In this article, we discuss 10 undervalued S&P 500 stocks billionaires are loading up on. You can skip our detailed analysis of value stocks and their performance, and go directly to read 5 Undervalued S&P 500 Stocks Billionaires Are Loading Up On.
The value investing approach, popularized by Benjamin Graham and practiced by billionaire Warren Buffett, has attracted the attention of numerous other successful money managers, especially since growth stocks started taking a beating in 2022. Globally, value stocks declined by over 7% last year, compared to a 28.6% drop in growth equities. In the US, the outperformance of value stocks was the highest since the dot-com crash in 2000. In our article titled 12 Cheap Dividend Stocks With High Yields, we reported an analysis from Dimensional Funds, highlighting that value stocks outperformed their growth counterparts by 4.1% annually in the US from 1927 to 2021.
Also read: 16 Most Profitable Value Stocks Now
Goldman Sachs reported that value stocks dominated growth equities between 1970 and 2007 on a cumulative basis. On the other hand, growth outperformed from mid-2007 until 2020, when the pandemic hit the market, giving way to value stocks all over again. The report pointed out that the success of either of these strategies is characterized by economic growth. Value stocks tend to outperform when inflation is high, whereas growth equities dominate during low inflationary periods.
Analysts have a positive outlook on value investing for the near future, even though growth stocks are outperforming so far in 2023. John D. Linehan, portfolio manager at T. Rowe Price, discussed in a report that the ongoing market conditions favor value stocks as central banks are unlikely to cut interest rates this year. Here is an excerpt from the report:
“I believe that an extended period of higher interest rates and the maturing of the recent period of disruptive technology may establish a better environment for value stocks. This is not to suggest that value will dominate the next 10 years in the way that growth has dominated the past 10, but it does mean that value investing is likely to play a more important role in investor portfolios as higher rates create broader earnings growth and investors focus more on cash flows.”
The positive outlook for value investing has billionaires flocking toward value stocks this year. In this article, we will take a look at undervalued S&P 500 stocks billionaires are loading up on. Some of these include Citigroup Inc. (NYSE:C), Albemarle Corporation (NYSE:ALB), and American International Group, Inc. (NYSE:AIG).
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Our Methodology:
For this article, we first used the Finviz stock screener to identify 25 S&P 500 companies with the lowest forward P/E ratios, as of June 5. From that list, we selected 10 companies that have the highest number of billionaire investors, tracked by Insider Monkey as of Q1 2023. We also measured the overall hedge fund sentiment around each stock using our database of 943 elite funds. The forward P/E ratio of these stocks is below 10. We ranked them according to the number of billionaire investors having stakes in them.
10. Comerica Incorporated (NYSE:CMA)
Number of Billionaire Investors: 10
Forward P/E Ratio as of June 5: 4.30
Comerica Incorporated (NYSE:CMA) is a Texas-based financial services company that provides services in commercial and retail banking and wealth management. In the first quarter of 2023, the company reported revenue of $990 million, up 41.4% from the same period last year. Its net interest income for the quarter came in at $708 million, up from $456 million in the prior-year quarter.
Following the company’s strong quarterly earnings, JPMorgan upgraded Comerica Incorporated (NYSE:CMA) to Overweight in May with a $46 price target. 10 billionaires in our database held investments in the company, including Ken Griffin and D. E. Shaw. Other undervalued stocks popular among billionaires include Citigroup Inc. (NYSE:C), Albemarle Corporation (NYSE:ALB), and American International Group, Inc. (NYSE:AIG).
Comerica Incorporated (NYSE:CMA) is also a dividend stock and pays a quarterly dividend of $0.71 per share, having it raised by 4% in March. The stock has a dividend yield of 6.92%, as of June 5.
The number of hedge funds tracked by Insider Monkey owning stakes in Comerica Incorporated (NYSE:CMA) grew to 46 in Q1 2023, from 37 in the previous quarter. These stakes have a collective value of $691.7 million.
9. Devon Energy Corporation (NYSE:DVN)
Number of Billionaire Investors: 10
Forward P/E Ratio as of June 5: 5.29
Devon Energy Corporation (NYSE:DVN) is an American energy company that specializes in the exploration of hydrocarbons. In May, Stifel maintained a Buy rating on the stock with a $71 price target, after the company updated its estimates for annual results.
Devon Energy Corporation (NYSE:DVN) generated $3.8 billion in revenues in the first quarter of 2023, up 0.3% from the same period last year. The company’s free cash flow for the quarter came in at $665 million. It announced a $0.72 per share fixed-plus-variable dividend on May 8. The stock’s dividend yield on June 5 came in at 9.31%.
Devon Energy Corporation (NYSE:DVN) was one of the most popular undervalued stocks among billionaires. Overall 49 hedge funds tracked by Insider Monkey owned stakes in the company at the end of Q1 2023, worth collectively $570.7 million. Billionaire Donald Yacktman’s Yacktman Asset Management was the company’s leading stakeholder in Q1.
8. APA Corporation (NASDAQ:APA)
Number of Billionaire Investors: 11
Forward P/E Ratio as of June 5: 5.45
APA Corporation (NASDAQ:APA) is an energy holding company, based in Texas, US. It is among the most popular undervalued S&P 500 stocks among billionaires as 11 billionaires in our database, including Cliff Asness and Ken Griffin, owned stakes in the company in Q1 2023.
In the first quarter of 2023, APA Corporation (NASDAQ:APA) reported a strong cash position. The company’s operating cash flow came in at $335 million and its free cash flow stood at $272 million. It generated $2 billion in revenues during the quarter, which fell by 25% from the same period last year.
APA Corporation (NASDAQ:APA) pays a quarterly dividend of $0.25 per share and has a dividend yield of 3%, as recorded on June 5.
As of the close of Q1 2023, 36 hedge funds in Insider Monkey’s database reported having stakes in APA Corporation (NASDAQ:APA), with a collective value of over $255.2 million. With roughly 11 million shares, Harris Associates was the company’s largest stakeholder in Q1.
Ariel Investments mentioned APA Corporation (NYSE:APA) in its Q4 2022 investor letter. Here is what the firm has to say:
“Oil and natural gas explorer, APA Corporation (NASDAQ:APA) was the top contributor to relative returns in the period. Shares traded higher on strong U.S. well performance and upbeat guidance suggesting production is back on track in the North Sea and Egypt. Management also reiterated APA’s commitment to return 60% of free cash flow to shareholders through dividends and repurchases. In our view, this suggests significant buyback activity in the upcoming quarter, highlighting an attractive return of capital.”
7. EQT Corporation (NYSE:EQT)
Number of Billionaire Investors: 12
Forward P/E Ratio as of June 5: 3.50
EQT Corporation (NYSE:EQT) is an American energy company that specializes in pipeline transport and hydrocarbon exploration. Mizuho appreciated the company’s cash returns and an improving service cost environment in the first quarter. In view of this, the firm raised its price target on EQT in May to $52 and maintained a Buy rating on the shares.
In the first quarter of 2023, EQT Corporation (NYSE:EQT) reported revenue of $2.66 billion, which beat Street estimates by $890 million. The company’s operating cash flow for the quarter amounted to over $1.6 billion and its free cash flow came in at $774 million. With a forward P/E ratio of 3.50, EQT is one of the most popular undervalued S&P 500 stocks among billionaires.
On April 19, EQT Corporation (NYSE:EQT) declared a quarterly dividend of $0.15 per share, which was in line with its previous dividend. The stock’s dividend yield came in at 1.66% on June 5.
At the end of March 2023, 47 hedge funds tracked by Insider Monkey owned stakes in EQT Corporation (NYSE:EQT), worth over $1.1 billion collectively. David Tepper and Steve Cohen were two of the most popular billionaires having stakes in the company.
Artisan Partners made the following comment about EQT Corporation (NYSE:EQT) in its Q4 2022 investor letter:
“Finally, shares of US natural gas producer EQT Corporation (NYSE:EQT) fell on lower-than-expected production due to extreme weather in December. However, the company still produced strong free cash flow that beat expectations. EQT is one of the largest producers of natural gas, an energy source that emits significantly less carbon dioxide than other fossil fuels, such as coal or oil. We sold the position, as it had reached its target valuation.”
6. American Airlines Group Inc. (NASDAQ:AAL)
Number of Billionaire Investors: 12
Forward P/E Ratio as of June 5: 5.63
American Airlines Group Inc. (NASDAQ:AAL) is next on our list of undervalued S&P 500 stocks billionaires are loading up on. In Q1 2023, the company posted revenue of $12.2 billion, which saw a 37% growth from the same period last year. Its operating cash flow and free cash flow for the quarter came in at $3.3 billion and $3 billion, respectively.
In May, JPMorgan upgraded American Airlines Group Inc. (NASDAQ:AAL) to Overweight and also lifted its price target on the stock to $29. The firm appreciated the company’s efforts to reduce its debt.
American Airlines Group Inc. (NASDAQ:AAL) is among the most popular undervalued S&P 500 stocks among billionaires, alongside Citigroup Inc. (NYSE:C), Albemarle Corporation (NYSE:ALB), and American International Group, Inc. (NYSE:AIG).
As of the close of Q1 2023, 36 hedge funds held stakes in American Airlines Group Inc. (NASDAQ:AAL), up from 31 in the previous quarter, as per Insider Monkey’s database. These stakes have a collective value of over $900 million. Billionaires D. E. Shaw and Noam Gottesman were some of the company’s prominent investors in Q1.
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Disclosure. None. 10 Undervalued S&P 500 Stocks Billionaires Are Loading Up On is originally published on Insider Monkey.
