We recently published a list of 10 Wonderful Stocks to Buy Now at a Fair Price. In this article, we are going to take a look at where MetLife, Inc. (NYSE:MET) stands against other wonderful stocks to buy now at a fair price.
In H2 of the year so far, there are signs that the S&P 500 index has been broadening beyond technology leadership and the index is reverting to a more normalized state. This means that there are several high-quality stocks outside of the popular names and investors are required to be diversified. This diversification should not be limited to the style level, but also to the stock level. Market experts opine that the AI theme has largely fuelled the narrow market. This concentration, along with an increase in passive investments, resulted in a significant cycle of consensus positioning and stretched valuations. This led to the vulnerability in the market, which resulted in a sharp correction in July and early August.
As per Fidelity International, when it comes to passive investing in the S&P 500, it demonstrates nearly a third of holdings in only 7 stocks. Considering their dominance, a stumble in performance means the index will see a significant impact, and the investors have already seen some mega-cap technology names that are unable to deliver on strong expectations.
S&P 500 Index – Transition and Concentration
The US equities saw an outstanding performance in H1 2024, with the S&P 500 Index rising 15.3%, as per ClearBridge Investments (A Franklin Templeton Company). The investment firm believes that solid earnings results and fiscal stimulus mitigated the influence of higher interest rates. However, the headline performance numbers, aided by a ramp-up in mega-cap stocks and, more specifically, semiconductor leadership, eclipsed the recent signs of deterioration below the surface.
Since the Mag 7 stocks have disproportionately driven earnings growth over the previous 2 years, ClearBridge Investments expects a rebound in earnings among small-cap stocks in the upcoming 12– 18 months. The investment firm believes that small-cap companies have seen the impacts of higher rates. In 2023, profits for Russell 2000 companies declined ~12%. This year, they are up ~13.6%, and for 2025, the projections hover at around ~31%. If this happens, there might be a broadening of the market which should provide an opportunity for active managers.
Opportunities Apart from Magnificent Seven
Companies that are unable to meet hefty expectations might see a disproportionate sell-off, and the stocks riding the wave of AI might be significantly exposed considering the amount of capital deployed versus the uncertain future environment. Given such trends, Fidelity International believes it is unsurprising that so far in H2 2024, there have been signs that the S&P 500 is broadening beyond tech leadership, with some non-tech sectors surpassing the broader market.
There are abundant high-quality stocks apart from the popular names. This means that dozens of companies in the S&P 500 continue to offer a return on invested capital (ROIC) and earnings growth of more than 30%. This is true for several other quality metrics, reflecting an underappreciated depth of opportunity in the broader US equities.
While diversification remains critical, even looking beyond the Magnificent Seven might not necessarily offer the required diversification considering that the US market remains heavily weighted towards growth sectors like IT. As per Fidelity International, diversified portfolios need negative correlations between assets, but few styles provide consistent negative correlations to quality growth companies. That being said, cyclical value and defensive value remain 2 key exceptions.
To get a negative correlation, the investors are required to avoid an overlap at the stock level. As of now, the US market provides a range of attractive stock opportunities that offer this valuable diversification.
As per ClearBridge Investments, the top 5 stocks now constitute ~27% of the S&P 500 and the top 10 make up ~37%. As per the investment firm, this concentration might stagnate near current levels, with mega caps delivering solid, but slower, earnings growth in comparison to the recent past. The investment firm expects that diversified portfolios should outperform in the upcoming 12–18 months.
With this in mind, we will now have a look at 10 Wonderful Stocks to Buy Now at a Fair Price.
Our methodology
We first sifted through multiple online rankings and ETFs to identify quality stocks with wide moats. Next, we selected stocks that were trading at a forward P/E of less than ~23.65x (since the broader market trades at a forward multiple of ~23.65, as per WSJ). The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A closeup of a person reading through a document outlining the advantages of life insurance.
MetLife, Inc. (NYSE:MET)
Expected Earnings Growth: 18.6%
Number of Hedge Fund Holders: 37
Forward P/E Multiple (As of September 30): 8.42x
MetLife, Inc. (NYSE:MET) is a financial services company, which provides insurance, annuities, employee benefits, and asset management services worldwide.
Wall Street analysts believe that MetLife, Inc. (NYSE:MET) enjoys a wide economic moat, stemming from its considerable operating scale, strong brand name, and robust investment capabilities. Furthermore, the company’s strong business diversification by product and market strengthens its economic moat.
Wall Street is optimistic about its new five-year strategic plan, “New Frontier,” with diverse business segments expected to drive recurring cash flow and solid capital and cash positions. “New Frontier” should continue to focus on growth, returns, and consistency. The strong recurring cash flow and a robust capital and cash position should help MetLife, Inc. (NYSE:MET) in delivering shareholder capital returns. That being said, healthy economic growth and real estate fundamentals are expected to act as critical tailwinds.
MetLife, Inc. (NYSE:MET)’s strong performance in Group Benefits and favorable outlook for its PRT business and Asian markets hint at the proactive approach to navigating the broader insurance industry landscape. In Q2 2024, its net investment income and adjusted net investment income came in at $5.2 billion, reflecting a rise of 3% and 2%, respectively on the YoY basis. Growth was aided by increased interest rates and higher variable investment income.
Experts believe that MetLife, Inc. (NYSE:MET)’s growth trajectory should continue largely due to the prospects for sustained earnings growth, which is aided by its Group Benefits business in the US and Mexico and by its growing presence in Asia.
Analysts at Citigroup upped their price objective on the shares of MetLife, Inc. (NYSE:MET) from $83.00 to $89.00, giving a “Buy” rating on 23rd July. As of the second quarter, 37 hedge funds (out of 912 hedge funds tracked by Insider Monkey) owned stakes in the company.
Overall, MET ranks 9th on our list of Wonderful Stocks to Buy Now at a Fair Price. While we acknowledge the potential of MET as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than MET but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.