In this article, we discuss the 10 undervalued mid-cap stocks that hedge funds love. If you want to read about some more undervalued mid-cap stocks, go directly to Hedge Funds Love These 5 Undervalued Mid-Cap Stocks.
Fears of a recession in the United States economy are growing again, merely a couple of years after the pandemic crash of 2020. According to a survey by news platform CNBC, over 80% of the adults in the US think that the economy is “likely to experience a recession in 2022”. A recession is defined, per the National Bureau of Economic Research, as a “significant decline in economic activity that is spread across the economy and lasts more than a few months”. This decline is hard to see given recent unemployment rates and consumer buying patterns. However, the rising inflation is most likely the main factor behind the recession concerns.
As inflation continues to climb, people will stop buying, leading to a slowdown in overall business activity and a rise in unemployment. The central bank will be forced to raise interest rates to curb prices and this will lead to a further dent in growth. Another indicator of a looming recession is the yield curve between the 2-year and 10-year US Treasury bonds that has inverted for the first time since 2019. The housing, food, and energy sectors have seen prices climb to record highs recently and will be hit as the buying patterns change.
In this overall market environment, it might be a good idea for investors to prepare their portfolios for a potential slowdown, boosting their stakes in firms with established businesses and reliable earnings. Some of the top undervalued stocks to buy now according to hedge funds include Morgan Stanley (NYSE:MS), Intel Corporation (NASDAQ:INTC), and U.S. Bancorp (NYSE:USB), among others discussed in detail below.
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Our Methodology
We used Insider Monkey’s database to find the most popular mid-cap stocks among elite hedge funds in the world. From these stocks, we picked the ones with Price-to-Earning (PE) ratios less than 15.
Hedge Funds Love These Undervalued Mid-Cap Stocks
10. Capri Holdings Limited (NYSE:CPRI)
Number of Hedge Fund Holders: 43
PE Ratio: 14.23
Capri Holdings Limited (NYSE:CPRI) makes and sells branded apparel, accessories, and luxury goods. In early February, the firm posted earnings for the third quarter, reporting earnings per share of $2.22, beating market expectations by $0.53. The revenue over the period was $1.6 billion, up over 23% year-on-year and beating estimates by $140 million. The operating margin was around 19%. For 2022, the company guided revenue to around $5.56 billion against consensus estimates of $5.34 billion.
On March 8, Morgan Stanley analyst Kimberly Greenberger maintained an Overweight rating on Capri Holdings Limited (NYSE:CPRI) stock with a price target of $80, noting that concerns around a management change at the firm were “overblown” and the fundamentals remained intact.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Rima Senvest Management is a leading shareholder in Capri Holdings Limited (NYSE:CPRI) with 5.3 million shares worth more than $345 million.
Just like Morgan Stanley (NYSE:MS), Intel Corporation (NASDAQ:INTC), and U.S. Bancorp (NYSE:USB), Capri Holdings Limited (NYSE:CPRI) is one of the stocks that elite investors are flocking to as inflation rises.
In its Q4 2021 investor letter, Alger, an asset management firm, highlighted a few stocks and Capri Holdings Limited (NYSE:CPRI) was one of them. Here is what the fund said:
“Capri Holdings Limited (NYSE:CPRI) is a global fashion luxury group consisting of three brands: Michael Kors, accounting for 72% of fiscal year 2021 sales, Jimmy Choo, accounting for 10% of sales, and Versace, accounting for 18% of sales. The brands cover various fashion categories, including women’s and men’s accessories, footwear, ready-to-wear, wearable technology, watches, jewelry, eyewear and fragrance products. Capri Holdings Limited (NYSE:CPRI) mainly operates within the $70 billion accessories segment of the global luxury market, which is growing 5% to 6% annually. Capri shares outperformed in the last three months of 2021 after the company reported strong results for the fiscal quarter ended September 25. Revenue, margins and earnings per share all beat management’s internal expectations, and the company raised its fiscal year 2022 outlook for all three brands, despite supply chain pressure. Capri Holdings Limited (NYSE:CPRI) also approved a new two-year share repurchase program of up to $1 billion, replacing its existing $500 million program, which had $250 million of availability remaining.”
9. CRISPR Therapeutics AG (NASDAQ:CRSP)
Number of Hedge Fund Holders: 34
PE Ratio: 14.08
CRISPR Therapeutics AG (NASDAQ:CRSP) operates as a gene-editing firm. In early February, the company announced that it had begun dosing in the first phase trial of a gene-edited replacement therapy to treat diabetes. The therapy is a combination of the gene-editing capabilities of CRISPR along with the stem-cell tech developed by ViaCyte. According to the two companies, the immune-evasive cell replacement therapy is designed to enable patients to produce their own insulin.
On February 16, SVB Leerink analyst Rick Bienkowski maintained an Outperform rating on CRISPR Therapeutics AG (NASDAQ: CRSP) stock and raised the price target to $126 from $120, noting that the firm had many important top-line data results due in 2022 that could act as growth catalysts for the stock.
At the end of the fourth quarter of 2021, 34 hedge funds in the database of Insider Monkey held stakes worth $994 million in CRISPR Therapeutics AG (NASDAQ:CRSP), compared to 43 in the preceding quarter worth $1.2 billion.
8. Valvoline Inc. (NYSE:VVV)
Number of Hedge Fund Holders: 39
PE Ratio: 13.80
Valvoline Inc. (NYSE:VVV) markets automotive maintenance products. The firm has an impressive dividend history. It has paid a growing dividend to shareholders consistently for the past five years. On January 24, it declared a quarterly dividend of $0.125 per share, in line with previous. The forward yield was 1.48%. In early February, the company also beat market estimates on earnings per share and revenue for the first quarter of 2022 by $0.03 and $31 million respectively.
Valvoline Inc. (NYSE:VVV) is also expanding services in the EV sector as EV sales skyrocket across the globe. On February 7, the firm announced that it would be piloting EV-related services in a limited number of retail stores with plans to expand in the coming months.
Among the hedge funds being tracked by Insider Monkey, New York-based firm Brave Warrior Capital is a leading shareholder in Valvoline Inc. (NYSE:VVV) with 7.4 million shares worth more than $279 million.
In its Q2 2021 investor letter, Wasatch Core Growth Fund highlighted a few stocks and Valvoline Inc. (NYSE:VVV) was one of them. Here is what the fund said:
“Another significant contributor was Valvoline Inc. (NYSE:VVV), a company that manufactures lubricants and car parts and operates oil-change service centers. In addition to benefiting from the economic reopening, the company has discovered the advantages of making a mobile app available. Valvoline Inc. (NYSE:VVV) customers can use the app to find the closest service center and view live estimated wait times. Certainly, the adoption of technology to improve productivity and convenience isn’t a new theme. But we see mobile digitalization as a highly disruptive innovation that creates additional relationships among companies, distributors and customers. As a result, mobile digitalization is a competitive consideration in more and more of the companies that we evaluate for investment. In the first quarter, Valvoline’s stock declined partially because investors worried about the increasing popularity of electric vehicles (EVs)—which are much less dependent on petroleum products. But the stock rebounded in the second quarter, we think partly based on the realization that EVs still represent a tiny percentage of new cars sold and an even smaller percentage of cars in service. Moreover, Valvoline Inc. (NYSE:VVV) reported strong earnings and raised projections for the future.”
7. Tapestry, Inc. (NYSE:TPR)
Number of Hedge Fund Holders: 48
PE Ratio: 12.56
Tapestry, Inc. (NYSE:TPR) provides luxury accessories and branded lifestyle products. On February 10, the firm posted earnings for the second fiscal quarter of 2022, reporting earnings per share of $1.33, beating estimates by $0.14. The revenue over the period was $2.1 billion, smashing expectations by $140 million. On February 17, the company also declared a quarterly dividend of $0.25 per share, in line with previous. The forward yield was 2.44%. The dividend was paid to shareholders of note in early March.
On March 14, Bernstein analyst Aneesha Sherman initiated coverage of Tapestry, Inc. (NYSE:TPR) stock with an Outperform rating and a price target of $62, noting that the anchor brand of the firm was a “high-quality, high-performing brand that has plenty of runway to grow both volume and price”.
At the end of the fourth quarter of 2021, 48 hedge funds in the database of Insider Monkey held stakes worth $827 million in Tapestry, Inc. (NYSE:TPR), compared to 41 in the preceding quarter worth $887 million.
In its Q3 2021 investor letter, Ariel Investments highlighted a few stocks and Tapestry, Inc. (NYSE:TPR) was one of them. Here is what the fund said:
“Luxury accessory and lifestyle brand, Tapestry, Inc. (NYSE:TPR) was the top contributor to performance over the trailing one-year period. Revenue improvement across all three brands with a notable increase in consumer demand, particularly for the Coach business, triple-digit growth in e-commerce, and better than expected pricing, drove margins higher. Looking ahead, we expect Tapestry’s supply chain and SKU rationalization initiatives to continue to deliver margin expansion. Together, with early signs of improved receptivity for the Kate Spade brand, we believe a significant value creation opportunity lies ahead.”
6. Univar Solutions Inc. (NYSE:UNVR)
Number of Hedge Fund Holders: 34
PE Ratio: 11.95
Univar Solutions Inc. (NYSE:UNVR) markets commodity and specialty chemical products. These include chemicals for cleaners, detergents, disinfectant products, as well as for lubricants and metalworking fluids. On March 15, the company announced that it had signed a new distribution deal with Particle Dynamics to expand the suite of chemical product offerings for customers in the US. The firm has also recently expanded a global distribution partnership with Dow Organics.
On March 22, Bank of America analyst Steve Byrne upgraded Univar Solutions Inc. (NYSE:UNVR) stock to Buy from Underperform and raised the price target to $41 from $32, noting that the risk/reward for chemical stocks was more balanced given recent reratings in light of inflation.
Among the hedge funds being tracked by Insider Monkey, New York-based investment firm Lyrical Asset Management is a leading shareholder in Univar Solutions Inc. (NYSE:UNVR) with 5.3 million shares worth more than $151 million.
Alongside Morgan Stanley (NYSE:MS), Intel Corporation (NASDAQ:INTC), and U.S. Bancorp (NYSE:USB), Univar Solutions Inc. (NYSE:UNVR) is one of the stocks that hedge funds have on their radar as interest rates rise.
In its Q4 2021 investor letter, Rhizome Partners highlighted a few stocks and Univar Solutions Inc. (NYSE:UNVR) was one of them. Here is what the fund said:
“Univar Solutions Inc. (NYSE:UNVR) reported a sharp rebound in performance relative to 2020. The company has largely completed its integration of the Nexeo acquisition, with little business interruption, a sharp contrast to Calumet Specialty’s experience. Univar is starting to show its true earnings power.”
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Disclosure. None. Hedge Funds Love These 10 Undervalued Mid-Cap Stocks is originally published on Insider Monkey.
