Top 11 Extreme Value Stocks To Buy
In this article, we discuss the top 11 extreme value stocks to buy. To skip the detailed analysis and performance history of value stocks, go directly to the Top 5 Extreme Value Stocks To Buy.
Value investing is an investment strategy that aims to find stocks that the market underestimates and are trading below their intrinsic value. This definition might seem simple, but there are several metrics taken into consideration to find the right value stocks.
Value vs. Growth Stocks
Growth stocks are usually expected to generate higher revenues and profits than the market in addition to a faster stock price growth. They mostly trade at a premium. Value stocks are mostly stable and are well-established companies that deliver consistent revenues and profits and have healthy dividends.
For growth stocks, we can take NVIDIA Corporation (NASDAQ:NVDA) as an example. The company performed exceptionally during the generative AI surge of 2023. Analysts expect over 220% year-over-year (YoY) EPS growth by the end of 2023 and another 55% growth in the next year. NVIDIA Corporation (NASDAQ:NVDA) is trading at a PE ratio of over 108 as of November 3.
For value stocks, we can take the example of International Business Machines Corporation (NYSE:IBM). It is over a century-old company with a low beta and has increased its dividends for almost three decades. Furthermore, it has a high dividend yield of around 4.5% and a payout ratio that can easily support its dividend payments in the long run.
According to a CNBC report, analysts from JPMorgan and Raymond James are expecting a recession sometime in the near future, and value stocks have been seen to perform better during these times. A GMO report posted in June argues that value stocks have performed well in every recession in the United States history except for the COVID-19 recession. The report does not imply that value stocks do not underperform during recessions, but says that growth stocks do more damage to portfolios during recessions when compared to value stocks. For example, during the economic turmoil of 2022, iShares Russell 1000 Value ETF showed a decline of 9.5% at the end of the year, while its counterpart, iShares Russell 1000 Growth ETF, declined more than three times at almost 30%.
In 2023, value stocks have lagged behind growth stocks. However, a Fidelity report states that it might just be temporary underperformance:
“While value has trailed growth so far in 2023, some investors believe this is merely a temporary setback in an early inning for value leadership. According to this thesis, the valuation gap between growth stocks and value stocks has reached extremes in recent years, and value could resume its historical pattern of beating growth over very long periods.”
How to Invest in Value Stocks
Finding the perfect value stocks might not be easy for beginner investors as they require a ton of leg work. Beginners who want to invest in value stocks should check out value ETFs and find the best ones according to their performance. Moreover, following value investing giants like Warren Buffett and Seth Klarman is another great option. David Abrams is also one of the greats when it comes to value investing and has worked with Seth Klarman in the past. If you want to learn about value investing, you can check out the 20 Best Value Investing YouTube Channels.
Some of the extreme value stocks are Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD), M/I Homes, Inc. (NYSE:MHO), and Winnebago Industries, Inc. (NYSE:WGO).
Photo by Ruben Sukatendel on Unsplash
Our Methodology
For this article, we started with the 101 holdings of Roundhill Acquirers Deep Value ETF (DEEP). DEEP invested at least 1% of its assets in each of these stocks. We then obtained the number of hedge funds as well as the total dollar value of hedge fund holdings in each of these stocks using Insider Monkey's Q2 2023 database of 910 elite hedge funds. After sorting these stocks by hedge fund popularity, we narrowed our list to 11 extreme value stocks with the highest number of hedge fund investors.
According to the above metrics, Veritiv Corporation (NYSE:VRTV) was supposed to be on the list but was skipped due to shareholders voting in favor of its acquisition by Clayton, Dubilier & Rice. The stock is already trading at $169.69 per share as of November 3, and Clayton, Dubilier & Rice has agreed to acquire the stock at $170 per share.
Top 11 Extreme Value Stocks To Buy
11. The Buckle, Inc. (NYSE:BKE)
Number of Hedge Fund Holders: 19
The Buckle, Inc. (NYSE:BKE) is an American fashion retailer headquartered in Nebraska and has over 450 stores across the US. The company is one of the best extreme value stocks and is also part of the legendary value investor Bill Miller’s portfolio. Israel Englander’s Millennium Management was also quite bullish on The Buckle, Inc. (NYSE:BKE)’s stock in Q2 and increased its holdings in the company by 587% to 173,689 shares worth over $6 million.
The Buckle, Inc. (NYSE:BKE) is a dividend stock with a dividend yield of 3.89% as of November 3, compared to the 1.9% sector average. The company also has a low payout ratio of 31.5%, which means that it can sustain its payouts in the long run.
Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD), M/I Homes, Inc. (NYSE:MHO), and Winnebago Industries, Inc. (NYSE:WGO) are some of the top extreme value stocks to buy along with The Buckle, Inc. (NYSE:BKE).
Miller Value Partners made the following comment about The Buckle, Inc. (NYSE:BKE) in its Q4 2022 investor letter:
“The Buckle, Inc. (NYSE:BKE) was the top contributor for the quarter. The company reported 3Q23 net sales of $332.3MM, +4.0% year-over-year (Y/Y), ahead of consensus of $326.7MM, and earnings per share (EPS) of $1.24, -1.6% Y/Y, ahead of analyst expectations for EPS of $1.19. Comparable store sales and online sales increased 3.0% and 8.8% Y/Y, respectively, during the quarter. Inventory rose +49.2% Y/Y and +18.6% sequentially to $152.3MM, as of quarter-end, while gross margin expanded +163bps sequentially to 49.8%. The company also reported that December net sales grew 7.9% Y/Y, bringing fiscal year-to-date (YTD) net sales as of 12/31/22 to $1.28B, or +3.7% Y/Y.”
10. Virtu Financial, Inc. (NASDAQ:VIRT)
Number of Hedge Fund Holders: 19
Virtu Financial, Inc. (NASDAQ:VIRT) is a New York-based brokerage company that offers services like electronic trading, fixed income, equities, funds, and more.
On November 2, Virtu Financial, Inc. (NASDAQ:VIRT) posted a Q3 non-GAAP EPS of $0.45, surpassing the analysts’ estimates by $0.04. The revenue for the quarter increased 12.3% YoY and was $630.2 million. The quarterly dividend announced by the corporation was $0.24 and is payable by December 15 to the shareholders of record on December 1.
On October 9, Piper Sandler decreased the price target on Virtu Financial, Inc. (NASDAQ:VIRT) stock to $24 from $26 and maintained an Overweight rating. According to the analyst, while the equity volumes and volatility were down in Q3, the derivatives were a positive aspect.
East 72 mentioned Virtu Financial, Inc. (NASDAQ:VIRT) in its third quarter 2023 investor letter. Here is what it said:
“This month, we detail one of only two listed companies (the other is Flow Traders) whose main business is to operate as a liquidity supplier in financial markets: Virtu Financial, Inc. (NASDAQ:VIRT). Virtu reputedly sees over 9% of US equity volumes per day pass across its desks (well, through its machines) – but is utterly unloved at present. The loathing is partly to do with recent volatile business performance, partly with flawed execution of their capital management strategy, a response to fundamental competitive trends in (stock) exchanges, but most recently with the aggressive stance taken towards the Chair of US SEC, the key regulator, Gary Gensler, and his attempts to “protect” retail investors. The whole industry is happy to embrace certain reforms – but not others. Moreover, Virtu has – to a degree – led with its head, seemingly eliciting a particularly aggressive response. Investors don’t like uncertainty, especially regulatory uncertainty. Herein lies the opportunity, perhaps.
In one guise or other, in January 2024, assuming Dynasty Trust is still holding, I will be into my SEVENTH year of having exposure to Virtu Financial Inc (VIRT), though not necessarily continuously. Given what Virtu does, even allowing for cycles in its earnings, that’s a long time.
Virtu Financial, with an equity market capitalisation at end September 2023 of just overUS$2.8billion1 and with $1.8billion of long-term debt due in 2029, is the sole listed US based “liquidity provider”. Liquidity providers, or market makers, are a controversial industry of financial market “plumbers” who are receiving extra unwanted and tainted publicity with the release of the movie “Dumb Money”2 regarding the meme stock explosion of securities like Game Stop and AMC Entertainment in early 2021. The March quarter of that year was Virtu’s second most profitable ever, measured by “daily profit”. The short term “sugar-hit” has provided a longer-term hangover – an SEC enquiry and proposed tighter regulation…” (Click here to read the full text)
9. Photronics, Inc. (NASDAQ:PLAB)
Number of Hedge Fund Holders: 20
Photronics, Inc. (NASDAQ:PLAB) is the largest semiconductor photomask manufacturer in the world. The global semiconductor photomask market size was estimated to be $5 billion in 2022 and is expected to reach $6.6 billion by 2028. This forecast creates significant growth catalysts for Photronics, Inc. (NASDAQ:PLAB), as it has captured a huge market share of the semiconductor photomask segment.
Photronics, Inc. (NASDAQ:PLAB)’s stock was owned by 20 hedge funds in Q2 at a combined stake value of $102.25 million. In the previous quarter, 18 hedge funds owned the company stock worth $72 million.
ClearBridge Investments made the following comment about Photronics, Inc. (NASDAQ:PLAB) in its Q2 2023 investor letter:
“Another IT holding, Photronics, Inc. (NASDAQ:PLAB), also posted substantial returns for the quarter on the back of strong quarterly earnings and the AI-driven tech rally. Despite growing demand for high-end photomasks, the industry is capacity constrained and outsourced manufacturers such as Photronics stand to benefit. This has created a much more favorable environment for the company, which has shown increasing pricing power and longer-term contracts with major semiconductor manufacturers. We believe that the company’s investment and expansion of its manufacturing capabilities will allow it to continue to capture greater market share and extend its lead as the top merchant option in the industry.”
8. Teekay Tankers Ltd. (NYSE:TNK)
Number of Hedge Fund Holders: 20
Teekay Tankers Ltd. (NYSE:TNK) is one of the biggest operators of mid-sized tankers that offers marine energy transportation to its clients in the international oil industry. The company is headquartered in Bermuda and engages in commercial management, fuel services, and lightering and ship-to-ship services.
On November 2, Teekay Tankers Ltd. (NYSE:TNK) released its Q3 earnings result in which the non-GAAP EPS was $2.24 and beat the estimates by $0.14. The revenue topped the estimates by $122.83 million and increased 2.3% YoY to $285.86 million.
According to Insider Monkey’s database, 20 hedge funds had a stake in Teekay Tankers Ltd. (NYSE:TNK) in Q2 with a total stake value of $127.748 million. The biggest shareholder of the company in the quarter was New York-based Millennium Management with 773,766 shares worth $29.581 million.
On November 2, Teekay Tankers Ltd. (NYSE:TNK) announced a quarterly dividend of $0.25 which is payable by November 27 to the shareholders of record on November 14.
7. MasterCraft Boat Holdings, Inc. (NASDAQ:MCFT)
Number of Hedge Fund Holders: 20
MasterCraft Boat Holdings, Inc. (NASDAQ:MCFT) is headquartered in Tennessee and is the manufacturer, designer, and seller of recreational powerboats. The company markets and offers its products under three brands, namely, MasterCraft, Crest, and Aviara.
In Q2, the number of hedge funds with a stake in MasterCraft Boat Holdings, Inc. (NASDAQ:MCFT) went down to 20 from 21 in the previous quarter. However, the total hedge fund investments increased to $143.576 million in Q2 from $111.119 million in Q1. With 756,726 shares worth $23.19 million, Christopher Shackelton and Adam Gray’s Coliseum Capital was the most significant stakeholder of the company in the quarter.
According to TipRanks, over the last three months, 7 Wall Street analysts have covered MasterCraft Boat Holdings, Inc. (NASDAQ:MCFT) stock with an average price target of $24.83, showing an 11.75% upside to the company’s stock price at the time of November 3 market close. It is one of the top extreme value stocks to buy.
On October 31, Stifel analyst Drew Crum decreased the price target on MasterCraft Boat Holdings, Inc. (NASDAQ:MCFT) stock to $29 from $33 and kept a Buy rating.
6. Dorian LPG Ltd. (NYSE:LPG)
Number of Hedge Fund Holders: 21
Dorian LPG Ltd. (NYSE:LPG), through its subsidiaries, offers transportation services for liquefied petroleum gas (LPG). The company’s shipping services are carried out by its fleet of 25 very large gas carriers (VLGCs).
On November 2, Dorian LPG Ltd. (NYSE:LPG) posted a Q2 2024 non-GAAP EPS of $1.85 and revenue of $144.7 million, which grew by 90.5% YoY. During its second quarter 2024 results conference call, the management mentioned that as of November 1, Dorian LPG Ltd. (NYSE:LPG) had an unrestricted cash balance of $171.7 million.
The hedge fund sentiment was positive toward Dorian LPG Ltd. (NYSE:LPG) in the second quarter. According to Insider Monkey’s database, the number of hedge funds with a stake in the company increased to 21 in Q2 from 19 in the previous quarter. Royce & Associates owned 498,534 of the company shares worth $12.787 million, making it the most prominent shareholder in the company.
Dorian LPG Ltd. (NYSE:LPG) is one of the top extreme value stocks to buy along with Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD), M/I Homes, Inc. (NYSE:MHO), and Winnebago Industries, Inc. (NYSE:WGO).
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Disclosure. None. Top 11 Extreme Value Stocks To Buy is originally published on Insider Monkey.