In this piece, we will take a look at the ten most undervalued stocks to buy that are trading under $20. If you want to skip our overview of the stock market and the latest trends, then you can take a look at the 5 Most Undervalued Stocks to Buy for Under $20.
Slowly and steadily, the stock market is on its way fully forgetting the trauma of 2022. Back then, rapid and large interest rate hikes by the Federal Reserve coupled with an inflationary spike from the Russian invasion of Ukraine and the lax monetary policies of the coronavirus pandemic had depressed stocks and shocked high growth areas such as consumer technology and biotechnology. Then, the tail end of 2022 saw artificial intelligence stocks become the market's saving grace, and with a quarter of 2024 behind us, major stock indexes have soared to set new records.
One of the more popular approaches to investing is sifting out undervalued stocks. These are stocks that are believed to be trading below their intrinsic value on the stock market, and investors pile into them with the hopes that the price can appreciate in the future to provide a profit taking opportunity. One popular way of sifting out undervalued stocks is by looking at a firm's price to earnings ratio. There are primarily three kinds of P/E ratios. These are the price to trailing, the price to forward, and the price to current earnings ratios. The three divide the share price with the latest four quarter earnings, the forecast earnings, and the latest annual earnings, respectively. Among these, the trailing and forward earnings ratios are most commonly used.
When it. comes to sifting out undervalued stocks from the thousands that change hands on markets every day, the P/E ratio is compared with the industry average. If it's lower than the industry average or other comparable firms, then the stock is undervalued. Another method to see whether a stock might be undervalued is by looking at its analyst share price target. The greater the positive difference between the price target and the actual price, the more the stock is undervalued. This approach also ties into the broader approach of value investing that has been followed by Wall Street greats such as Warren Buffett of Berkshire Hathaway and Seth Klarman of Baupost Group. If you're interested in some value stocks, then you can take a look at 13 High Growth Value Stocks to Invest in According to Seth Klarman.
Building on this, one could argue that if the correct undervalued stocks are picked, then the hypothesis of them delivering returns through share price performance as the market 'catches on' to underlying fundamental strengths can also lead to hefty returns. One way in which one can pick out the right undervalued stocks is to look at what the hedge funds are doing. If you've been following Insider Monkey regularly and have subscribed to our newsletter, you'll know that we regularly cover hedge fund stock picks. One such piece covered the top hedge fund undervalued small cap stock picks in December 2023 that used hedge fund holdings for the third quarter of 2023. By analyzing the performance of these stocks over the past six months, we can see whether undervalued stocks, particularly those picked by hedge funds are really worth their salt.
In good news for the hedge funds (and for us) the average share price performance of these 16 stocks, i.e. the sum of their negative or positive percentage price movements divided by the number of the stocks, is 9.59%. So, had you invested in these stocks by the end of September 2023, your money would be worth 9.59% more. The next thing to check for these undervalued stocks is to see their performance bands. Within this list, the best performing value stock was Dave & Buster's Entertainment, Inc. (NASDAQ:PLAY), while the worst performing undervalued stock was Herbalife Ltd. (NYSE:HLF). The two stocks' six month share price performance is 84.84% and -40.95%, respectively.
One undervalued hedge fund stock pick that hasn't done so well is Target Hospitality Corp. (NASDAQ:TH). So, what were the hedge funds saying about this stock (down 30.54%) at the close of the fourth quarter of 2023, i.e., three months after our investment horizon?
For the detractors, the largest was Target Hospitality. This was an event-driven investment predicated on a thesis that government contracts relating to the crisis at the US Southern Border would lead to a meaningful re-rating of the company’s equity. Ultimately, our thesis on the company receiving the contract was correct although the structure of the contract was suboptimal. If the structure was more fortuitous, this investment would have made us multiples of what we lost, so this is why we thought the risk-reward was attractive ex ante.
So, if you're wondering which undervalued stocks under $20 are on the hedge fund radar, take a look below to find out. A couple of notable picks are Petróleo Brasileiro S.A. - Petrobras (NYSE:PBR), Southwestern Energy Company (NYSE:SWN), and Roivant Sciences Ltd. (NASDAQ:ROIV).
10 Most Undervalued Stocks to Buy for Under $20
A money manager at a desk crowded with financial reports and data screens.
Our Methodology
For our list of the most undervalued stocks under $20, we first compiled stocks with a share price lower than $20, a trailing P/E ratio under 15, and average analyst ratings of Buy or better and picked out the 40 with the lowest P/E ratios. These were then re ranked by the number of hedge funds that had bought the shares during Q4 2023 end and the undervalued stocks with the highest number of hedge fund shareholders were chosen.
For these undervalued stocks under $20, we used hedge fund sentiment. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by more than 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
Weibo Corporation (NASDAQ:WB) is one of China's biggest social media companies known primarily for its Weibo social network. Its shares are rated Buy on average, and the average analyst share price target is $13.24.
By the end of last year's fourth quarter, 19 out of the 933 hedge funds covered by Insider Monkey's research were Weibo Corporation (NASDAQ:WB)'s shareholders. It joins Petróleo Brasileiro S.A. - Petrobras (NYSE:PBR), Southwestern Energy Company (NYSE:SWN), and Roivant Sciences Ltd. (NASDAQ:ROIV) in our list of the most undervalued stocks that hedge funds are buying.
Heritage Insurance Holdings, Inc. (NYSE:HRTG) is a mid sized insurance company headquartered in Tampa, Florida. Its shares are rated Buy on average, but the average share price target of $10 is lower than the current share price. Heritage Insurance Holdings, Inc. (NYSE:HRTG)'s stock has been quite hot as of late, with the price up a whopping 90% over the past six months.
During 2023's Q4, 19 out of the 933 hedge funds part of Insider Monkey's database had bought and owned Heritage Insurance Holdings, Inc. (NYSE:HRTG)'s shares. Richard Driehaus's Driehaus Capital was the biggest shareholder due to its $12.4 million investment.
TransAlta Corporation (NYSE:TAC) is a Canadian utility headquartered in Calgary, Alberta. It has more than six thousand megawatts of power generation capacity in its portfolio. The average analyst share price target for TransAlta Corporation (NYSE:TAC) is $10.52, making it quite an undervalued stock.
For their fourth quarter of 2023 shareholdings, 19 out of the 933 hedge funds profiled by Insider Monkey were the firm's shareholders. David Rosen's Rubric Capital Management owned the biggest stake in TransAlta Corporation (NYSE:TAC) which was worth $42.7 million.
7. Vodafone Group Public Limited Company (NASDAQ:VOD)
Number of Q4 2023 Hedge Fund Shareholders: 24
Trailing P/E Ratio: 2.09
Latest Share Price: $8.62
Vodafone Group Public Limited Company (NASDAQ:VOD) is a mega British telecommunications carrier headquartered in Newbury, the United Kingdom. It's the first stock on our list of most undervalued stocks which is rated Strong Buy on average; however, April 2024 is seeing increased regulatory scrutiny for Vodafone Group Public Limited Company (NASDAQ:VOD)'s multi billion pound merger on the back of potential high prices for consumers.
As of December 2023 end, 24 out of the 933 hedge funds polled by Insider Monkey had bought and owned Vodafone Group Public Limited Company (NASDAQ:VOD)'s shares. Out of these, the largest hedge fund investor is Peter Rathjens, Bruce Clarke, and John Campbell's Arrowstreet Capital since it holds $126 million worth of shares.
TEGNA Inc. (NYSE:TGNA) is a mid sized American entertainment and media company that operates television stations. After its revenue dropped by 11% annually in fiscal year 2023, the firm appears to be setting itself up for a more stable year by renewing its contractual obligations, expanding its digital advertising footprint, and allocating close to a billion dollars for share repurchases.
By the end of last year's December quarter, 25 out of the 933 hedge funds tracked by Insider Moneky had invested in the company. TEGNA Inc. (NYSE:TGNA)'s biggest stakeholder among these is Cliff Asness's AQR Capital Management through its $67.8 million stake.
Petróleo Brasileiro S.A. - Petrobras (NYSE:PBR), TEGNA Inc. (NYSE:TGNA), Southwestern Energy Company (NYSE:SWN), and Roivant Sciences Ltd. (NASDAQ:ROIV) are some top hedge fund undervalued stock picks.