankrupt with 48x earnings. IBM at 37x earnings got bankrupt. These are companies that are actively being bought by JP Morgan in the US trust.”
Cooperman emphasized that with the 10-year bond yield at 3.932%, nothing appears overvalued. He expects interest rates to remain low and anticipates a Federal Reserve rate cut in September, likely by 25 to 50 basis points. He expects that this will lead to a slow positive movement in the yield curve, with the 10-year bond yield increasing and its price declining.
Leon Cooperman also mentioned that he believes the current environment is more of a “market of stocks” rather than a unified stock market. Additionally, he expressed concern about the health insurance sector, noting that these companies are trading at low multiples, even though they have been generating excess capital and buying back their own stock. Cooperman then emphasized that he is motivated by valuation levels when assessing investments.
Leon Cooperman follows a value-focused investment strategy, concentrating on undervalued stocks and using a top-down approach to select sectors. He combines fundamental analysis with a bottom-up approach to build and manage portfolios. Omega Advisors, which handles over $3.3 billion in assets largely from Cooperman’s own wealth, has approximately $4.37 billion under management for seven clients. The firm’s Q1 2024 13F filing showed $2.4 billion in managed securities, with its top ten holdings making up 61.09% of the portfolio.
Leon Cooperman of Omega Advisors
Our Methodology
In this article, we review Leon Cooperman’s latest CNBC interview and highlight ten stocks he owns and mentioned. We also provided analyst ratings, key details about each company, and the number of hedge funds investing in them.
Why focus on the stocks that hedge funds invest in? Our research shows that following the top picks of leading hedge funds can result in returns that beat the market. We use this strategy in our quarterly newsletter, where we choose 14 small-cap and large-cap stocks each quarter. Since May 2014, this approach has generated a 275% return, outperforming the benchmark by 150 percentage points. (see more details here)
Billionaire Lee Cooperman Says The Market Is Expensive But These 10 Stocks Are Cheap
10. Fidelis Insurance Holdings Limited (NYSE:FIHL)
Number of Hedge Fund Investors: 21
Fidelis Insurance Holdings Limited (NYSE:FIHL) is a major global insurance company that provides a broad range of insurance products and services. Fidelis Insurance Holdings Limited (NYSE:FIHL) emphasizes innovation and customer-focused solutions to offer extensive coverage and effective risk management across different industries.
Leon Cooperman shared his thoughts on a recent conference call where he discussed a stock that had dropped in value, calling the market’s reaction “ridiculous.” He mentioned the insurance firm, Fidelis Insurance Holdings Limited (NYSE:FIHL), announced a $2 million buyback, representing 12% of the company, and can earn $4 in earnings per share.
“It’s so ridiculous, it’s so stupid. The company just announced a $2 million buyback, which is 12% of the company. It’s called Fidelis (FIHL), and I’m buying it as we speak. The company has a couple of million dollars in excess capital. Their book value at the end of the quarter was 21.75%. They can earn about 20% on book this year, which is around $4 in earnings. The stock is down, but in my opinion, it should be up.”
Fidelis Insurance Holdings Limited (NYSE:FIHL)’s positive outlook is largely driven by its strong ability to generate excess capital, which it has effectively used for stock buybacks. Furthermore, Fidelis Insurance Holdings Limited (NYSE:FIHL) is actively expanding its operations, such as launching new syndicates at Lloyds Banking Group PLC (NYSE:LYG), positioning itself for additional growth opportunities.
9. Arbor Realty Trust, Inc. (NYSE:ABR)
Number of Hedge Fund Investors: 24
Arbor Realty Trust, Inc. (NYSE:ABR)’s core business focuses on originating and servicing loans, particularly in the multifamily and commercial real estate sectors. Demand for these loans has stayed strong, and Arbor Realty Trust, Inc. (NYSE:ABR) has effectively managed its portfolio, consistently delivering solid performance, even in tough economic times.
Additionally, Arbor Realty Trust, Inc. (NYSE:ABR) offers an attractive dividend yield of about 10.4%, making it appealing to income-focused investors. Arbor Realty Trust, Inc. (NYSE:ABR)’s reliable track record of paying dividends further underscores its financial stability and commitment to shareholders.
Arbor Realty Trust, Inc. (NYSE:ABR) reported another profitable quarter, with GAAP earnings of $0.25 per share and distributable earnings of $0.45 per share. The distributable earnings are particularly important as they cover Arbor Realty Trust, Inc. (NYSE:ABR)’s quarterly dividend, which is currently set at $0.43 per share.
Arbor Realty Trust, Inc. (NYSE:ABR)’s President and CEO, Ivan Kaufman had this to say in its recent earnings call:
“We’re very pleased with the success we have had to-date and expect to remain extremely busy over the next few months and steadfast now approach as we continue to manage through the back balance of this downturn. Clearly in this environment having adequate liquidity is paramount to our success. As a result, we have focused heavily on maintaining a very strong liquidity position. Currently we have approximately $1 billion of cash between $800 million of corporate cash and $600 million of cash in our CLOs that result in additional cash equivalent of approximately $150 million. And having this level of liquidity is crucial in this environment, as it provides us with the flexibility needed to manage through this downturn and taking advantage of opportunities that will exist in this market to generate superior returns on our capital.
As you may recall a few months back, we allocated $150 million of our capital stock buyback to us through buyback stock, knowing full well that will be volatility in the market allow us to potentially repurchase our stock at discounts to book value and generate high double-digit returns on capital. In April, we repurchased approximately $11.4 million of stock at an average price of $12.19 with a 4% discount on book value and generating a current dividend yield of 14% and the yield of approximately 16% on distributable earnings. This is a tremendous return on capital and with around 138 million of remaining capital available for this strategy will continue to be opportunistic in our approach to buying back stock at a volatility process. We also continue to do an excellent job of deleveraging our balance sheet and reducing our exposure to our term debt.”
8. Energy Transfer L.P. (NYSE:ET)
Number of Hedge Fund Investors: 32
Energy Transfer L.P. (NYSE:ET) manages a diverse range of midstream assets, such as pipelines, storage facilities, and terminals. This extensive network allows Energy Transfer L.P. (NYSE:ET) to capitalize on the rising demand for natural gas and liquefied natural gas (LNG), both in the U.S. and globally.
As the energy market moves toward cleaner fuels, Energy Transfer L.P. (NYSE:ET)’s infrastructure plays a crucial role in this shift. Additionally, Energy Transfer L.P. (NYSE:ET) has a strong track record of paying attractive dividends.
Analyst Steven Fiorillo notes that Energy Transfer L.P. (NYSE:ET) may still be undervalued, presenting a buying opportunity. He expects Energy Transfer L.P. (NYSE:ET), which has been trading within a certain range, could rise above $16.50 and approach $20 by the end of 2024. Fiorillo also highlights that the growth in AI and the associated need for new data center infrastructure could indirectly benefit Energy Transfer L.P. (NYSE:ET), making it a valuable investment linked to the AI boom.
Tom Long, the Co-CEO of Energy Transfer L.P. (NYSE:ET), shared the following during their latest earnings call:
“We had record volumes through our crude oil and NGL pipelines, as well as record NGL exports. We also saw strong performance from our NGL fractionators and our refined products pipelines and terminals. DCF a trivial to the partners of Energy Transfer as adjusted was $2 billion compared to $1.6 billion for the second quarter of 2023. And for the six months of 2024, we spent approximately $1 billion on organic growth capital, primarily in the midstream and NGL and Refined Products segments, excluding SUN and USA compression CapEx. Now turning to our results by segment for the second quarter and let’s start with NGL and Refined Products. Adjusted EBITDA was $1.07 billion, compared to $837 million for the second quarter of 2023. The increase was primarily due to growth across our transportation, fractionation and terminal operations including records in both Mariner East and Permian Pipeline volumes, as well as NGL exports.
In addition, we had higher gains from the optimization of hedged NGL inventory. For Midstream, adjusted EBITDA was $693 million, compared to $579 million for the second quarter of 2023. The increase was primarily due to the addition of the Crestwood assets as well as higher volumes in the Permian Basin. For our Crude Oil segment, adjusted EBITDA was $801 million compared to $674 million for the second quarter of 2023. The increase was primarily due to record crude oil transportation throughput. And increase in our total crude oil exports, which were up 11% as well as the acquisitions of the Lotus and Crestwood assets in May and November of 2023 respectively. Excluding these acquisitions, adjusted EBITDA and Crude Oil transportation volumes on our base business increased 4% and 8% respectively.
In our Interstate segment, adjusted EBA was $392 million compared to $441 million the second quarter of 2023. During the quarter, we saw higher contracted volumes on Trunk Line, Pebble, Gulf Run & MRT. This was offset by lower operational gas sales, maintenance project cost of $12 million, as well as a $35 million reduction in revenue for shipper refunds related to our Pebble rate case. For the Intrastate segment, adjusted EBITDA was $328 million, compared to $216 million in the second quarter of last year. The increase was primarily due to approximately $75 million of an increased gains related to pipeline optimization opportunities, as well as favorable storage optimization opportunities. “
7. Mr. Cooper Group Inc. (NASDAQ:COOP)
Number of Hedge Fund Investors: 33
Mr. Cooper Group Inc. (NASDAQ:COOP) is a prominent player in the residential mortgage industry, offering services in mortgage servicing, origination, and asset management. The current low-interest-rate environment benefits the mortgage sector by boosting refinancing and new mortgage activity. With interest rates remaining favorable, Mr. Cooper Group Inc. (NASDAQ:COOP) is well-positioned to take advantage of these increased opportunities.
Recently, Mr. Cooper Group Inc. (NASDAQ:COOP)’s subsidiary, Nationstar Mortgage Holdings Inc., announced a $750 million offering of 6.5% Senior Notes due in 2029. These notes will have an annual interest rate of 6.5% and will mature on August 1, 2029.
Diamond Hill Select Strategy stated the following regarding Mr. Cooper Group Inc. (NASDAQ:COOP) in its Q2 2024 investor letter:
“Among our top individual contributors in Q2 were Amazon, Texas Instruments and Mr. Cooper Group Inc. (NASDAQ:COOP). Mortgage-servicing company Mr. Cooper Group is benefiting from a high interest-rate environment, which is supporting increased profitability in the mortgage-servicing business.”
Jay Bray, Chairman, President, and CEO of Mr. Cooper Group, shared this during their most recent earnings call:
“For the second quarter, pre-tax operating income came in at $219 million, which is up 46% year-over-year. Operating ROTCE was 15.3%, up nearly 400 basis points from a year ago. At the end of last year, we said we expected ROTCE in a range of 14% to 18% in 2025.
We’re pleased to be in that range already, and we’re feeling positive about our momentum heading into next year. I’m super excited with the 17% year-over-year increase in TBV, which reached $68.67 at the end of the quarter. This was a function of earnings plus stock repurchase, which has reduced the share count by 4% over the last year and by a cumulative 35% since inception. The Board approved an additional $200 million for stock repurchase. I would add that despite stock repurchase and asset growth, we’ve maintained a rock-solid balance sheet with our capital ratio still above our stated target range and ample liquidity. Turning to operations. The servicing team produced fantastic results with $288 million in pre-tax income, up a massive 58% from a year ago.
These results reflect strong growth with the portfolio ending the quarter at $1.2 trillion together with exceptional efficiency gains. In fact, you couldn’t ask for a better demonstration of operating leverage. Now shifting to originations where the environment remains challenging. Pre-tax operating income was $38 million, which was at the high end of our guidance thanks to strong execution in both our DTC and correspondent channels. Now let’s turn to Slide 4 and take you through the transaction with Flagstar. We announced we’re acquiring Flagstar’s mortgage operation from $1.4 billion in cash. This is a simple transaction structure in that it’s an acquisition of assets not a business combination. The assets include Flagstar’s MSRs and advances, which totals $1.2 billion; its subservicing business with total UPB of $270 billion as well as a third-party lending platform.
Additionally, we will subservice $9 billion in Flagstar loans remaining on their balance sheet. The total UPB is approximately $356 billion. The acquisition will be funded with cash on hand and MSR line draws. Flagstar servicing operations will be integrated onto our platform in a quick efficient and thoughtful manner.”
6. Lithia Motors Inc. (NYSE:LAD)
Number of Hedge Fund Investors: 39
Lithia Motors Inc. (NYSE:LAD) is a leading U.S. automotive retailer with a strong presence in both new and used vehicle sales. Lithia Motors Inc. (NYSE:LAD) has demonstrated impressive financial health, marked by steady revenue growth, solid profits, and positive cash flow.
Lithia Motors Inc. (NYSE:LAD) is also focusing on improving its online sales and digital capabilities, which aligns with the increasing trend toward e-commerce in the automotive industry. Additionally, Lithia Motors Inc. (NYSE:LAD)’s track record of successful acquisitions helps it expand its market reach and improve operational efficiency, positioning it well for future growth.
Financial analyst Diesel views Lithia Motors Inc. (NYSE:LAD) as a strong long-term investment due to its history of strong performance. Over the past decade, Lithia Motors Inc. (NYSE:LAD) has grown its free cash flow at a 25% annual rate, well above its peers. Additionally, Lithia Motors Inc. (NYSE:LAD) has demonstrated strong financial performance, with a revenue growth of 13.8% and a non-GAAP EPS of $7.87 for the quarter, exceeding analysts’ expectations of $7.04.
Bryan DeBoer, CEO of Lithia Motors, shared the following during their latest earnings call:
“Now on to key results for the second quarter. Lithia and Driveway grew revenues to $9.2 billion up 14% from Q2 of last year. While vehicle operations experienced headwinds as a result of the CDK outage, prior to the outage, Q2 had strong improvements in our same-store sales and delivered good momentum in our cost savings efforts.
Diving into same-store sales performance, total same-store revenues were down 6.4% and gross profits declined 12.5%. Consumers remain resilient despite recent trends that reflect challenges from affordability and higher interest rates with unit sales in the quarter down only 3%. Total vehicle gross profit per unit remained resilient in the quarter at $47.62 similar to last quarter and down $951 compared to the same period a year ago. Our aftersales business was down 1.4% in the quarter. This decline is primarily related to CDK which drove after sales down almost 40% during the 12 days of the outage. We expect some of the work will be deferred into early July as our systems and processes return to normal. Our teams have been nimble and responsive, and we do not expect any long-term impacts.
Our investment adjacencies are maturing nicely as they move towards sustainable and considerable profitability. Financing operations produced strong results with income of $7.2 million in the quarter compared to $18.7 million loss last year, achieving profitability earlier than expected. Driveway and GreenCars burn rates have also been reduced by 40% compared to a year ago as we continue to refine our e-commerce strategies, improve operating and advertising efficiencies and convert new customers. All in, we generated adjusted diluted earnings per share of $7.87 a decrease of 28% from Q2 of last year with an estimated $1.10 impact from the CDK outage. We saw clear strength in operational performance in the second quarter, and we’re on pace for nearly a 50% increase in sequential EPS.
We continue to focus on unlocking the profitability of our ecosystem by decisively acting to meet customer demands and operate efficiently by delivering on our core strength execution. Moving on to our unique and extremely difficult to replicate strategy. The foundation of the LAD strategy is our vast physical network built upon the industry’s most talented people, highest demand inventory and dense physical network. We continue to build the most extensive physical network in North America and the UK, adding new stores, foundational adjacencies and strategic partnerships, such as wheels, to expand our customer experiences and diversify our portfolio. Operating in the largest addressable retail market in the world, we continue to strengthen our ability to profitably grow across all elements of our business.”
5. The Cigna Group (NYSE:CI)
Number of Hedge Fund Investors: 61
The Cigna Group (NYSE:CI) is a leading player in the global health services market, offering a wide range of health insurance products and services. Its diverse revenue streams, spanning health insurance, pharmacy services, and international operations, help spread risk and create various growth opportunities. The increasing demand for healthcare and insurance coverage supports a positive outlook for The Cigna Group (NYSE:CI)’s long-term growth.
The Cigna Group (NYSE:CI)’s focus on “services-only” commercial memberships, which are fee-based rather than risk-based, helps protect it from rising medical costs. The Cigna Group (NYSE:CI)’s Evernorth segment, which includes Healthcare Services and the specialty pharmacy Accredo, is expected to grow at a high single-digit rate shortly. According to analyst Marcel Knoop, given the stock’s low valuation and expected mid-single-digit earnings growth, The Cigna Group (NYSE:CI) appears attractive at its current price.
David Cordani, CEO of Cigna, shared the following during their latest earnings call:
“For the second quarter, I’m pleased to report that the Cigna Group delivered total revenue of $60.5 billion and adjusted earnings per share of $6.72. We achieved these positive overall results in a dynamic environment, and I’m proud of our team for continuing to focus on those we serve, ensuring that they get care of the need, to get their medications at an affordable cost and they get the support they need in order to make the best decisions about their health and vitality.
All of this requires a relentless focus on innovation, disciplined execution and a passionate commitment to our mission. During the quarter, our Evernorth Health Service businesses demonstrated continued strength with our market-leading specialty and pharmacy benefit services capabilities. Within Evernorth, I’ll start with our accelerated growth specialty and care businesses, which provides specialty drugs for the treatment of complex and rare diseases, distribution of specialty pharmaceuticals as well as clinical programs to help clients improve health and vitality. We saw strong growth in the quarter with adjusted income growing 12% year-over-year, reflecting continued demand for our services while we also continue to invest in broadening our offerings and expanding our reach.
In Accredo, our specialty business, our growth continues to be fueled by secular tailwinds as well as Accredo’s differentiated strength which makes us the market leader in the space. Biosimilars, for example, represent a force of change and a substantial opportunity for continued growth and impact. At the end of June, we began dispensing our interchangeable biosimilar for Humira. Our program has zero dollar out-of-pocket cost for patients, saving them on average $3,500 per year. To deliver these savings, we have agreements in place with multiple manufacturers that will produce biosimilars for Evernorth pharmaceutical distributor, Quallent Pharmaceuticals. Now the biosimilar opportunity goes well beyond Humira. By 2030, we expect an additional $100 million of annual specialty drug spend in the U.S. will be subject to biosimilar and generic competition.
And Accredo is well positioned to deliver differentiated value for our clients, customers and patients. In our care services businesses, we are continuing to grow and expand in key areas of increased demand, including behavioral health, virtual and home care. For example, in summer, we further expanded Evernorth behavioral care group to an additional seven states. We are seeing positive patient outcomes from our unique clinician matching capabilities based on individual needs and preferences with fully 84% of patients experiencing clinically significant reductions in the depression and anxiety symptoms. Now shifting to Express Scripts, our foundational pharmacy benefit services businesses, we are seeing continued strong client demand given our breadth of clinical and supply chain expertise as well as our proven partnership orientation.”
4. Elevance Health, Inc. (NASDAQ:ATAI)
Number of Hedge Fund Investors: 79
Elevance Health, Inc. (NASDAQ:ATAI), formerly Anthem, is a major U.S. health insurer with a strong presence across individual, group, and government health plans. Elevance Health, Inc. (NASDAQ:ATAI) is expanding its market reach and improving its services by investing in technology, data analytics, and new products. These efforts have led to significant growth in its membership base and strengthened its competitive position.
In July 2024, Elevance Health, Inc. (NASDAQ:ATAI) acquired BioPlus, a top specialty pharmacy provider, to enhance its pharmacy services and manage complex drug therapies more effectively. Elevance Health, Inc. (NASDAQ:ATAI) also formed a partnership with LifePoint Health to improve access to quality care in rural and underserved areas by integrating its services with LifePoint’s network of hospitals. Additionally, in August 2024, Elevance Health, Inc. (NASDAQ:ATAI) launched Elevance Connect, a digital health platform offering personalized health management tools, virtual care services, and advanced data analytics, further advancing its service capabilities.
Analyst Marcel Knoop maintains a buy rating on Elevance Health, Inc. (NASDAQ:ATAI) despite a modest upside potential of 2%. Knoop is optimistic for two main reasons. First, Elevance Health, Inc. (NASDAQ:ATAI)’s 6% free cash flow yield and its projected growth of mid to high single digits could result in low double-digit returns for investors. He believes that for long-term investors, the stock’s valuation is less critical compared to the potential for future returns. Second, Knoop’s analysis uses conservative growth estimates, meaning there’s a good chance for better-than-expected performance.
Baron Health Care Fund stated the following regarding Elevance Health, Inc. (NYSE:ELV) in its Q2 2024 investor letter:
“We added to the position in Elevance Health, Inc. (NYSE:ELV), a leading managed care company. We think Elevance Health is well positioned to grow earnings double digits driven in part by its growing health care services business. Managed health care stocks continued to be weighed down by Medicare Advantage utilization and reimbursement concerns. Lack of near-term visibility on utilization trends was exacerbated by the Change Healthcare cyberattack, which disrupted payors’ normal utilization review and claims adjudication processes while new CMS rules are restricting the number of lower cost hospital observation stays in favor of full inpatient admissions. We believe our managed care holdings are likely to perform better in the second half of the year as investors look to 2025.
Elevance Health, Inc., with its more balanced member mix, has its own unique and unappreciated growth drivers which include the ongoing scaling of its PBM and Specialty Pharmacy and the continued growth of its Carelon Services. We note a Republican win in the upcoming election could result in a more favorable environment for Medicare Advantage companies after two years of adverse Medicare Advantage rate updates under the Biden administration.”
3. Vertiv Holdings Co.(NYSE:VRT)
Number of Hedge Fund Investors: 85
Vertiv Holdings Co.(NYSE:VRT) operates in the infrastructure sector, offering solutions like uninterruptible power supplies (UPS), cooling systems, and IT infrastructure management. Despite uncertainties surrounding AI monetization, Vertiv Holdings Co.(NYSE:VRT)’s management reports a growing multi-year backlog and expanding profit margins.
Vertiv Holdings Co.(NYSE:VRT) has also made significant progress in monetizing its existing and future data center installations through enhanced service management and predictive maintenance. These initiatives are reflected in a healthier balance sheet, highlighting Vertiv Holdings Co.(NYSE:VRT)’s capability to finance future growth opportunities, particularly as the next cloud super cycle approaches. This strong financial position and strategic focus on expanding its service base support a bullish outlook for Vertiv Holdings Co.(NYSE:VRT).
Despite uncertainties about AI monetization, Vertiv Holdings (NYSE:VRT) shows strong potential due to its growing backlog and improving profit margins. Vertiv Holdings (NYSE:VRT) is enhancing its financial stability with better service management and predictive maintenance of data center assets. This positions Vertiv well for future growth, especially with the upcoming cloud super cycle.
Baron Small Cap Fund stated the following regarding Vertiv Holdings Co (NYSE:VRT) in its Q2 2024 investor letter:
“Vertiv Holdings Co (NYSE:VRT) a leading provider of critical digital infrastructure for data centers, contributed during the quarter. As an industry leader in data center cooling and power management, Vertiv is poised to benefit from AI-driven growth in data center spend. The NVIDIA partner network, strong industry relationships, and broad product portfolio that Vertiv maintains enables its participation in the creation of the technology roadmap for the future of the data center. In addition, Vertiv is investing in its capacity to serve this growing end market more effectively. The company also has an extensive global service network to aid customers as they grow. We believe the company has durable competitive advantages and a flexible balance sheet to benefit from the expected significant capital investment in data centers for years to come. Vertiv reported very strong results for the March quarter, with orders up 60%, which highlighted the strong demand it is seeing for its products. We sold some of our position into strength after the runup from the positive report, but still hold a major position in the Fund as we see considerable upside in the shares over time.”
2. Citigroup Inc. (NYSE:C)
Number of Hedge Fund Investors: 94
Citigroup Inc. (NYSE:C), based in New York City, is a major global financial services company. Citigroup Inc. (NYSE:C) offers a broad range of financial products and services, including banking, investment, and wealth management. With a large network of branches and subsidiaries around the world, Citigroup Inc. (NYSE:C) serves millions of clients through its consumer, corporate, and investment banking segments.
When asked about Citigroup Inc. (NYSE:C), Leon Cooperman mentioned that he currently owns shares in the bank. He noted that banks face structural issues and are hesitant to lend, despite that being their primary business.
“I own Citi, I own it right now. Banks have structural problems. They’re afraid to lend to people, and that’s the business they’re in.”
Citigroup Inc. (NYSE:C) is seen as a strong investment due to its solid capitalization and well-balanced business model. According to IP Banking Research analysts, even if a U.S. recession leads to challenges like falling interest rates, higher loan losses, and increased trading volatility, Citigroup Inc. (NYSE:C)’s diverse business activities and cautious financial practices help shield it from these risks.
Citigroup Inc. (NYSE:C) is also working on improving its efficiency through restructuring and has made notable progress in enhancing credit quality and reducing bad loans. With its stock priced lower than many of its peers, Citigroup Inc. (NYSE:C) offers a promising opportunity for value investors. Analysts expect that as the bank continues its strategic improvements and investor sentiment potentially rises, Citigroup Inc. (NYSE:C)’s stock could experience significant gains.
IP Banking Research projects Citigroup Inc. (NYSE:C)’s value at $80 by 2026, based on a valuation of 0.8 times a $100 target value. This estimate is conservative, assuming the bank will achieve a return on tangible common equity (ROTCE) of about 10% by 2026, which is lower than the management’s guidance of 11% to 12%. Despite this conservative forecast, the analyst remains very bullish on Citigroup Inc. (NYSE:C) and plans to increase their investment if market conditions present further opportunities.
Diamond Hill Capital Long-Short Fund stated the following regarding Citigroup Inc. (NYSE:C) in its first quarter 2024 investor letter:
“Other top Q1 contributors included Meta Platforms, Citigroup Inc. (NYSE:C) and Walt Disney. Banking and financial services company Citigroup’s restructuring efforts are ongoing, and it continues remediating regulatory issues and building capital in anticipation of increased requirements. The company expects to see expenses fall meaningfully in the second half of 2024, bolstering the outlook from here.”
1. Microsoft Corporation (NASDAQ:MSFT)
Number of Hedge Fund Investors: 293
Microsoft Corporation (NASDAQ:MSFT) is a top technology company known for its software, cloud services, and cutting-edge solutions. Microsoft Corporation (NASDAQ:MSFT) is a major industry player with a wide range of products, including Windows, Office 365, and its strong cloud platform, Azure.
Leon Cooperman highlighted his investment in Microsoft Corporation (NASDAQ:MSFT) as a key technology holding. He noted that while Microsoft Corporation (NASDAQ:MSFT) may not be cheap, the current market rotation is significant and suggests that the market’s optimism, particularly around extreme valuations in top tech stocks, might be overly optimistic.
“I own Microsoft. It’s my window into technology. While I wouldn’t say it’s a particularly cheap stock, I do believe this market rotation is real. Historically, markets that have experienced rotation often enter a corrective phase. The shift from extreme valuations in the ‘Magnificent 7’ suggests that something else is at play, and a flat market might be overly optimistic.”
For Q4 FY2024, Microsoft Corporation (NASDAQ:MSFT) achieved annual revenue of over $245 billion, marking a 15% increase from the previous year, with cloud revenue growing 23% to exceed $135 billion. Earnings per share (EPS) reached $3.06, surpassing the $2.98 forecast. Azure, Microsoft’s cloud service, saw a 20% revenue increase, reinforcing its top position in the cloud market. The $69 billion acquisition of Activision Blizzard, Inc. (NASDAQ:ATVI) boosts Microsoft Corporation (NASDAQ:MSFT)’s gaming and entertainment offerings, further integrating these with its cloud services. New releases like Windows 12 and updates to Office 365 show Microsoft Corporation (NASDAQ:MSFT)’s ongoing innovation.
ClearBridge Sustainability Leaders Strategy stated the following regarding Microsoft Corporation (NASDAQ:MSFT) in its Q2 2024 investor letter:
“The Strategy trailed the Russell 3000 Index benchmark largely due to our diversified positioning, although we maintain a considerable portfolio allocation to large cap AI-related companies. These positions were indeed among our top contributors in the quarter, such as Microsoft Corporation (NASDAQ:MSFT). The company is finding more ways to deploy AI for sustainability objectives such as its ability to better measure, predict and optimize complex systems, which can help its partner communities reduce wildfire risk.”
While we acknowledge the potential of Microsoft Corporation (NASDAQ:MSFT), our conviction lies in the belief that under the radar 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 NVDA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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