In this article, we discuss 15 most undervalued large cap stocks to buy according to hedge funds. If you want to see more stocks in this selection, 5 Most Undervalued Large Cap Stocks To Buy According To Hedge Funds.
Large cap stocks are preferred by investors because they are typically well-established companies with a strong track record of performance and stability. These stocks are considered less risky than small-cap stocks, which are issued by newer or smaller companies that may be more volatile.
During the early days of the COVID-19 pandemic, consumer behavior shifted towards technology-based activities such as online shopping and streaming services. However, as the economy started to recover and people returned to their pre-pandemic habits, some of these tech companies may have seen a decline in business. Despite that, large-cap stocks, including tech plays, have always been an attractive option for investors, since they protect portfolios from market volatility relatively well.
Gradient Investments’ Mariann Montagne joined CNBC’s ‘Power Lunch’ on January 19, and she explained that investors should look for companies that meet or exceed earnings expectations and grow backlogs faster than the overall market. She noted that now is the time to load up on high quality large-cap names, which are reasonably priced and offer a lot of value.
Some of the most undervalued large cap stocks to buy according to hedge funds include General Motors Company (NYSE:GM), Occidental Petroleum Corporation (NYSE:OXY), and Intel Corporation (NASDAQ:INTC).
Our Methodology
We scanned Insider Monkey’s database of holdings of 920 elite hedge funds tracked as of the end of the third quarter of 2022 and picked the top 15 large cap stocks — companies which have market capitalizations of between $10 billion and $200 billion — that have P/E ratios of less than 10 as of January 24. That means the stocks mentioned in the article are the most popular undervalued large-cap stocks among the elite hedge funds operating in financial markets. The list is arranged in ascending order of the number of hedge fund holders in each firm.
Image by Sergei Tokmakov Terms.Law from Pixabay
Most Undervalued Large Cap Stocks To Buy According To Hedge Funds
15. Pioneer Natural Resources Company (NYSE:PXD)
Number of Hedge Fund Holders: 49
P/E Ratio as of January 24: 8.51
Pioneer Natural Resources Company (NYSE:PXD) is a Texas-based independent oil and gas exploration and production company. The company explores for, develops, and produces oil, natural gas liquids, and gas. On January 9, Mizuho analyst Nitin Kumar initiated coverage of Pioneer Natural Resources Company (NYSE:PXD) with a Buy rating and a $294 price target. He believes that the company will improve its capital efficiencies and focus on higher return projects in 2023, which should draw investors’ attention to its strong cash return program and large reserve base in U.S. shale.
According to Insider Monkey’s third quarter database, 49 hedge funds were long Pioneer Natural Resources Company (NYSE:PXD), compared to 56 funds in the prior quarter. Donald Yacktman’s Yacktman Asset Management is one of the leading stakeholders of the company, with 686,869 shares worth $148.7 million.
Like General Motors Company (NYSE:GM), Occidental Petroleum Corporation (NYSE:OXY), and Intel Corporation (NASDAQ:INTC), Pioneer Natural Resources Company (NYSE:PXD) is one of the most undervalued large cap stocks popular among smart investors.
Here is what Carillon Scout Mid Cap Fund has to say about Pioneer Natural Resources Company (NYSE:PXD) in its Q1 2022 investor letter:
“Pioneer Natural Resources (NYSE:PXD) performed well in a strong energy sector. Pioneer stood out recently with a pledge to return a large majority of free cash flow to share owners through dividends and stock buybacks, and ended hedging to give share owners more earnings and dividend potential should oil and gas prices continue to rise.”
14. Builders FirstSource, Inc. (NYSE:BLDR)
Number of Hedge Fund Holders: 49
P/E Ratio as of January 24: 4.39
Builders FirstSource, Inc. (NYSE:BLDR) is a Texas-based company that manufactures and supplies building materials, manufactured components, and construction services in the United States. On November 28, Builders FirstSource (NYSE:BLDR) announced the expansion of its existing stock repurchase plan by $1 billion to a total of nearly $1.5 billion, inclusive of the remaining outstanding authorization at the end of the third quarter of 2022. It is one of the most undervalued large cap stocks to buy according to hedge funds.
On January 10, Deutsche Bank analyst Joe Ahlersmeyer raised the firm’s price target on Builders FirstSource (NYSE:BLDR) from $72 to $90 and maintained a Buy rating on the shares. He now has more confidence in his belief that residential new construction will “remain surprisingly resilient” in 2023.
According to Insider Monkey’s data, 49 hedge funds were bullish on Builders FirstSource (NYSE:BLDR) at the end of the third quarter of 2022, compared to 53 funds in the prior quarter. Christopher Shackelton and Adam Gray’s Coliseum Capital held the largest stake in the company, consisting of 5.76 million shares worth $340 million.
Praetorian Capital made the following comment about Builders FirstSource, Inc. (NYSE:BLDR) in its Q3 2022 investor letter:
“Builders FirstSource, Inc. (NYSE:BLDR) produces and distributes building materials, primarily for the home building industry. It trades at a low-single digit cash flow multiple on recent earnings and is using that cash flow to rapidly repurchase shares. One could say that the low multiple is due to peak cyclical earnings. I take a different view and believe that we’re in the early stages of a long-term housing boom caused by migration to low tax states along with a catch-up phase as home construction rates were below trendline over the past decade. I believe that the US needs in excess of 1 million new single-family homes each year, just to provide for population growth, ignoring the other factors. As a result, this business does not appear to be at peak earnings; instead, I believe we are seeing a new baseline for earnings—though the earnings will be quite volatile—particularly if interest rates remain elevated or increase further.”
13. Marathon Oil Corporation (NYSE:MRO)
Number of Hedge Fund Holders: 50
P/E Ratio as of January 24: 5.37
Marathon Oil Corporation (NYSE:MRO) was founded in 1887 and is headquartered in Houston, Texas. It operates as an independent exploration and production company in the United States and internationally. The company returned $1,176 million to equity holders in the third quarter of 2022, a record for shareholder distributions, including $1,122 million of share repurchases and $54 million of base dividends. Marathon Oil Corporation (NYSE:MRO) is one of the most undervalued large cap stocks to monitor.
On January 13, Piper Sandler analyst Mark Lear reiterated an Overweight rating on Marathon Oil Corporation (NYSE:MRO) but lowered the firm’s price target on the shares to $40 from $42.
According to Insider Monkey’s Q3 data, Ken Fisher’s Fisher Asset Management held the largest position in Marathon Oil Corporation (NYSE:MRO), with 8.3 million shares worth $188 million. Overall, 50 hedge funds were bullish on the stock at the end of September 2022.
Here is what Carillon Tower Advisers had to say about Marathon Oil Corporation (NYSE:MRO) in its “Carillon Clarivest Capital Appreciation Fund” first-quarter 2022 investor letter:
“Stock selection contributed the most while sector allocation was also positive. An underweight to communication services and an overweight to energy helped performance, while an underweight to consumer staples and an overweight to materials detracted. Stock selection was strong within healthcare and materials but was weak within information technology and industrials. Marathon Oil (NYSE:MRO) increased its quarterly dividend and executed an impressive share buyback that blew by the target it originally announced.”
12. Marathon Petroleum Corporation (NYSE:MPC)
Number of Hedge Fund Holders: 50
P/E Ratio as of January 24: 5.75
Marathon Petroleum Corporation (NYSE:MPC) is an integrated downstream energy company primarily in the United States. It operates through two segments, Refining & Marketing, and Midstream. In Q3 2022, the company announced a dividend increase of approximately 30% to $0.75 per share. It is one of the most undervalued large cap stocks to invest in according to smart investors.
On January 9, Barclays analyst Theresa Chen raised the firm’s price target on Marathon Petroleum Corporation (NYSE:MPC) from $126 to $130 and maintained an Overweight rating on the shares. She expects the company to report another quarter of strong Refining & Marketing earnings due to the favorable macroeconomic conditions.
According to Insider Monkey’s data, Marathon Petroleum Corporation (NYSE:MPC) was part of 50 hedge fund portfolios at the end of Q3 2022, and Paul Singer’s Elliott Management is the biggest stakeholder of the company, with 11 million shares worth over $1 billion.
Here is what Clark Street Value has to say about Marathon Petroleum Corporation (NYSE:MPC) in its Q4 2021 investor letter:
“During the worst of covid, I bought some LEAPs on Marathon Petroleum (MPC) as a proxy for Par Pacific (PARR) since long dated options weren’t available on the later. Those MPC calls expire next month and I’ll take profits, with PARR I’ve reduced my position throughout the year and might sell the rest early next year, I’ve owned it for 6-7 years and it has gone nowhere, they haven’t touched the NOLs, just a difficult business that I probably don’t understand as well as I should.”
11. Devon Energy Corporation (NYSE:DVN)
Number of Hedge Fund Holders: 51
P/E Ratio as of January 24: 6.76
Devon Energy Corporation (NYSE:DVN) is an independent energy company that primarily focuses on the exploration, development, and production of oil, natural gas, and natural gas liquids in the United States. The company reported Q3 net earnings of $1.9 billion, or $2.88/ per share, and operating cash flow rose 32% year-over-year to $2.1 billion. It is one of the most undervalued large cap stocks to consider.
On January 24, Wells Fargo analyst Roger Read initiated coverage of Devon Energy Corporation (NYSE:DVN) with an Equal Weight rating and a $70 price target. The company’s recent purchases and current resources are in line with Devon Energy Corporation (NYSE:DVN)’s aim of producing up to 5% more annually. However, the rating is neutral because the market is aware of the stock’s recent performance, according to the analyst. Additionally, the analyst noted that Devon Energy Corporation (NYSE:DVN) should use more of its free cash flow to buy back shares in order to improve metrics over time.
According to Insider Monkey’s data, 51 hedge funds were bullish on Devon Energy Corporation (NYSE:DVN) at the end of Q3 2022, compared to 57 funds in the prior quarter. Rajiv Jain’s GQG Partners is the biggest stakeholder of the company, with 10.6 million shares worth $642 million.
In its Q2 2022 investor letter, GoodHeaven Capital Management, an asset management firm, highlighted a few stocks and Devon Energy Corporation (NYSE:DVN) was one of them. Here is what the fund said:
“Our biggest dollar gainer within this period was Devon Energy Corporation (NYSE:DVN), a position which emanated from a takeover in early 2021 of our long-time holding WPX Energy. We are sitting on a material (unrealized) gain from our cost and are now receiving material dividends thanks to Devon’s thoughtful fixed/variable dividend policy. Energy is now a hot sector for investors but we have had material exposure for a long time. We remember a bit too well $40 oil, NEGATIVELY PRICED front-month oil contract, and what it’s like to own a company with leverage and negative free cash flow during such periods. Our desire to have our biggest portfolio exposures be high-return, growing, reasonably predictable and moderately levered companies led us to reduce our Devon exposure in the past. When the recent facts and circumstances for the industry changed and appeared supportive of healthy oil prices, we decided to maintain a sizable holding and more recently added to the position. At Devon’s Q1 dividend rate, which is most variable in nature, the shares now yield approximately 10% and our yield on our average cost is materially higher. In addition, we maintain additional energy exposure through our long-term (and successful) holding in Hess Midstream and less directly through TerraVest and Berkshire Hathaway’s energy investments.”
10. Nutrien Ltd. (NYSE:NTR)
Number of Hedge Fund Holders: 52
P/E Ratio as of January 24: 5.60
Nutrien Ltd. (NYSE:NTR) offers potash, nitrogen, phosphate, and sulfate products. The company also distributes crop nutrients, crop protection products, and seeds. Nutrien Ltd. (NYSE:NTR) was founded in 2017 and is headquartered in Saskatoon, Canada. It is one of the most undervalued large cap stocks to buy according to elite investors.
On January 24, UBS analyst Joshua Spector maintained a “Buy” rating and a $103 price target on Nutrien Ltd. (NYSE:NTR) and has designated it as a Top Pick in a research note titled “2023 Fertilizer Outlook”. The analyst believes that while fertilizer prices are expected to be lower, it will be partially offset by lower input costs for natural gas. Additionally, the analyst noted that the seasonal peak in demand during spring will provide support for pricing and act as a positive catalyst for the company.
According to Insider Monkey’s third quarter database, 52 hedge funds were long Nutrien Ltd. (NYSE:NTR), compared to 48 funds in the last quarter. Jean-Marie Eveillard’s First Eagle Investment Management is the largest stakeholder of the company, with 8.4 million shares worth $701.8 million.
ClearBridge Investments made the following comment about Nutrien Ltd. (NYSE:NTR) in its Q3 2022 investor letter:
“However, we believe this is exactly the kind of environment that separates the highest-quality companies from their peers and allows them to strengthen their competitive positioning. For example, Nutrien Ltd. (NYSE:NTR), a Canadian fertilizer company, was a top contributor during the quarter. While the war in Ukraine and economic sanctions on Russia have significantly reduced the output of two of the world’s largest agricultural producers, Nutrien has benefited from a strong global agricultural cycle and from farmers seeking to increase their output and capitalize on higher agricultural prices.”
9. Diamondback Energy, Inc. (NASDAQ:FANG)
Number of Hedge Fund Holders: 55
P/E Ratio as of January 24: 5.98
Diamondback Energy, Inc. (NASDAQ:FANG) is a Texas-based independent oil and natural gas company that has oil and natural gas reserves in the Permian Basin in West Texas and New Mexico. It is one of the most undervalued large cap stocks to invest in. On January 24, Wells Fargo analyst Roger Read initiated coverage of Diamondback Energy, Inc. (NASDAQ:FANG) with an Overweight rating and $181 price target. The analyst cited the company’s core Permian assets, solid execution, and leading free cash flow payout as reasons for a positive outlook. The analyst also noted that share catalysts include cash returns and early results of recent bolt-on acquisitions.
According to Insider Monkey’s data, Diamondback Energy, Inc. (NASDAQ:FANG) was part of 55 hedge fund portfolios at the end of the third quarter of 2022, compared to 54 in the prior quarter. Donald Yacktman’s Yacktman Asset Management is the largest position holder in the company, with 1.26 million shares worth $152 million.
In its Q1 2021 investor letter, Miller Value Partners, an asset management firm, highlighted a few stocks and Diamondback Energy, Inc. (NASDAQ:FANG) was one of them. Here is what the fund said:
“Diamondback Energy (FANG) returned 14.4% in the quarter as the oil price rose and fell during the quarter ending the period largely in the same place that it started. The company reported strong 3Q results beating on the top and bottom lines. The company reported revenue of $1.9B beating the consensus of $1.5B with EPS of $2.94 beating expectations for $2.79. The beat was driven by a combination of higher volumes, higher realizations, and efficiency gains. The company increased its total production guidance for the year to 370-372 mboe/d1 (up from 363-370 mboe/d) while lowering Capital Expenditure (CAPEX) guidance for the second time this year to $1.49-1.53B. The company raised the dividend for the third time this year to $2/share annually while authorizing a new $2B share repurchase program. Starting in 4Q21, the company plans to return 50% of Free Cash Flow to shareholders through the base dividend and a combination of buybacks and special dividends. Finally, the CEO Travis Stice announced plans to reduce methane emissions by 70% as part of the firm’s ESG initiative.”
8. EQT Corporation (NYSE:EQT)
Number of Hedge Fund Holders: 57
P/E Ratio as of January 24: 5.40
EQT Corporation (NYSE:EQT) is a Pennsylvania-based natural gas production company that provides natural gas, natural gas liquids, and crude oil in the United States. The company raised the year-end 2023 debt reduction target from $2.5 billion to $4.0 billion, maintaining a 1.0-1.5x long-term leverage target. EQT Corporation (NYSE:EQT) is one of the most undervalued large cap stocks to invest in according to smart investors.
On January 24, Wells Fargo analyst Roger Read initiated coverage of EQT Corporation (NYSE:EQT) with an Overweight rating and a $41 price target. The company is the largest U.S. natural gas producer and one of the biggest exploration and production companies by volume and resource base. The analyst anticipates modest growth for EQT Corporation (NYSE:EQT) through 2025 due to market access limitations but views the company’s overreliance on gas as a “modest headwind for equity performance” in 2023.
According to Insider Monkey’s data, Eric W. Mandelblatt’s Soroban Capital Partners is the largest position holder in EQT Corporation (NYSE:EQT) as of September 2022, with 6.5 million shares worth $263.6 million.
Here is what ClearBridge Investments Mid Cap Strategy has to say about EQT Corporation (NYSE:EQT) in its Q3 2022 investor letter:
“We also added natural gas company EQT (NYSE:EQT) in the energy sector. As one of the lowest-cost domestic producers, EQT stands to benefit from its position as a leading supplier of natural gas to a world suffering from critically low energy reserves. The Russian invasion of Ukraine and threats to hold natural gas exports hostage have spurred a surge in European energy prices, generating long-term agreements by European countries to purchase U.S. natural gas.
This strong demand and elevated prices have helped EQT strengthen its balance sheet and position it to take advantage as opportunities emerge for natural gas to plug the gaps in the global energy transition from fossil fuels to renewables.”
7. AT&T Inc. (NYSE:T)
Number of Hedge Fund Holders: 61
P/E Ratio as of January 24: 7.95
AT&T Inc. (NYSE:T) is an American multinational telecommunications holding company that specializes in wireless voice and data communications services. AT&T Inc. (NYSE:T) is one of the most undervalued large cap stocks to monitor. On December 15, the company declared a $0.2775 per share quarterly dividend, in line with previous. The dividend is payable on February 1, to shareholders of record on January 10.
On January 24, Citi analyst Michael Rollins raised the firm’s price target on AT&T Inc. (NYSE:T) to $22 from $20 and kept a Buy rating on the shares. The analyst expects AT&T Inc. (NYSE:T) to report generally in-line financials when it posts Q4 earnings on January 25th. The analyst is positive on the prospects for the company to guide for financial growth on overall service revenue, EBITDA, and free cash flow for 2023.
According to Insider Monkey’s data, 61 hedge funds were bullish on AT&T Inc. (NYSE:T) at the end of the third quarter of 2022, compared to 55 funds in the prior quarter. D E Shaw is the biggest position holder in the company, with 14 million shares worth $214.3 million.
Here is what Chartwell Investment Partners has to say about AT&T Inc. (NYSE:T) in its Q2 2022 investor letter:
“In the Dividend Equity accounts, the three best performers in Q2 include AT&T (NYSE:T, 2.5%), up 17.1%. AT&T completed the spin off of the WarnerMedia business (HBO, CNN, etc.), and the market seemed to like the “back-to-basics” approach. Also, the telco business is expected to do relatively well in an inflationary environment.”
6. Verizon Communications Inc. (NYSE:VZ)
Number of Hedge Fund Holders: 62
P/E Ratio as of January 24: 8.61
Verizon Communications Inc. (NYSE:VZ) is a New York-based company that offers communications, technology, information, and entertainment products and services worldwide. On January 24, the company reported a Q4 non-GAAP EPS of $1.19, in line with market consensus. The revenue of $35.3 billion climbed 3.5% year-over-year, beating analysts’ estimates by $160 million. In 2023, Verizon Communications Inc. (NYSE:VZ) expects capital spending in the range of $18.25 billion to $19.25 billion.
On December 16, Tigress Financial analyst Ivan Feinseth maintained a Buy rating on Verizon Communications Inc. (NYSE:VZ) but lowered the firm’s price target on the shares to $64 from $68. The analyst believes that Verizon Communications Inc. (NYSE:VZ)’s investments in building out its 5G network will start to pay off in the future, leading to improved operational and financial performance. The target drop is due to the share re-rating, but the analyst highlighted that the long-term 5G wireline and wireless subscriber growth “remains the big picture.”
According to Insider Monkey’s data, Verizon Communications Inc. (NYSE:VZ) was part of 62 hedge fund portfolios at the end of September 2022, compared to 58 in the prior quarter. Ken Griffin’s Citadel Investment Group is the largest stakeholder of the company, with 5.2 million shares worth $200.4 million.
In addition to General Motors Company (NYSE:GM), Occidental Petroleum Corporation (NYSE:OXY), and Intel Corporation (NASDAQ:INTC), Verizon Communications Inc. (NYSE:VZ) is one of the most undervalued large cap stocks to invest in according to elite hedge funds.
Here is what Mawer Investment Management has to say about Verizon Communications Inc. (NYSE:VZ) in its Q3 2022 investor letter:
“There are a few other segments of our portfolios that displayed weakness in the quarter. Cable and telecommunication companies have been an area that has lagged the broader market as their worlds are increasingly colliding. Companies such as Verizon (NYSE:VZ) have been impacted as wireless operators are spending heavily to attract internet subscribers with fixed wired access and the cable companies are trying to build wireless businesses.”
Click to continue reading and see 5 Most Undervalued Large Cap Stocks To Buy According To Hedge Funds.
Suggested articles:
- 11 Most Undervalued Foreign Stocks To Buy
- 15 Most Undervalued NASDAQ Stocks
- 11 Most Undervalued Natural Gas Stocks To Buy
Disclosure: None. 15 Most Undervalued Large Cap Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.