Hedge Funds Love These 5 Value Stocks

3. Bank of America Corporation (NYSE:BAC)

Number of Hedge Fund Holders: 99

PE Ratio: 10.13

Bank of America Corporation (NYSE:BAC) is up next on our list of undervalued stocks that hedge funds love. It is a North Carolina-based bank holding company which offers a range of financial services to clients in the United States. It pays a sustainable dividend yield of 2.34% as of May 25, and boasts 8 consecutive years of dividend increases.

With a huge stake worth $41.6 billion, Warren Buffett’s Berkshire Hathaway was the leading shareholder of Bank of America Corporation (NYSE:BAC) shares at the end of March. In total, 99 hedge funds reported long bets on the company shares at the close of Q1 2022, as compared 84 in the preceding quarter.

On May 3, Oppenheimer analyst Chris Kotowski gave Bank of America Corporation (NYSE:BAC) an ‘Outperform’ rating and a price target of $50, down from $52. He stated that investors should benefit from the firm’s share price weakness, given that banks tend to do well amid rising interest rates and a growth in loans.

Bank of America Corporation (NYSE:BAC) recently announced its Q1 earnings, and earnings per share came in at $0.80, beating estimates by $0.06. The company raked in $23.23 billion in revenue for the quarter, also outperforming analysts’ forecasts by $135.8 million.

Investment firm Miller Value Partners talked about Bank of America Corporation (NYSE:BAC) in its Q1 2022 investor letter. Here’s what the fund said:

“There are many times when volatility and beta give false signals. Banks outperformed in the post-tech bubble bear market of the early 2000s. At the market peak prior to the financial crisis (when risk was the highest in those names!), Bank of America (NYSE:BAC) had a 0.9x beta (based on the trailing 5 years) suggesting its “risk” was below the market’s. Wrong! It massively underperformed in the financial crisis. Realized beta over the 5 years from the pre-crisis’ 2006 peak measured 2.3x.

A much better indicator of actual risk, both before and after the financial crisis, was the quality of the balance sheet and risk-taking appetite. Beta is backwards looking and non-stationary. Relying on it underestimated risk going into the financial crisis and overestimated coming out of it (its beta has continued to fall over the past decade).

We care greatly about risk. We spend a significant amount of time thinking about the risks to our investments. We measure risk as permanent impairment of capital, which means the prices and values don’t bounce back. Business fundamentals determine risk.”