12 Dirt Cheap Stocks To Buy According to Hedge Funds
In this article, we discuss the 12 dirt cheap stocks to buy according to hedge funds. To skip our detailed analysis, you can go directly to the 5 Dirt Cheap Stocks To Buy According to Hedge Funds.
Following a notable surge in the broader market throughout 2023, numerous analysts and financial experts are forecasting an impending correction in 2024. Despite such predictions, the market continues to exhibit robust performance and resilience. The S&P 500 closed out the first quarter of the year with an over 10% gain. BlackRock, Inc.’s (NYSE:BLK) Managing Director, Tony DeSpirito, believes that a pullback won’t be surprising but keeps a bullish view on the rest of the year. He adds that stocks are set to outperform bonds and cash again this year while advising investors some caution with their equity choices. He believes that “the opportunity set for stock picking is the most robust” he has seen in 20 years. Tony DeSpirito’s firm sees some secular trends in the market that provide a bullish view on the broader market for the next three to five years. BlackRock, Inc.’s (NYSE:BLK) Q2 2024 equity market outlook suggests long-term opportunities in artificial intelligence, clean energy (including utilities and EVs), and the healthcare industries.
Principal Asset Management’s CIO, George Marris, also sees signs of a healthy future in the markets. In a CNBC interview on April 3, he said that while the recent performance of the stock market was credited to a few stocks, he expects a broadening in the market and favors cyclically exposed stocks. Marris forecasts opportunities in industrials, commodities, and UK-listed companies, along with the Chinese and Japanese markets. Among the foreign companies, George Marris believes that there are several UK-based multinational companies that have a geographic footprint similar to the ones in the US and are trading at cheap multiples. He added that in Japan, his firm sees a significant level of corporate reform due to “societal pressure and domestic activism”.
Opportunities in Asian Markets
The Oracle of Omaha, Warren Buffett, is also showing confidence in the Japanese market, and his firm is upbeat about five specific stocks. The stocks include ITOCHU Corporation (8001.T), Mitsubishi Corporation (8058.T), Sumitomo Corporation (8053.T), Mitsui & Co., Ltd. (8031.T), and Marubeni Corporation (8002.T). In Berkshire Hathaway’s 2023 annual letter to shareholders, Buffett revealed that the firm increased its stake in all five of these companies in 2023 and owns about 9% of each. He wrote:
“In certain important ways, all five companies – Itochu, Marubeni, Mitsubishi, Mitsui and Sumitomo – follow shareholder-friendly policies that are much superior to those customarily practiced in the U.S. Since we began our Japanese purchases, each of the five has reduced the number of its outstanding shares at attractive prices.
Meanwhile, the managements of all five companies have been far less aggressive about their own compensation than is typical in the United States. Note as well that each of the five is applying only about 1?3 of its earnings to dividends. The large sums the five retain are used both to build their many businesses and, to a lesser degree, to repurchase shares. Like Berkshire, the five companies are reluctant to issue shares.
An additional benefit for Berkshire is the possibility that our investment may lead to opportunities for us to partner around the world with five large, well-managed and well-respected companies. Their interests are far more broad than ours. And, on their side, the Japanese CEOs have the comfort of knowing that Berkshire will always possess huge liquid resources that can be instantly available for such partnerships, whatever their size may be.”
While navigating China’s economy, we reported that the position of the Chinese market holds significant importance to the global market as it is responsible for 10% of the world stock market capitalization and trade, 18% of the world GDP, and 16% of global oil demand. IMF sees several growth opportunities in China due to its ongoing infrastructure development and globalization efforts and believes that if current conditions persist, China could see a 20% expansion of the real economy over the next 15 years.
In February, we covered the best Chinese stocks to buy, and some of the cheap stocks among them include Vipshop Holdings Limited (NYSE:VIPS), JD.com, Inc. (NASDAQ:JD), and Alibaba Group Holding Limited (NYSE:BABA), trading at a price-to-earnings ratio of 8.73, 12.89, and 13.48, at the time of writing on April 3, respectively.
As experts provide a forecast of market broadening, several stocks trading at cheap multiples could provide significant entry points for investors. Some of these dirt cheap stocks include Berkshire Hathaway Inc. (NYSE:BRK-B), General Motors Company (NYSE:GM), and Charter Communications, Inc. (NASDAQ:CHTR). Also, check out the 10 Best Affordable Stocks Under $10.
Our Methodology
For this article, we used the Finviz stock screener to find large to mega-cap stocks with Buy or equivalent analyst recommendations and trailing 12-month (TTM) price-to-earnings ratios (PE) of under 10, as of April 3. We narrowed down our selection to 12 stocks that were the most widely held by institutional investors and ranked them in ascending order of the number of hedge funds that have stakes in them as of Q4 of 2023.
The hedge fund data was taken from Insider Monkey’s database of 933 elite hedge funds. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
12 Dirt Cheap Stocks To Buy According to Hedge Funds
12. Toll Brothers, Inc. (NYSE:TOL)
PE Ratio as of April 3: 9.75
Number of Hedge Fund Holders: 49
Toll Brothers, Inc. (NYSE:TOL) is a Fortune 500 company that designs and builds luxury homes and offers its services in 24 states in the U.S. in more than 60 markets. The company provides its services through its brands, Toll Brothers Active Adult, Toll Brothers Apartment Living, Toll Brothers Campus Living, and Toll Brothers City Living.
On March 13, Toll Brothers, Inc. (NYSE:TOL) increased its quarterly dividend by 9.5% to $0.23, and it is payable by April 19 to the shareholders of record on April 5. As of April 3, the stock’s dividend yield is 0.67%.
Toll Brothers, Inc. (NYSE:TOL) has a PE ratio of 9.75 as of April 3. Hedge fund sentiment was positive toward the stock in Q4 of 2023, with 49 hedge funds with investments in the stock at a stake value of $1.241 billion. This is compared to 39 funds with positions worth $897.737 million in the previous quarter. As of December 31, 2023, Edgar Wachenheim’s Greenhaven Associates is the biggest shareholder in the company, with a position worth $569.969 million.
Toll Brothers, Inc. (NYSE:TOL) is one of the dirt cheap stocks that caught the attention of hedge funds in the fourth quarter of 2023, along with Berkshire Hathaway Inc. (NYSE:BRK-B), General Motors Company (NYSE:GM), and Charter Communications, Inc. (NASDAQ:CHTR).
Baron Funds stated the following regarding Toll Brothers, Inc. (NYSE:TOL) in its fourth quarter 2023 investor letter:
“The share prices of our investments in homebuilder companies – Toll Brothers, Inc. (NYSE:TOL) , D.R. Horton, Inc., and Lennar Corporation – gained 39.4%, 41.8%, and 33.2%, respectively, in the most recent quarter, in part due to the continuation of strong quarterly business results, management optimism about 2024 prospects, and a more than 100 basis point decline in 30-year mortgage rates during the quarter.
2023 was an excellent year for the public homebuilders. Housing fundamentals were resilient despite the affordability challenges of elevated mortgage rates and home prices. Several years of pent-up demand, fears that mortgage rates could move higher, a dearth of inventory in the existing home market, and an overall housing supply shortage drove home buyers off the sidelines to “stretch their wallet,” in part due to fears that they could miss out on the opportunity to buy a home. The Fund’s homebuilding companies Toll Brothers, D.R. Horton, and Lennar increased 108.0%, 71.4%, and 66.3%, respectively, in 2023.
Though we anticipate more modest gains for the Fund’s homebuilder investments in 2024, we remain optimistic about the long-term prospects for Toll Brothers, D.R. Horton, and Lennar. Further, we continue to believe there is a compelling case for the homebuilder valuations to re-rate higher over time.
Since the beginning of 2020, D.R. Horton, Lennar, and Toll Brothers have demonstrated substantial resilience and operating prowess. Despite several black swan events – COVID-19, a sharp increase in mortgage rates from 3% to 8%, and supply-chain disruptions – each company has managed its business exceptionally well and demonstrated that the demand to buy homes is resilient.”
11. Devon Energy Corporation (NYSE:DVN)
PE Ratio as of April 3: 9.04
Number of Hedge Fund Holders: 50
Devon Energy Corporation (NYSE:DVN) is an Oklahoma-based company that explores, develops, and produces oil, natural gas, and natural gas liquids. The company has operations in Delaware Basin, Eagle Ford, Anadarko Basin, Powder River Basin, and Williston Basin. As of April 3, the stock’s PE ratio is 9.04.
According to our database, the number of hedge funds with investments in Devon Energy Corporation (NYSE:DVN) went down to 50 in Q4 of 2023 from 52 in the preceding quarter. However, the total stake value of the funds increased to $1.36 billion in the fourth quarter from $863.675 million in the third quarter. As of the fourth quarter of 2023, D E Shaw is the biggest shareholder in the company and has increased its stake by 135%, with a position worth $230.032 million. Additionally, Two Sigma Advisors increased its position by a whopping 1524% to a position worth $153.683 million in the quarter.
Wall Street is bullish on Devon Energy Corporation (NYSE:DVN). 17 Wall Street analysts have covered the stock over the past three months, and 11 keep a Buy-equivalent rating on the stock. As of April 3, the average price target of $54 implies an upside of 4.61% from the current levels. On April 1, Wells Fargo upgraded Devon Energy Corporation (NYSE:DVN) to Overweight from Equal Weight and increased the price target to $59 from $46.
10. HP Inc. (NYSE:HPQ)
PE Ratio as of April 3: 8.70
Number of Hedge Fund Holders: 50
HP Inc. (NYSE:HPQ) is a California-based company that provides personal systems, printers, and 3D printing solutions. The company offers its services and products through three segments, including Personal Systems, Printing, and Corporate Investments. HP Inc. (NYSE:HPQ) has a PE ratio of 8.70 as of April 3.
HP Inc. (NYSE:HPQ) was part of 50 hedge funds’ portfolios in the fourth quarter of 2023 with a total stake value of $1.919 billion. Warren Buffett’s Berkshire Hathaway is the top investor in the company and has a position worth $687.638 million as of Q4 2023. HP Inc. (NYSE:HPQ) takes the 10th spot on our list of dirt cheap stocks to buy according to hedge funds.
On March 7, at the Amplify Partner Conference, HP Inc. (NYSE:HPQ) announced its portfolio of AI PCs, including HP Elite and Z by HP PCs, plus the new Poly Studio E360.
9. Marathon Petroleum Corporation (NYSE:MPC)
PE Ratio as of April 3: 9.09
Number of Hedge Fund Holders: 50
Marathon Petroleum Corporation (NYSE:MPC) refines crude oil and other feedstocks, purchases and distributes refined products and ethanol, and manufactures propane and petrochemicals. The company is also engaged in the transportation, storage, distribution, and marketing of crude oil and refined products.
On March 19, Wells Fargo Roger Read maintained a Buy rating on Marathon Petroleum Corporation (NYSE:MPC), with a price target of $214.00. Marathon Petroleum Corporation (NYSE:MPC) has a PE ratio of 9.09 as of April 3.
In the fourth quarter of 2023, 50 hedge funds held positions in Marathon Petroleum Corporation (NYSE:MPC), and the stakes amounted to $2.87 billion. Elliott Management is the most significant shareholder in the company and has a position worth $1.64 billion as of December 31, 2023.
8. Delta Air Lines, Inc. (NYSE:DAL)
PE Ratio as of April 3: 6.50
Number of Hedge Fund Holders: 53
Delta Air Lines, Inc. (NYSE:DAL) offers passenger and cargo scheduled air transportation and operates through Airline and Refinery segments. The company operates flights to over 290 destinations on six continents and had 190 million customers in 2023.
On April 1, Morgan Stanley raised the price target on Delta Air Lines, Inc. (NYSE:DAL) to $85 from $77 and kept an Overweight rating on the shares. Furthermore, the firm increased its “bull case valuation” for the company’s shares to $110 from $90.
The company is one of the dirt cheap stocks to buy, with a PE multiple of 6.50, as of April 3. 53 hedge funds had stakes in Delta Air Lines, Inc. (NYSE:DAL) in the fourth quarter of 2023, with total positions worth $1.56 billion. With 6.798 million shares worth $273,483 million, GMT Capital is the most prominent shareholder in the company as of Q4 2023.
Patient Capital Management made the following comment about Delta Air Lines, Inc. (NYSE:DAL) in its Q3 2023 investor letter:
“Airlines returned to trough multiples as higher oil prices pressured costs. Historically, airlines have passed these costs on to customers. We think Delta Air Lines, Inc. (NYSE:DAL) is a premium brand valued like its economics aren’t sustainable. With mid-teens returns on capital, significant free cash flow generation, excellent capital allocation and long-term earnings per share growth in the high-single to low-double-digits, we think the company is significantly mispriced.
Delta Air Lines Inc. (DAL) reversed course in the third quarter, falling 24% from its highs in July. The airlines in general were hurt from rising commodity prices that are leading to increased cost per available seat mile (CASM). Historically, airlines have passed on higher fuel prices to customers with a lag. We see Delta as a premium global consumer brand that is materially misunderstood by the market. The market still sees airlines as a cyclical, bankruptcy prone industry. An improved supply-demand picture, management discipline and a better business mix make Delta a more resilient business. Their loyalty program with American Express is a source of stable and growing revenues with $6.5B in remunerations this year with a goal of reaching $10B by the end of the contract in 2028. Premium and ancillary service revenue should generate 65-70% of the total in the next year or two. The company should continue to generate consistent mid-teens returns on capital. As the market begins to understand, we believe the company will continue to be rewarded. On top of this, free cash flow is expected to expand generating a cumulative ~$11B from ’23-’25, or one-half of its current market cap. As the company pays down debt while growing the dividend and eventually resuming share repurchases, we think the stock will continue to trend higher.”
7. First Citizens BancShares, Inc. (NASDAQ:FCNCA)
PE Ratio as of April 3: 2.02
Number of Hedge Fund Holders: 54
First Citizens BancShares, Inc. (NASDAQ:FCNCA), through its wholly-owned subsidiary First-Citizens Bank & Trust Company, offers retail and commercial banking services. The company has over 500 branches in 23 states. As of April 3, the stock is trading at a price-to-earnings multiple of 2.02x.
First Citizens BancShares, Inc. (NASDAQ:FCNCA) has received Buy ratings from 6 Wall Street analysts over the past three months. The average price target of $1,850.57 represents an upside of 17.03% from the current levels as of April 3.
According to Insider Monkey’s database, 54 hedge funds held stakes in First Citizens BancShares, Inc. (NASDAQ:FCNCA) in Q4 of 2023, with positions worth $2.505 billion. As of December 31, 2023, Harris Associates is the largest shareholder of the company, with a position worth $710.716 million.
Artisan Partners commented on First Citizens BancShares, Inc. (NASDAQ:FCNCA) in its fourth quarter 2023 investor letter:
“First Citizens BancShares, Inc. (NASDAQ:FCNCA) was our top overall contributor in 2023. Headquartered in Raleigh, North Carolina, and one of the largest family-controlled banks in the US, First Citizens was a big winner from its acquisition of the failed Silicon Valley Bank. First Citizens purchased $72.1 billion in loans at a deeply discounted price of $16.5 billion. The transaction adds scale, increases geographic diversity and is financially attractive with downside protections from a loss-sharing agreement with the FDIC. First Citizens is now one of the top-15 largest US banks. The bank is run by and almost fully controlled by CEO Frank Holding and his family members. They have significant ownership, aligning their interest with minority shareholders like us. They’ve done an admirable job of growing the bank by keeping a strong capital and liquidity profile that allows for opportunistic M&A during times of market stress, like we just experienced in March. In the global financial crisis, First Citizens used its position of strength to acquire when others could not, and during the COVID-induced stress of 2020, it flexed its muscles again with the acquisition of CIT at a great price.”
6. AerCap Holdings N.V. (NYSE:AER)
PE Ratio as of April 3: 6.30
Number of Hedge Fund Holders: 61
AerCap Holdings N.V. (NYSE:AER) is headquartered in Ireland and is involved in leasing, financing, selling, and management of commercial flight equipment. The company serves around 300 customers and has a portfolio of over 1,700 aircraft, nearly 1,000 engines, and more than 300 helicopters.
According to our database, hedge fund sentiment in the fourth quarter of 2023 was positive toward the stock as 61 hedge funds had investments in AerCap Holdings N.V. (NYSE:AER) at a stake value of $4.374 billion. This is compared to 54 funds with positions worth $3.207 billion in the previous quarter. Boykin Curry’s Eagle Capital Management is the top investor in the company, with a position worth $938.533 million as of Q4 of 2023. The stock has a PE ratio of 6.30 as of April 3.
AerCap Holdings N.V. (NYSE:AER) is one of the dirt cheap stocks to buy according to hedge funds. Other such stocks include Berkshire Hathaway Inc. (NYSE:BRK-B), General Motors Company (NYSE:GM), and Charter Communications, Inc. (NASDAQ:CHTR).
O’keefe Stevens Advisory stated the following regarding AerCap Holdings N.V. (NYSE:AER) in its fourth quarter 2023 investor letter:
“Top picks for 2024 – Five Point Holdings, LLC (FPH) (FPH) and AerCap Holdings N.V. (NYSE:AER). Both situations are similar, with significant overhangs resolved in late 2023. Aercap acquired GECAS in 2021 for cash and stock. GE consistently sold their AER shares, creating heavy selling pressure. In addition, Aercaps planes on lease to Russian airlines were written off in 2022. Thus far, they received $1.2B in insurance recoverables, and ~$2B remains outstanding. Insurance proceeds provide substantial ammunition to aggressively repurchase shares. Ongoing engine and airplane production issues created a “hard market” for secondary transactions. Aercap continually sells planes and engines for over 1.2x carrying value, using proceeds to repurchase stock at or below book value. Note- at a couple of turns of leverage, this ROE is closer to 70%-80%. Repurchasing stock trading at 90% of BV is almost a 100% delta between private market transactions and the stock. That is one hell of a trade! With airlines scrambling for capacity, Aercap holds substantial bargaining power, driving higher rates and longer terms. Business is flying high.”
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Disclosure. None. 12 Dirt Cheap Stocks To Buy According to Hedge Funds is originally published on Insider Monkey.