Five Undervalued Stocks Billionaire Investors Like

Billionaires are some of the savviest investors on the planet today. Not only do investors such as Warren Buffett or Carl Ichan have great track records and elite investing intelligence, but also they have many of the world’s smartest minds working for them too. With their Ivy-League degrees and high IQs, many analysts who work for billionaires know things before the CEO knows them. In this article, we will take a closer look at five undervalued stocks that billionaire investors are in love with, including Apple Inc. (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), eBay Inc (NASDAQ:EBAY), Citigroup Inc (NYSE:C), and Pfizer Inc. (NYSE:PFE).

Most investors don’t understand hedge funds and indicators that are based on hedge funds’ activities. They ignore hedge funds because of their recent poor performance in the bull market. Our research indicates that hedge funds underperformed because they aren’t 100% long. Hedge fund fees are also very large compared to the returns generated and they reduce the net returns experienced by investors. We uncovered that hedge funds’ long positions actually outperformed the market. For instance the 15 most popular small-cap stocks among funds beat the S&P 500 Index by 52 percentage points since the end of August 2012. These stocks returned a cumulative of 102% vs. 48.6% gain for the S&P 500 Index (see the details here). That’s why we believe investors should pay attention to what hedge funds are buying (rather than what their net returns are).

#5 Pfizer Inc. (NYSE:PFE)

– Number of Billionaire Investors (as of September 30): 15

– Total Value of Holdings: $2.76 billion

Pfizer Inc. (NYSE:PFE) is one of the largest healthcare companies in the world. The company manufactures and markets numerous blockbuster drugs, such as Lyrica, Celebrex, and Norvasc and has a pipeline of promising drug candidates, including Palbociclib, PF-06290510, and PF-06425090, all of which have a billion-dollar-a-year potential. Many billionaires like the stock because Pfizer trades at a discount 13.55 times forward earnings estimates and pays a 3.5% dividend. Pfizer should also have increasing free cash flows, as it recently announced an impending $160 billion merger with Dublin-based drug maker Allergan, which will lower Pfizer’s tax rate substantially. Billionaire Cliff Asness’ AQR Capital Management is one of the shareholders of Pfizer, with his firm holding 16.92 million shares at the end of September.

#4 Citigroup Inc (NYSE:C)

– Number of Billionaire Investors (as of September 30): 16
– Total Value of Holdings (as of September 30): $2.20 billion

A total of 16 billionaires, including Ken Fisher of Fisher Asset Management are bullish on Citigroup Inc (NYSE:C) because the bank is ‘stupid cheap’. Not only do shares trade at 8.9 times forward earnings, but they also trade substantially under the bank’s tangible book value of around $59 per share. Many investors are optimistic as the dollar headwinds will eventually subside and the Federal Reserve’s recent 0.25 percentage points interest rate hike will increase the bank’s net interest margin and return on equity. At some point Citigroup will have the Fed’s permission to buy back a lot of stock and pay an attractive dividend, and when that time comes, its stock will trade substantially higher than it is trading for today.

#3 eBay Inc (NASDAQ:EBAY)

– Number of Billionaire Investors (as of September 30): 17
– Total Value of Holdings (as of September 30): $2.0 billion

Analysts are bullish on auction giant eBay Inc (NASDAQ:EBAY), which spun off Paypal Holdings Inc (NASDAQ:PYPL) a few months ago. 34 of the 36 analysts covering eBay have a ‘Buy’ or ‘Hold’ rating with the analysts at Goldman Sachs recently assigning the tech stock a ‘Buy’ rating and $33 price target. Billionaires are also optimistic, as 17 billionaires, including Seth Klarman of Baupost Group and Dan Loeb of Third Point, own the stock. Given eBay’s high margins, strong balance sheet, and recovering growth rate, eBay’s forward P/E of 13.93 and price-to-free-cash-flow ratio of 10.16 looks cheap. Shares are up 16.26% year-to-date.

#2 Microsoft Corporation (NASDAQ:MSFT)

– Number of Billionaire Investors (as of September 30): 18
– Total Value of Holdings (as of September 30): $7.47 billion

Although Microsoft isn’t as dominant as it was in the 90’s with the PC in secular decline, Microsoft Corporation (NASDAQ:MSFT) is still a behemoth. For the fiscal 2015, the company reported an adjusted $2.63 per share in profits on revenues of $93.6 billion, easily making Microsoft one of the most profitable companies in the world. Under the leadership of CEO Satya Nadella, Microsoft is also rapidly moving beyond the PC and into the forefront of many long-term growth sectors such as cloud computing, and augmented reality. 18 billionaires own the stock because it’s cheap with a forward P/E of 17.34 versus the NASDAQ’s 19.54, and because it has great growth prospects given the larger role that technology and productivity software will play in everyone’s lives moving forward.

#1 Apple Inc. (NASDAQ:AAPL)

– Number of Billionaire holders (as of September 30): 18
– Total Value of Holdings (as of September 30): $10.35 billion

A total of 18 billionaire investors from our database are fond of Apple Inc. (NASDAQ:AAPL), as the company Steve Jobs founded remains one of the cheapest large tech companies on the market today. Although it currently trades for 9.8 times forward earnings estimates, Apple is actually cheaper than that because the tech giant has around $200 billion of cash and investments on its balance sheet. When factoring 60% of that cash out (because of the tax hit to repatriate international earnings), Apple trades at a forward P/E of 7.8. As a bonus, Apple shares pay a 1.96% dividend yield, almost as much as the ten-year Treasury yield.

Disclosure: none