In this article, we discuss 10 undervalued stocks to buy according to Paul Tudor Jones. If you want to skip our discussion on Jones’ outlook on the economic environment, go to 5 Undervalued Stocks to Buy According to Billionaire Paul Tudor Jones.
Paul Tudor Jones, the founder of Tudor Investment Corp, believes that investors have moved on from the shareholder capitalism philosophy coined by Milton Friedman. He thinks that customers and investors are more interested in a corporation’s actions rather than its balance sheet’s strength. Actions related to the environment, safety, and governance (ESG) have taken center stage. The billionaire expressed these views in an interview with CNBC in January. Mr. Jones commented that if the intention of forming a business is to maximize profit, such businesses could lack a moral compass and would always prioritize profits over ethical policies. He discussed the example of Purdue Pharma and highlighted that the purpose of the pharmaceutical company was profit maximization first, which resulted in an opioid crisis in the US that took over 400,000 lives. Mr. Jones observed that the purpose of a business could not be truly judged without bringing ethics and morality into the conversation.
Regarding the market outlook, Mr. Jones thinks that hot stocks will continue to face tough times. He opined that Federal Reserve Chairman Jerome Powell needs to review policies to fight the impact of inflation, which has run havoc on the value of assets across various classes. The Federal Reserve started raising the benchmark interest rates by 75 basis points (bps) on June 15. This was the most significant rate increase in the last 28 years. The Federal Reserve increased the interest rate to combat inflation, which has surged to a four-decade high. Mr. Jones believes that capital preservation should be the main focus of investors during such challenging times.
Experts across Wall Street believe that the Federal Reserve can tip the economy into a recession by aggressive tightening schemes to control inflation. During these times, Mr. Jones prefers trend-following strategies. These strategies employ algorithmic models to highlight price trends in the market. Mr. Jones’ claim to fame is that he predicted the stock market crash of 1987 and generated a healthy return during the crash through his shrewd investing philosophy.
In this article we focus on PTJ’s first quarter stock picks and determine how they fared since then. Paul Tudor Jones’ Q1 2022 portfolio is valued at over $4.2 billion. The billionaire had stakes in popular companies like Airbnb, Inc. (NASDAQ:ABNB), Amazon.com, Inc. (NASDAQ:AMZN), and Apple Inc. (NASDAQ:AAPL) as of the end of the first quarter of 2022.
Our Methodology
Let’s begin our list of the 10 undervalued stocks to buy, according to billionaire Paul Tudor Jones. These stocks have been picked from the Q1 2022 portfolio of Tudor Investment Corp. We have discussed the PE ratios and business fundamentals to give the investors an idea of the intrinsic value of the companies. We compiled this list at the end of June. The top 5 in this list outperformed the market by 3.5 percentage points since then.
10. CBRE Group, Inc. (NYSE:CBRE)
Number of Hedge Fund Holders: 55
Tudor Investment Corp’s Holdings: $10,027,000
Percentage of Tudor Investment Corp’s Portfolio: 0.23%
PE Ratio as of July 1: 12.72
Return since June 30th: -4.8%
CBRE Group, Inc. (NYSE:CBRE) is a Houston, Texas-based investment and commercial real estate company. The recent pullback in stock price from its peak in December 2021 has made the valuation attractive for investors. CBRE Group, Inc. (NYSE:CBRE) has 93 of the Fortune 100 companies on board, and the majority of its revenue is stable and recurring because of the global workplace solutions.
On June 4, Chandni Luthra at Goldman Sachs issued a Buy rating on CBRE Group, Inc. (NYSE:CBRE) stock with a price target of $111. The analyst shared that she had a positive outlook on CBRE Group, Inc. (NYSE:CBRE) due to the company’s “high quality” earnings and solid sales growth momentum. Furthermore, Luthra stated that CBRE Group, Inc.’s (NYSE:CBRE) healthy balance sheet allows the company greater leverage to boost shareholder returns.
CBRE Group, Inc. (NYSE:CBRE) is trading at a PE ratio of 12.72x as of June 29 and currently generates an EPS of $5.95. In the last ten years, the company’s EPS has compounded by 22% annually.
CBRE Group, Inc. (NYSE:CBRE) was discussed in the Q1 2022 investor letter of Baron Funds. Here’s what the firm said about the company:
“Following strong share price performance in 2021, the shares of leading commercial real estate services firm, CBRE Group, Inc. (NYSE:CBRE) declined in the most recent quarter. We believe the current valuations of the company is compelling. Further, we believe the company is well-positioned to benefit from long-term growth opportunities that include a growing list of companies looking to outsource their commercial real estate needs, the growth in institutional ownership of commercial real estate, and attractive acquisition opportunities given their highly desirable global platforms and strong balance sheets.”
CBRE Group, Inc. (NYSE:CBRE) was held by 55 hedge funds as of Q1 2022.
9. Fortune Brands Home & Security, Inc. (NYSE:FBHS)
Number of Hedge Fund Holders: 34
Tudor Investment Corp’s Holdings: $10,104,000
Percentage of Tudor Investment Corp’s Portfolio: 0.23%
PE Ratio as of July 1: 10.98
Return since June 30th: -2.5%
Fortune Brands Home & Security, Inc. (NYSE:FBHS) is a Deerfield, Illinois-based corporation providing home and security consumer products.
Fortune Brands Home & Security, Inc. (NYSE:FBHS) stock is trading at a forward P/E multiple of 10x as opposed to its five-year average of 17x. Meanwhile, the EV to EBITDA ratio is hovering around 8x compared to the five-year average of 11x. The company has announced that it intends to spin off the Cabinets division. The revenue of the cabinets division is unstable with high operating leverage, which could be a disadvantage during difficult economic times. However, there are expectations that private equity firms may be interested in acquiring the division. The spin-off will shift the company’s focus toward the water innovations segment, which has seen its revenue grow annually at an average rate of 10% between 2009 and 2021.
Fortune Brands Home & Security, Inc. (NYSE:FBHS) was mentioned in the Q1 2022 investor letter of Carillon Tower Advisers. Here’s what the firm said:
“Fortune Brands Home & Security (NYSE:FBHS) provides a variety of building products such as plumbing, decking, doors, and security-related products. The company’s shares have declined as of late as rising interest rates have weighed a bit on investor sentiment in stocks tied to the housing industry. Additionally, the company has experienced some margin pressure specifically within its cabinet business as transportation, labor and supply chain issues linger.”
Out of the 912 hedge funds tracked by Insider Monkey at the end of Q1 2022, 34 funds held a stake in Fortune Brands Home & Security, Inc. (NYSE:FBHS).
8. Stanley Black & Decker, Inc. (NYSE:SWK)
Number of Hedge Fund Holders: 38
Tudor Investment Corp’s Holdings: $10,721,000
Percentage of Tudor Investment Corp’s Portfolio: 0.25%
PE Ratio as of July 1: $13.72
Return since June 30th: -28.9%
Stanley Black & Decker, Inc. (NYSE:SWK) is a New Britain, Connecticut-based producer of household tools and industrial hardware.
The stock is one of the most undervalued Dividend Aristocrats with a history of increasing its annual dividend for the past 54 years. Stanley Black & Decker, Inc. (NYSE:SWK) stock is trading at a forward P/E multiple of 9.7x as opposed to an industry average of 16.5x to 18.5x. On June 1, Stanley Black & Decker, Inc. (NYSE:SWK) reiterated that it anticipates FY22 EPS to be around $9.50 to $10 compared to consensus estimates of $9.86.
Stanley Black & Decker, Inc. (NYSE:SWK) has stellar historical performance and a solid brand that can deliver greater shareholder value once it overcomes rising costs and pricing challenges due to surging inflation. The relative valuation is at a modest level, which provides an attractive entry point to potential investors looking for a long-term investment.
Here’s what Saturna Capital said about Stanley Black & Decker, Inc. (NYSE:SWK) in its Q3 2021 investor letter:
“Stanley Black & Decker performed well through the first part of the year but struggled over the summer. China accounts for much of its production, and their zero-tolerance approach to pandemic safety measures has led to disruption, compounded by shipping difficulties and rising materials expenses. We still believe one outcome of the pandemic will be a buoyant home improvement market, given that one never knows when the next pandemic lockdown may occur.”
As of Q1 2022, 38 funds held a stake in Stanley Black & Decker, Inc. (NYSE:SWK).
7. Charter Communications, Inc. (NASDAQ:CHTR)
Number of Hedge Fund Holders: 73
Tudor Investment Corp’s Holdings: $11,107,000
Percentage of Tudor Investment Corp’s Portfolio: 0.26%
PE Ratio as of July 1: 17.02
Return since June 30th: -25.3%
Charter Communications, Inc. (NASDAQ:CHTR) is a Stamford, Connecticut-based telecom and mass media corporation.
In a research note issued to investors on June 29, Vince Valentini at TD Securities reiterated a Buy rating on Charter Communications, Inc. (NASDAQ:CHTR) stock. The analyst updated his financial model and lowered the price target on the stock from $735 to $670. Valentini added that a company like Charter Communications, Inc. (NASDAQ:CHTR) could bring in discounted mobile pricing to attract complete households and maintain their connectivity services. This would result in a lower churn rate. The analyst concluded that the competition from telecoms and fiber overbuilders is also under control.
ClearBridge Investments shared its outlook on Charter Communications, Inc. (NASDAQ:CHTR) in its Q1 2022 investor letter. Here’s what the firm said:
“We also added to Charter Communications (NASDAQ:CHTR), a historically strong performer that has faced headwinds recently due to a deceleration in broadband subscriber growth following a period of robust results during the pandemic.”
Overall, 73 funds held a stake in Charter Communications, Inc. (NASDAQ:CHTR) as of Q1 2022.
6. The Bank of New York Mellon Corporation (NYSE:BK)
Number of Hedge Fund Holders: 54
Tudor Investment Corp’s Holdings: $11,476,000
Percentage of Tudor Investment Corp’s Portfolio: 0.26%
PE Ratio as of July 1: 10.53
Return since June 30th: 2.7%
The Bank of New York Mellon Corporation (NYSE:BK) is a New York-based investment banking services corporation and is considered an important bank in the US financial system by the Federal Stability Board (FSB).
On July 1, Gerard Cassidy at RBC Capital kept a Sector Perform rating on The Bank of New York Mellon Corporation (NYSE:BK) with a price target of $49, reflecting a 15% upside potential. The analyst reduced the target price on The Bank of New York Mellon Corporation (NYSE:BK) from $56 after lowering his FY22 EPS forecast from $4.68 to $4.36 and FY23 EPS forecast from $5.43 to $4.95. The analyst reduced the forecast to incorporate the current market conditions. Investment bank services companies like The Bank of New York Mellon Corporation (NYSE:BK) are highly sensitive to interest rate changes as there will be a runoff on deposits due to rising interest rates.
However, the company has solid business fundamentals. The Bank of New York Mellon Corporation (NYSE:BK) increased its quarterly dividend by 9.67% in July 2021 to $0.34 per share. The company’s dividend yield stands at 3.21% as of July 1. The Bank of New York Mellon Corporation (NYSE:BK) has increased its dividend for 11 consecutive years.
Here’s what Ariel Investments said about The Bank of New York Mellon Corporation (NYSE:BK) in its Q4 2021 investor letter:
“Rising interest rates, after a surprisingly long period of low absolute rates and negative “real” rates, will create a headwind. While there has been much debate about the cause of these low rates, we believe the most important factor has been the $120 billion in monthly federal reserve open market bond purchases and the accumulation of an $8 trillion balance sheet. The former will end, and the latter will shrink. It is not just the Fed that has aggressively purchased bonds, bidding up prices and lowering yields. Bond traders and hedge fund managers have added to positions, confident that being on the same side as the Fed was the wise place to be. Now as the Fed is about to become a seller of bonds rather than a buyer, Wall Street’s “smart money” is likely to follow suit. Against this backdrop, fixed income securities and bond substitutes such as high dividend paying utilities and absolute return hedge funds are substantially overpriced and are not likely to produce attractive returns going forward.
This expectation of a reversion to the mean for interest rates helped 2021 performance, though not as much as we had hoped. The yield on the U.S. 10-year Treasury did indeed increase from +0.92% at the beginning of the year to +1.52% at year-end. An underreported story was the poor performance of bonds last year. The Barclays Aggregate Index declined -1.67% for the year ending December compared to a return of +28.71% for equities as measured by the S&P 500. Interest rates have continued to climb in 2022 with the 10-year Treasury at +1.79% as we go to print. This move higher in rates has contributed to our good, early start to 2022. Smaller positions in The Bank of New York Mellon Corporation (BK) also benefited from higher rates, principally with their ability to invest customer cash.”
The Bank of New York Mellon Corporation (NYSE:BK) was held by 54 hedge funds as of Q1 2022.
In addition to Bank of New York Mellon Corporation (NYSE:BK), popular companies such as Airbnb, Inc. (NASDAQ:ABNB), Amazon.com, Inc. (NASDAQ:AMZN), and Apple Inc. (NASDAQ:AAPL) are also a part of Jones Q1 2022 portfolio.
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Disclosure: None. 10 Undervalued Stocks to Buy According to Billionaire Paul Tudor Jones is originally published on Insider Monkey