February 14th is a beautiful day not only because it’s Valentines Day but because it’s also exactly 45 days after the Q4 calendar date. Why’s that important?
It is important because institutional investors who manage over $100 million in assets must submit a form called the 13F-HR to the SEC within 45 days after each quarter date. It is also one of the better-kept secrets in investing. In the Form 13F, managers have to disclose their holdings giving intelligent observers a sneak peek into their strategy and investments.
It is important to note that these filings represent positions held as of December 31st and not necessarily reflective of a fund’s current stock holdings. However, analyzing thousands of stocks listed on U.S. exchanges is likely impossible for smaller investors. That’s why it is still helpful to leverage the resources from distinguished money managers in order to help narrow down a watch-list.
- are being bought by more than one money manager, and
- are trading below their intrinsic value.
For number (1), finbox.io compares the two most recent 13F filings for a given asset manager to find stock holdings that have increased from the previous quarter.
For number (2), I determined which stocks are trading below their intrinsic value by using the finbox.io Fair Value estimate. This estimate is derived by applying valuation and risk models like discounted cash flow analysis, dividend discount model, earnings power value and more.
I also wanted to blend in some indication of which stocks might be ready to make a move up soon because they’re popular with Wall Street analysts. Therefore I calculated an average using the finbox.io fair value upside and analyst upside to create a blended upside which I then used to rank the most undervalued holdings.
Here are the 10 most undervalued stocks that top money managers are buying.
Undervalued Stocks Fund Managers Are Buying: Parsley Energy (PE)
Parsley Energy Inc (NYSE:PE) deals in the acquisition, development, production, exploration, and sale of crude oil and natural gas properties in the U.S.
Andreas Halvorsen is the investor leading Viking Global which manages over $30 billion in assets. His firm’s latest 13F filing revealed that he added $301.6 million worth of Parsley Energy shares over the quarter.
Leon Cooperman also added $43.7 million to his position.
Shares of the company are down -6.8% over the last three months. The stock last traded at $23.53 as of Thursday morning and six separate valuation analyses imply that there is 24.0% upside relative to its current trading price. Wall Steet’s more bullish on the stock’s potential upside with an average price target of $38.30 per share.
Undervalued Stocks Fund Managers Are Buying: Walgreens Boots Alliance (WBA)
Walgreens Boots Alliance Inc (NASDAQ:WBA) is a massive pharmacy company.
Larry Robbins is the investor behind Glenview Capital Management which manages more than $17 billion. Glenview’s most recent 13F filing highlighted that Robbins added a huge stake of $492.4 million to his Walgreens position. This brings the firms total holdings to $496 million or 2.9% of the portfolio.
Similarly, Ray Dalio added $20.6 million.
Shares of Walgreens Boots Alliance Inc are down -3.9% over the last three months and finbox.io’s fair value estimate of $95.00 per share calculated from ten cash flow models imply 39.0% upside. The average price target from 23 Wall Street analysts of $86.13 per share similarly imply upside.
Undervalued Stocks Fund Managers Are Buying: First Data (FDC)
First Data Corp (NYSE:FDC) is an electronic commerce solutions company for retail, financial institutions, and card issuers worldwide.
Barry Rosenstein of Jana Partners added $75.8 million of First Data Corp shares bringing his total to $244.0 million or 6.3% of Jana’s portfolio.
Larry Robbins added $175.5 million worth of stock in the fourth quarter bringing his total position to $459.1 million.
First Data Corp’s stock currently trades at $15.77 per share as of Thursday morning, down -5.4% over the last three months. Finbox.io’s nine valuation analyses suggest that shares could increase 25.3% going forward.
Undervalued Stocks Fund Managers Are Buying: CVS Health (CVS)
CVS Health Corp (NYSE:CVS) is another massive pharmacy corporation.
Ray Dalio is the billionaire investor that founded Bridgewater, one of the largest hedge funds on Wall Street. Through his firm, he purchased a new $30.5 million stake in CVS Health Corp.
Furthermore, Larry Robbins also purchased $395.3 million worth of shares in the company. It appears that he was quite active in the fourth quarter!
The company’s stock is relatively flat over the prior three months. But the stock price could end up trading 28.0% higher in 2018 based on CVS Health Corp’s future cash flow projections.
Undervalued Stocks Fund Managers Are Buying: Broadcom Ltd (AVGO)
Broadcom Ltd (NASDAQ:AVGO) designs and develops a range of semiconductor devices worldwide.
Ken Griffin is the investor behind Chicago based Citadel Advisors. He’s now the 36th richest American with a net worth that increased by over $1 billion since last year. What will likely help Griffin continue moving up the ranks is his most recent $683.7 million addition to Citadel’s Broadcom position.
Andreas Halvorsen also reported new Broadcom purchases of $617.5 million.
Broadcom Ltd’s stock currently trades at $246.80 per share as of February 15th, down -6.8% over the last three months. On a fundamental basis, the company’s stock is trading at a 17.2% discount to finbox.io’s intrinsic value estimate.
It is important to note that Broadcom made a proposal to acquire QUALCOMM Inc (Nasdaq: QCOM) for approximately $110 billion on November 6th, 2017. As of February 13th, Broadcom notified Qualcomm of its intention to nominate 6 new board members at Qualcomm’s 2018 annual meeting which is to be scheduled on March 6th. If elected, these six nominees would constitute a majority of Qualcomm’s 11-person board.
Undervalued Stocks Fund Managers Are Buying: Comcast (CMCSA)
Comcast Corporation (NASDAQ:CMCSA) is a global telecommunications and media company.
Steven Cohen has an estimated worth of $13 billion and is the investor behind Point72 Asset Management. He is one of the more controversial money managers that you’ll find but investing morality aside, you cannot deny his superior returns.
Cohen’s latest 13F filing revealed that he added $235.5 million worth of Comcast shares over the quarter. At 1.4% of the entire portfolio, this is now his 8th largest equity position.
Two other fund managers added to their Comcast stakes including Ken Griffin and Barry Rosenstein.
Shares of the company are up 6.1% over the last three months. The stock last traded at $39.41 as of Thursday and eleven separate valuation analyses imply that there is 6.0% upside relative to its current trading price. However, the consensus Wall Street price-target of $49.07 per share implies nearly 25.0% upside.
Undervalued Stocks Fund Managers Are Buying: Facebook (FB)
As if this social media company requires an introduction, Facebook Inc (NASDAQ:FB) controls the massive Facebook social-media empire.
A total of six hedge fund managers bought share of Facebook in Q4’17.
Forbes listed David Tepper as one of the 25 highest-earning hedge fund managers in 2017. He is the founder and president of Appaloosa Management, a global hedge fund based in Short Hills, New Jersey. The hedge fund added $393.4 million worth of Facebook stock in Q4.
Chase Coleman as an estimated worth of $2.2 billion and is the investor behind Tiger Global Management. Tiger Global manages $20 billion of assets and has a long record of delivering fantastic returns. The hedge fund revealed that it purchased more than $100 million worth of Facebook shares in Q4.
Scott Ferguson, a protégé of Pershing Square Capital Management’s Bill Ackman, also purchased shares of Facebook in the fourth quarter. This position alone now represents nearly 10% of Sachem Head Capital Management’s portfolio.
Other notable investors buying Facebook stock include James Dondero, Barry Rosenstein and Ken Griffin.
Shares of Facebook, Inc. are roughly flat over the last three months. Finbox.io’s fair value estimate of $187.49 per share calculated from seven cash flow models implies only 4.0% margin of safety. However, the average price target from 42 Wall Street analysts of $222.81 per share implies 24.1% upside.
Undervalued Stocks Fund Managers Are Buying: Centurylink (CTL)
Centurylink Inc (NYSE:CTL) is a communication services company.
John Paulson is best known for his 2007 bet against the U.S. housing market where he reportedly earned over $4 billion personally on one trade. Paulson purchased a new position in Centurylink worth $33.4 million in the fourth quarter.
Centurylink Inc’s stock last traded at $19.30 per share as of Thursday morning, up 18.9% over the last three months. Finbox.io’s four valuation analyses suggest that shares could increase another 7.1% going forward.
Undervalued Stocks Fund Managers Are Buying: Apple Inc.
Another company that needs no introduction: Apple Inc. (NASDAQ:AAPL).
Warren Buffett is considered one of the best investors in the world and has a total net worth of over $80 billion. Through Berkshire Hathaway, Buffett makes long-term investments as illustrated by the portfolio’s low QoQ turnover rate. As a result, it is notable when Buffett enters into a new position or adds to a position like he has with Apple. Berkshire Hathaway’s most recent 13F revealed a huge $5.3 billion purchase of Apple in Q4’17. The stock now represents almost 15% of Buffett’s portfolio.
David Tepper and Louis Bacon also reported Apple purchases of $546.1 million and $152.3 million, respectively.
Shares of Apple are trading -1.0% lower over the prior three months. However, Wall Street is particularly bullish on the company. The average price target of $192.43 calculated from 35 analysts suggest a 15.0% margin of safety.
Undervalued Stocks Fund Managers Are Buying: Time Warner (TWX)
Time Warner Inc (NYSE:TWX) is a large media and entertainment company.
Seth Klarman, via The Baupost Group, purchased a new $740.9 million position in Time Warner in Q4’17 (7.6% of his firm’s portfolio). Klarman, along with Warren Buffett, is regarded as one of the most successful value investors in the world.
Time Warner Inc’s stock trades at $94.49 per share, up 8.2% over the last three months. On a fundamental basis, the company’s stock is trading at a slight premium to finbox.io’s intrinsic value estimate. However, Wall Street’s average price target of $105.41 per share implies 12% upside (slightly below the deal value of $107.50 per share).
These fund managers obviously expect the AT&T merger to succeed.
10 Most Undervalued Stocks Fund Managers Are Buying
In conclusion, the table below ranks all ten stocks by their blended upside.
There’s a reason why investors track holdings of top institutional fund managers to get inspiration for their portfolios, it works. If you’re not currently using 13F forms to find attractive stocks, chances are you’re leaving money on the table.
This list will be updated again when new 13F filings are released in May.
Matt Hogan is a co-founder of finbox.io. His expertise is in investment decision making. Prior to finbox.io, Matt worked for an investment banking group providing fairness opinions in connection to stock acquisitions. He spent much of his time building valuation models to help clients determine an asset’s fair value. He believes that these same valuation models should be used by all investors before buying or selling a stock. Matt can be reached at firstname.lastname@example.org. As of this writing, he did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.