In this article, we discuss the 5 value stocks hedge funds love. If you want to read our detailed review of these stocks and the latest market situation, go directly to Hedge Funds Love These 10 Value Stocks.
Citigroup Inc. (NYSE:C) is a financial services company based in New York. Oppenheimer analyst Chris Kotowski in early May noted that loan growth and rising interest rates present a good stimulus for the banking industry, and that investors should take advantage of the recent share price weakness. He kept an ‘Outperform’ rating on Citigroup Inc. (NYSE:C) shares and revised the price target to $93 from $100.
As of May 25, Citigroup Inc. (NYSE:C) offers its shareholders an impressive dividend yield of 3.87%. The company beat EPS estimates for the first quarter by $0.61. The revenue generated over Q1 2022 stood at $19.19 billon, above market estimates by $1.07 billion.
Out of the 912 hedge funds tracked by Insider Monkey at the close of the first quarter, Citigroup Inc. (NYSE:C) stock was held by 88 hedge funds with an aggregate value of $8.11 billion. Warren Buffett’s Berkshire Hathaway was by far the leading shareholder of Citigroup Inc. (NYSE:C) at the end of the first quarter, with a $2.94 billion stake consisting of more than 55 million shares.
Wells Fargo & Company (NYSE:WFC) is another financial services company that features on our list of value stocks that hedge funds love.
93 hedge funds from the database of Insider Monkey were stakeholders in Wells Fargo & Company (NYSE:WFC) at the close of the first quarter, with combined holdings worth $6.86 billion. Theleme Partners was the biggest shareholder of the company at the end of Q1 2022, with a stake worth roughly $885 million.
On April 18, Citi analyst Keith Horowitz reiterated a ‘Buy’ rating on Wells Fargo & Company (NYSE:WFC) with a $56 price target. He sees a buying opportunity owing to the recent share price weakness, and thinks the firm’s balance sheet remains very well positioned for higher interest rates.
For the quarter ending March, Wells Fargo & Company (NYSE:WFC) posted earnings per share of $0.88, exceeding estimates by $0.07. The company’s revenue over this period was $17.59 billion, which fell below analysts’ forecasts by $232.4 million.
Here is what Davis Funds had to say about Wells Fargo & Company (NYSE:WFC) in its Q4 2021 investor letter:
“The absolute level of revenues and profits generated by such companies is in fact so large that most of the major financial holdings in the portfolio produce enough annual operating income individually that a number of them could, in theory, purchase several entire businesses among hundreds of choices within the S&P 1500 Index, using just a year’s cash earnings without dipping into capital. This is theoretical, as financial companies would not be in the business of buying healthcare or technology companies, for example, but we point out these facts to illustrate the sheer scale of the economics produced by single financial companies in a given year, which is often a multiple of the cash earnings yielded by companies in a host of other industries.
Given this cash-generation power, we are naturally drawn to what we believe are strong and profitable financial institutions when the price is right. Presently, we believe the valuations of our financial holdings are not only reasonable, but extremely compelling, and our portfolio composition reflects this view. Representative financial holdings in the Fund include Wells Fargo.”
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.”
2. Berkshire Hathaway Inc. (NYSE:BRK-B)
Number of Hedge Fund Holders: 104
PE Ratio: 8.29
Berkshire Hathaway Inc. (NYSE:BRK-B) is a US-based business conglomerate with holdings in food, retail, energy and transportation. It recently bought a $5.1 billion stake in energy firm Occidental Petroleum (NYSE:OXY), boosting its holdings in the high-flying energy sector.
104 hedge funds held $19.06 billion worth of positions in the company at the end of March, as compared to 108 hedge funds a quarter ago. Bill & Melinda Gates Foundation Trust held 28.68 million shares of Berkshire Hathaway Inc. (NYSE:BRK-B) worth $10.12 billion, making it the firm’s largest shareholder at the end of Q1 2022. The trust has received yearly donations of Berkshire stock from chairman Warren Buffett for many years.
Berkshire Hathaway Inc. (NYSE:BRK-B) disclosed earnings per share of $3.18 for the first quarter, above estimates by $0.31. Revenue stood at $70.8 billion for the quarter, also outperforming consensus figures by $1.66 billion.
1. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Holders: 110
PE Ratio: 9.32
JPMorgan Chase & Co. (NYSE:JPM) is a bank holding company based in the United States. It offers a range of financial services including asset management, loans, brokerage and market research.
On May 24, BMO Capital analyst James Fotheringham kept a ‘Market Perform’ rating on JPMorgan Chase & Co. (NYSE:JPM) shares and bumped the price target to $156 from $150. He thinks the company will be a long-term market share winner among global banks, but sees a number of headwinds offsetting the near-term benefits of growing credit demand and rising interest rates.
In the first quarter, JPMorgan Chase & Co. (NYSE:JPM) recorded revenue of $30.72 billion, outperforming estimates by $318.5 million. Earnings per share came in below estimates by $0.08.
A total of 110 hedge funds were bullish on JPMorgan Chase & Co. (NYSE:JPM) at the close of Q1 2022, with combined holdings worth $5.05 billion. This shows growing investor confidence in the company over the previous quarter, where 107 hedge funds owned positions in the firm. Fisher Asset Management, with 7.76 million shares valued at $1.05 billion, was the largest shareholder of JPMorgan Chase & Co. (NYSE:JPM) at the end of Q1 2022.
Investment firm ClearBridge Investments highlighted a few stocks in its Q4 2021 investor letter, and JPMorgan Chase & Co. (NYSE:JPM) was one of them. Here’s what the fund said:
“Our energy and financials holdings kept pace in the 2021 rally. In financials, JPMorgan benefited from strong economic growth, a rise in Treasury yields, and a benign credit environment.”
You can also take a look at 10 Blue Chip Dividend Stocks Hedge Funds Are Buying and 10 Best Real Estate Stocks To Buy Now.
