10 Undervalued Blue Chip Stocks Hedge Funds Are Piling Into
In this article we discuss the 10 undervalued blue chip stocks hedge funds are piling into. If you want to skip our detailed analysis of these stocks, go directly to the 5 Undervalued Blue Chip Stocks Hedge Funds Are Piling Into.
The stock volatility of the past few months has illustrated that the market is now in a constant state of turmoil as technology stocks with astronomical evaluations continue to hog investor interest, offering little in terms of stability and security for the long term but promising higher returns in the short term. In the midst of all this chaos, the smart money has been quietly piling into the undervalued blue chip companies that offer great brand value, positive long-term financial outlook, and competitive products that are likely to be industry leaders for years.
Hedge fund interest is often a good indicator of the overall market direction at any given point. Over the past few months, regulatory concerns around crypto have led to a dramatic fall in prices of several technology stocks, and hedge funds have thus diverted their money into blue chip stocks to weather the storm. Some of the companies that hedge funds have been piling money into over the past few months include Berkshire Hathaway Inc. (NYSE: BRK-A), Baidu, Inc. (NASDAQ: BIDU), and General Motors Company (NYSE: GM).
Berkshire Hathaway Inc. (NYSE: BRK-A) is the fifteenth most popular company among hedge funds on the Insider Monkey database, with 111 funds holding stakes in the firm at the end of the first quarter of 2021. Berkshire Hathaway Inc. (NYSE: BRK-A) pays a regular and healthy dividend and boasts a diverse portfolio of assets that offer handsome returns. Berkshire Hathaway Inc. (NYSE: BRK-A) has recently been trimming holdings in the traditional banking sector, selling stakes in most finance stocks over the past two quarters.
Another surprise inclusion to the undervalued blue chip stock is Baidu, Inc. (NASDAQ: BIDU), the Chinese company working in several internet-related businesses. Baidu, Inc. (NASDAQ: BIDU) was the 32nd most popular stock among hedge funds at the end of March with 89 funds bullish on the company. Baidu, Inc. (NASDAQ: BIDU) is part of a growing number of China-based foreign equities that have piqued investor interest in recent years, especially in the technology sector. Baidu, Inc. (NASDAQ: BIDU) is one of the largest firms in China.
General Motors Company (NYSE: GM) also makes it to the list of undervalued blue chip stocks hedge funds are piling into. It is the 37th most popular stock among hedge funds and 86 funds hold stakes worth over $8 billion in the automaker. General Motors Company (NYSE: GM) has been aggressively investing in electric vehicle technology in recent years to keep up with the competition and plans to debut several electric versions of previously popular models to expand reach into new markets in the coming months.
Investments in these firms can help investors realize the benefits that price stability and regular dividends bring to the overall portfolio. Short-term price fluctuation can have devastating impacts, as the financial crisis of 2008 illustrated. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
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With this context in mind, here is our list of the 10 undervalued blue chip stocks hedge funds are piling into.
Our Methodology
These stocks were selected keeping in mind their forward price to earnings (PE) ratios, a metric that places forecasted earnings, instead of the actual reported earnings, at the center of the PE calculation. The forward PE ratio provides investors with an insight into how well the company is expected to do in the future. Although the actual PE ratio for the firm might differ from the forward PE ratio, as the reported earnings are almost always a little different from forecasted earnings, it is nevertheless a reliable indicator for the future performance of these stocks.
Undervalued Blue Chip Stocks Hedge Funds Are Piling Into
10. Viatris Inc. (NASDAQ: VTRS)
Number of Hedge Fund Holders: 58
Forward PE Ratio: 4.39
Viatris Inc. (NASDAQ: VTRS) is a Pennsylvania-based healthcare company founded in 1961. It is placed tenth on our list of 10 undervalued blue chip stocks hedge funds are piling into. The company’s shares have offered investors returns exceeding 9.3% over the course of the past three months. The company markets drugs for the treatment of infectious diseases, non-communicable diseases, and others. These drugs are sold under brand names such as Wixela, Inhub, ADVAIR DISKUS, and Copaxone, among others.
In quarterly earnings results, posted on May 10, Viatris Inc. (NASDAQ: VTRS) reported earnings per share of $0.92 for the first three months of 2021, beating market predictions by $0.12. The revenue over the period was $4.4 billion, up 69% year-on-year.
Viatris Inc. (NASDAQ: VTRS) is one of the best stocks on the market for income investors. On May 10, the firm declared a quarterly dividend of $0.11 per share, in line with previous. The forward yield was 3.13%.
At the end of the first quarter of 2021, 58 hedge funds in the database of Insider Monkey held stakes worth $1.8 billion in Viatris Inc. (NASDAQ: VTRS), down from 67 the preceding quarter worth $2.7 billion.
Just like Berkshire Hathaway Inc. (NYSE: BRK-A), Baidu, Inc. (NASDAQ: BIDU), and General Motors Company (NYSE: GM), Viatris Inc. (NASDAQ: VTRS) is one of the 10 undervalued blue chip stocks hedge funds are piling into.
In its Q1 2021 investor letter, Mittleman Brothers, an asset management firm, highlighted a few stocks and Viatris Inc. (NASDAQ: VTRS) was one of them. Here is what the fund said:
“Our other new position in Q1 (in addition to AMA Group) is Viatris (VTRS), which is the old stock of the generic drug manufacturer Mylan Labs after it merged with Pfizers’s Upjohn unit late last year, via a tax-efficient Reverse Morris Trust. VTRS’s current market capitalization of ~$17B is less than 6x its estimated FCF of $3B (before restructuring costs) estimated for 2022, and the current enterprise value of $40B is only 6.4x EBITDA of $6.25B. Consider that Mylan Labs stock (MYL, predecessor to VTRS) was nearly $67/share on a $40B buy-out offer from Teva in 2015. Mylan rejected that seemingly very reasonable bid. In merging with Pfizer’s spin-off of Upjohn, Viatris became an equal (in sales, about $17B for each company) to the largest player in generic pharmaceuticals globally, Teva, Mylan’s former suitor. Viatris is an orphan, but its pedigree is tarnished (the reputation of Mylan’s management in rejecting the Teva bid, and other mistakes, still lingers), even though the new CEO and CFO come from Pfizer, the Chairman and President from Mylan remain. Also, ETFs that owned Pfizer had to sell the VTRS shares that they received, which added considerable forced selling.”
9. Capital One Financial Corporation (NYSE: COF)
Number of Hedge Fund Holders: 59
Forward PE Ratio: 8.93
Capital One Financial Corporation (NYSE: COF) is a Virginia-based bank holding company founded in 1994. It is ranked ninth on our list of 10 undervalued blue chip stocks hedge funds are piling into. The stock has returned 126% to investors in the past year. The company provides a range of banking services, including credit cards, different types of bank accounts, and vehicle financing plans. It has a market capitalization of over $73 billion and posted more than $18 billion in annual revenue last year.
Capital One Financial Corporation (NYSE: COF) posted earnings results for the first three months of 2021 on April 27, reporting earnings per share of $7.03, beating market estimates by a whopping $2.99. The revenue for the first quarter was over $7 billion, down 1.9% year-on-year.
On June 7, investment advisory Baird downgraded Capital One Financial Corporation (NYSE: COF) stock to Neutral with a price target of $145. The shares of the bank holding company slipped close to 1% in premarket trading that day.
Out of the hedge funds being tracked by Insider Monkey, Chicago-based investment firm Harris Associates is a leading shareholder in Capital One Financial Corporation (NYSE: COF) with 6.5 million shares worth more than $828 million.
Just like Berkshire Hathaway Inc. (NYSE: BRK-A), Baidu, Inc. (NASDAQ: BIDU), and General Motors Company (NYSE: GM), Capital One Financial Corporation (NYSE: COF) is one of the 10 undervalued blue chip stocks hedge funds are piling into.
In its Q1 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Capital One Financial Corporation (NYSE: COF) was one of them. Here is what the fund said:
“While reducing in health care and consumer staples, we increased our exposure to high-quality names in economically sensitive areas of the market. In financials, we increased our position in Capital One on the premise that a benign consumer credit environment should be sustainable in light of unprecedented government support.”
8. AT&T Inc. (NYSE: T)
Number of Hedge Fund Holders: 63
Forward PE Ratio: 9.29
AT&T Inc. (NYSE: T) is a Texas-based telecommunications company founded in 1983. It is placed eighth on our list of 10 undervalued blue chip stocks hedge funds are piling into. The company’s shares have returned 1.57% to investors year-to-date. The firm is one of the largest telecom firms in the world in terms of market capitalization. In addition to the United States, the firm has business interests in Latin America as well. In addition to wireless broadband and legacy telephone, the firm also markets mobile telephone services.
On June 10, AT&T Inc. (NYSE: T) announced that it had completed the first commercial equipment call on the network of the company using a new spectrum for 5G services. The company hopes to cater to more than 200 million customers through the new spectrum within the next two years.
On June 9, AT&T Inc. (NYSE: T) was awarded a contract to upgrade the data network at the Veteran Affairs department of the US government. The contract is worth $725 million and spread over a period of 12 years.
At the end of the first quarter of 2021, 63 hedge funds in the database of Insider Monkey held stakes worth $3.7 billion in AT&T Inc. (NYSE: T), up from 58 in the previous quarter worth $1 billion.
Just like Berkshire Hathaway Inc. (NYSE: BRK-A), Baidu, Inc. (NASDAQ: BIDU), and General Motors Company (NYSE: GM), AT&T Inc. (NYSE: T) is one of the 10 undervalued blue chip stocks hedge funds are piling into.
In its Q1 2021 investor letter, Nelson Capital Management, an asset management firm, highlighted a few stocks and AT&T Inc. (NYSE: T) was one of them. Here is what the fund said:
“Nelson Capital stayed busy in the first quarter, making several adjustments within our core portfolio. In the communication services sector, we sold AT&T (tkr: T). Over the years, AT&T has made several poor acquisitions, especially in the content realm, leaving the company saddled with debt and unable to change directions.”
7. PG&E Corporation (NYSE: PCG)
Number of Hedge Fund Holders: 65
Forward PE Ratio: 10.4
PG&E Corporation (NYSE: PCG) is a California-based company that deals in electricity and natural gas. It was founded in 1905 and is ranked seventh on our list of 10 undervalued blue chip stocks hedge funds are piling into. The stock has returned 0.5% to investors over the course of the past week. The company primarily generates electricity through the use of clean sources like nuclear energy, hydro-electric energy, and fuel cells. However, it also has fossil-fuel fired plants. It also engages in the supply of natural gas to consumers.
On April 29, PG&E Corporation (NYSE: PCG) reported earnings results for the first quarter of 2021, posting earnings per share of $0.23, just missing market estimates by $0.03. The revenue for the first three months of 2021 was over $4.7 billion, up 9% year-on-year.
On June 11, PG&E Corporation (NYSE: PCG) warned customers in California that the wildfire season was approaching and the company would need to cut power to some areas more than usual as per instructions in this regard for the safety of the overall population.
Out of the hedge funds being tracked by Insider Monkey, New York-based investment firm Third Point is a leading shareholder in PG&E Corporation (NYSE: PCG) with 82.9 million shares worth more than $971 million.
Just like Berkshire Hathaway Inc. (NYSE: BRK-A), Baidu, Inc. (NASDAQ: BIDU) and General Motors Company (NYSE: GM), PG&E Corporation (NYSE: PCG) is one of the 10 undervalued blue chip stocks hedge funds are piling into.
In its Q4 2020 investor letter, GoodHaven Capital Management, an asset management firm, highlighted a few stocks and PG&E Corporation (NYSE: PCG) was one of them. Here is what the fund said:
“During the period we purchased a new holding – PG&E Corporation – the California based utility (PCG). We expect that contrarian special situations will continue to (opportunistically) be an important part of the portfolio. After all, we bought PCG – which has filed Ch. 11 twice related to prior exposure to wildfire liabilities and staggering mismanagement – right in the middle of California’s recent heavy wildfire season. Our thinking here is that the reorganized utility has new regulatory protections that significantly reduces wildfire liability exposure, an above average rate growth profile and potentially much better management – they were searching for a new CEO when we made our investment. We purchased the stock at a high single digit forward earnings multiple, a discount to its peers that trade in the mid to high teens. Shortly after our purchases PG&E hired the well regarded Patti Poppe as their new CEO – we like this decision.”
6. Gilead Sciences, Inc. (NASDAQ: GILD)
Number of Hedge Fund Holders: 65
Forward PE Ratio: 9.73
Gilead Sciences, Inc. (NASDAQ: GILD) is a California-based biotechnology company founded in 1987. It is placed sixth on our list of 10 undervalued blue chip stocks hedge funds are piling into. The company’s shares have offered investors returns exceeding 18% year-to-date. The company primarily concentrates on the development of drugs that can treat HIV, hepatitis B, hepatitis C, and influenza, and other diseases. The firm markets a range of drugs for the treatment of HIV, including Biktarvy, Genvoya, and Descovy, among others.
In quarterly earnings results posted on April 29, Gilead Sciences, Inc. (NASDAQ: GILD) reported earnings per share of $2.08 for the first three months of 2021, missing market predictions by $0.04. The revenue over the period was $6.4 billion, up 15% year-on-year.
Gilead Sciences, Inc. (NASDAQ: GILD) is a solid option for income investors as well. The company declared a quarterly dividend of $0.71 per share on April 29, in line with previous. The forward yield was 4.45%.
At the end of the first quarter of 2021, 65 hedge funds in the database of Insider Monkey held stakes worth $2.6 billion in Gilead Sciences, Inc. (NASDAQ: GILD), down from 72 in the previous quarter worth $2 billion.
Just like Berkshire Hathaway Inc. (NYSE: BRK-A), Baidu, Inc. (NASDAQ: BIDU) and General Motors Company (NYSE: GM), Gilead Sciences, Inc. (NASDAQ: GILD) is one of the 10 undervalued blue chip stocks hedge funds are piling into.
In its Q3 2020 investor letter, Nelson Roberts Investment Advisors, an asset management firm, highlighted a few stocks and Gilead Sciences, Inc. (NASDAQ: GILD) was one of them. Here is what the fund said:
“In the healthcare sector, we sold our position in Gilead (NASDAQ: GILD) as there are no near or medium-term growth drivers for the company. Its popular HIV drug, Truvada, is going off patent this year. Additionally, UnitedHealth Group said it would not cover Gilead’s other HIV drug, Descovy. Lastly, the multiple acquisitions that Gilead has made recently are not ready for prime time, and it will likely be two years or more before any of Gilead’s new drugs have a meaningful impact on revenue.”
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Disclose. None. 10 Undervalued Blue Chip Stocks Hedge Funds Are Piling Into is originally published on Insider Monkey.
