In this piece, we will take a look at the 11 most undervalued Dow stocks to buy according to hedge funds. If you want to skip our introduction to one of the most historic stock indexes in America, then head on over to 5 Most Undervalued Dow Stocks To Buy According To Hedge Funds.
The Dow Jones Industrial Average (DJIA) is one of the oldest stock indexes in the world. It was set up in 1896 and holds a central place in the history of the stock market as a result. This also lends the index a special status where the stocks that are included in it are called blue chip stocks, which alludes to their high value and overall stability.
Stocks included in the Dow index do not stay there forever. The index in its current form which is limited to 30 stocks came into being in 1928 when it was expanded to reflect the roaring market conditions of the time. This time period was one of the most prosperous in the early history of the Dow index, as 1928 marked an eight year bull run that had started in 1920. It started after the end of the first world war which had left an economic recession in the United States and it would end with much worse economic circumstances coming in as the Great Depression would start. In terms of percentage point drops in economic activity, the Great Depression would be fifteen times as bad as the contraction during the Great Recession after the economic crisis in 2008. Like the housing crisis, the Great Depression also began in the U.S. and then spread all over the world, with stocks believed to have lost more than three quarters of value during the time period.
After the Great Depression, the next period of turbulence in the Dow would come during the 1970s when the U.S. shifted away from gold and Saudi Arabia led an oil embargo that led to severe inflation all across America along with dropping economic growth as the pumps dried up. The stock market, which as a whole relies on economic growth and prosperity, does not like any turbulence in either the oil supply or the economy, and as a result, the Dow did poorly. The index would continue to withstand turmoil during the next couple of decades, and with the turn of the millennium, it would lag the losses of the NASDAQ and the S&P500 during the time when the devastating September 11 attacks shook markets.
The index's history has also seen several companies come and go. The longest running component of the Dow index is believed to be General Electric Company (NYSE:GE). General Electric is one of the oldest companies in America, and it was part of the original Dow index of 1896. Keeping its place in the list of elite stocks for 122 years, the firm exited the Dow in 2018. True to its name the "Dow Jones 'Industrial' Average," most of the original constituents of the Dow were industrial companies. However, its reshaping has been influenced by trends in the broader U.S. economy, with the latest additions being some of the most consequential firms of today such as Microsoft Corporation (NASDAQ:MSFT) and Apple Inc. (NASDAQ:AAPL). The chairman and managing director of the Dow Indices index's committee Mr. David Blitzer was cognizant of the evolutionary dynamics in the stock market at the time of GE's de-listing, as he commented:
Since then [1907] the U.S. economy has changed: consumer, finance, health care and technology companies are more prominent today and the relative importance of industrial companies is less.
Right now, five out of the 30 stocks in the Dow index are information technology firms, making it the largest sector in the index. After tech, the largest sector in the index is financial services, and together, the pair represent nine out of the 30 companies in the Dow. Currently, the oldest member of the index is The Procter & Gamble Company (NYSE:PG) which was added in 1932 and the three youngest additions are Amgen Inc. (NASDAQ:AMGN), Honeywell International Inc. (NASDAQ:HON), and Salesforce, Inc. (NYSE:CRM). According to S&P Dow Jones, the change was prompted after Apple split its shares four to one, which ended up affecting the index's weights.
Taking stock of the Dow's performance this year, the index has gained a modest 2.91%, which reflects the mixed performance in the U.S. economy. While technology stocks have soared, other areas such as regional banking and real estate haven't fared so well. We've been covering several aspects of Dow stocks this year, so if you're interested in high yielding dividend stocks then check out 12 Highest Yielding Dow Jones Dividend Stocks and if you are interested to see which Dow stocks have the highest upside potential according to Wall Street analysts and are seeing strong hedge fund interest, then click at 12 Most Undervalued Blue Chip Stocks to Buy According to Hedge Funds.
Today, we'll take a look at undervalued Dow stocks to buy according to hedge funds, with the top picks being JPMorgan Chase & Co. (NYSE:JPM), The Walt Disney Company (NYSE:DIS), and UnitedHealth Group Incorporated (NYSE:UNH).
11 Most Undervalued Dow Stocks To Buy According To Hedge Funds
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Our Methodology
To compile our list of the most undervalued Dow stocks to buy according to hedge funds, we first listed the price to trailing earnings ratio of the 30 constituents of the Dow Jones Industrial Average. Then, we chose companies with a P/E ratio of less than 25 and listed down the number of hedge funds that had held their shares as of Q2 2023. Out of these, the top 11 undervalued stocks with the highest hedge fund investors were selected.
11 Most Undervalued Dow Stocks To Buy According To Hedge Funds
Verizon Communications Inc. (NYSE:VZ) is a telecommunications company that was added to the Dow index in 2004. Despite high interest rates expected to slow down spending, the firm is slated to benefit from the growth in the rollout of 5G technologies in America.
53 out of the 910 hedge funds part of Insider Monkey's database had bought Verizon Communications Inc. (NYSE:VZ)'s as of Q2 2023. Out of these, the firm's largest shareholder is Peter Rathjens, Bruce Clarke, and John Campbell's Arrowstreet Capital since it owns 13.1 million shares that are worth $489 million.
Verizon Communications Inc. (NYSE:VZ) joins The Walt Disney Company (NYSE:DIS), JPMorgan Chase & Co. (NYSE:JPM), and UnitedHealth Group Incorporated (NYSE:UNH) in our list of undervalued Dow stocks that hedge funds are buying.
Cisco Systems, Inc. (NASDAQ:CSCO) is a communications products provider that serves the needs of businesses and governments. The firm's shares have seen mixed sentiment from analysts in August, as while Evercore and Jefferies have rated them as Outperform and Buy, Deutsche Bank and Piper Sandler have kept the rating at Hold and Neutral.
As of June 2023, 55 out of the 910 hedge funds polled by Insider Monkey had invested in the company. Cisco Systems, Inc. (NASDAQ:CSCO)'s biggest hedge fund stakeholder is Peter Rathjens, Bruce Clarke, and John Campbell's Arrowstreet Capital courtesy of a stake worth $1 billion.
Amgen Inc. (NASDAQ:AMGN) is the youngest member of the Dow index. A healthcare firm, it develops treatments for cancers, nervous system disorders, and other ailments. Despite the fact that the firm beat analyst EPS estimates by a wide margin for its second quarter, the shares are still down by 1.92% year to date.
During this year's second quarter, 57 hedge funds among the 910 part of Insider Monkey's survey had held a stake in Amgen Inc. (NASDAQ:AMGN). John Overdeck and David Siegel's Two Sigma Advisors is the company's largest shareholder through an investment worth $355 million.
Honeywell International Inc. (NASDAQ:HON) was added to the Dow index at the same time as Amgen. An industrial products manufacturer, its shares have tanked since the latest earnings results as investors were unable to find any signs of short term improvement in the industrial sector.
By the end of 2023's June quarter, 61 out of the 910 hedge funds polled by Insider Monkey had bought the firm's shares. Honeywell International Inc. (NASDAQ:HON)'s biggest hedge fund investor is John Overdeck and David Siegel's Two Sigma Advisors since it owns 1.9 million shares that are worth $406 million.
The Home Depot, Inc. (NYSE:HD) sells home improvement and other associated products. A roaring home building industry has also helped the firm's financial performance, as it has beaten analyst EPS estimates in all four of its latest quarters. The stock is up 2.1% year to date.
Insider Monkey scoured through 910 hedge funds for their second quarter of 2023 shareholdings and discovered that 68 had invested in The Home Depot, Inc. (NYSE:HD). Out of these, the largest shareholder is Ken Fisher's Fisher Asset Management courtesy of its $2.6 billion investment.
The Goldman Sachs Group, Inc. (NYSE:GS) is one of the largest investment banks in the world. The bank isn't doing well these days, as its CEO has come under fire from a lot of quarters for several different issues and it is considering a business shakeup to divest some of its investment services.
70 out of the 910 hedge funds part of Insider Monkey's Q2 2023 database had bought the bank's shares. The Goldman Sachs Group, Inc. (NYSE:GS)'s biggest hedge fund investor is Ken Fisher's Fisher Asset Management through a stake worth $1.6 billion.
JPMorgan Chase & Co. (NYSE:JPM), The Goldman Sachs Group, Inc. (NYSE:GS), The Walt Disney Company (NYSE:DIS), and UnitedHealth Group Incorporated (NYSE:UNH) are some undervalued Dow stocks to buy according to hedge funds.