12 Most Undervalued Dow Stocks To Buy According To Hedge Funds

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The stock market bloodbath that started in 2022 has forced investors to shun the so-called growth
companies that have nothing to show in terms of cash, tangible value of short-term value. That’s
because investors tend to flee risky assets towards safe, value plays that can offer them safety
and a refuge from volatility. Value underperformed growth from 2007 until 2020. But the era of
growth dominance seems to have ended. In a report titled Value vs. Growth investing: Value
returns with a Vengeance, JPMorgan analysts said that from 2007 through 2020 value
underperformed in all sectors and asset classes. This underperformance reached its peak in 2020.
The report said that as the world moved online after the pandemic, innovation and growth saw a
lot of traction. The report highlights that this was the time when the markets made the same
mistake as they did during the “TMT bubble” by “boosting future normalized growth rates”.
The JPMorgan report says that by the end of 2020, “expectations became divorced from reality”
as many software and growth companies’ valuations touched unprecedented highs.

The report mentioned Tesla, Facebook and other growth companies as examples of huge
valuations that were not connected with reality.
Amazon and Microsoft are undoubtedly great companies, but if you had bought them at the
height of the TMT bubble in December 1999, it would have taken 10 years and 15 years,
respectively, to break even. Valuation – no matter how good the company is – matters, even in
the long term.

JPMorgan analysts believe value has been out of fashion for so long that many investors today
aren’t used to a value-led market and they are only accustomed to small market rallies that
“lasting only six to nine months.”

“All of this indicates that we are in for a reckoning that has only just begun.”
Methodology
For this article, we scanned the Dow 30 group of companies and picked the stocks that have a PE
ratio of under 20. From these companies we chose 12 companies that have the highest number of
hedge fund investors. We gauged that metric using Insider Monkey’s proprietary database of 920
elite hedge funds’ holdings, as of the end of the third quarter of 2022. The list is ranked in
ascending order of the number of hedge fund investors in these companies.

Caterpillar Inc. (NYSE:CAT)

Number of Hedge Fund Holders: 43

Caterpillar Inc. (NYSE:CAT) is in the limelight after the company posted Q4 results. Caterpillar
Inc. (NYSE:CAT)’s adjusted EPS in the quarter came in at $3.86, missing estimates by $0.17.
Revenue in the period jumped 20.3% to reach $16.6 billion, beating estimates by $760 million.
Caterpillar Inc. (NYSE:CAT)’s operating cash flow came in at $7.8 billion.
One of the key reasons Caterpillar Inc. (NYSE:CAT) has been famous among hedge funds and
analysts is the company’s strong dividend history. Caterpillar Inc. (NYSE:CAT) has increased its
dividends consistently for close to three decades now. In 2022, Caterpillar Inc. (NYSE:CAT)
returned $6.7 billion to shareholders through share repurchases and dividends. Bill & Melinda
Gates Foundation Trust reported owning a $1.21 billion stake in Caterpillar Inc. (NYSE:CAT) at
the end of September 2022.

3M Company (NYSE:MMM)
Number of Hedge Fund Holders: 49

Of the 920 hedge funds in Insider Monkey’s proprietary database, 49 hedge funds have stakes in
3M Company (NYSE:MMM) as of the end of the third quarter of 2022. The total worth of these
stakes was about $1.5 billion. Earlier in February, 3M Company (NYSE:MMM) announced a
0.7% increase in its quarterly dividend.
Recently, The Wall Street Journal reported that Bert Flossbach, co-founder and senior portfolio
manager of mutual-fund firm Flossbach von Storch has expressed his lack of confidence in 3M
Company (NYSE:MMM) CEO Mike Roman. Storch believes the company’s revenue hasn’t
been up to the mark since Roman took the job in 2018.

Amgen Inc. (NASDAQ:AMGN)

Number of Hedge Fund Holders: 53

Amgen Inc. (NASDAQ:AMGN) shares have lost about 8% year to date through February 9.
Amgen Inc. (NASDAQ:AMGN)’s PE ratio stands at 19.79. Amgen Inc. (NASDAQ:AMGN)
recently posted Q4 results. Adjusted EPS of Amgen in the fourth quarter came in at $4.09,
meeting estimates. Revenue in the quarter totaled $6.8 billion, beating estimates by $30 million.
Amgen Inc. (NASDAQ:AMGN) said its fourth quarter revenues were helped by a 4% increase in
product sales.
Earlier in February, the US FDA approved self-administration option of Amgen Inc.
(NASDAQ:AMGN) and AstraZeneca's (NASDAQ:AZN) asthma therapy Tezspire.
As of the end of the third quarter of 2022, 53 hedge funds tracked by Insider Monkey reported
owning shares in Amgen Inc. (NASDAQ:AMGN). The biggest stakeholder of Amgen Inc.
(NASDAQ:AMGN) during this period was John Overdeck and David Siegel’s Two Sigma
Advisors which owns a $379 million stake in the company.

Verizon Communications Inc. (NYSE:VZ)

Number of Hedge Fund Holders: 62

Telecom giant Verizon Communications Inc. (NYSE:VZ) ranks X in our list of the most
undervalued Dow stocks to buy according to hedge funds. Recently, Verizon Communications
Inc. (NYSE:VZ) posted fourth quarter results. Verizon Communications Inc. (NYSE:VZ)’s
adjusted EPS in the quarter came in at $1.19, in-line with consensus estimates. Revenue in the
period jumped 3.5% on a YoY basis to reach $35.3 billion, beating estimates by $160 million.
In January, Citi analyst Michael Rollins increased the price target of Verizon Communications
Inc. (NYSE:VZ) to $42 from $39. The analyst said that the guidance range for EBITDA in 2023
seems “reasonable.”
A total of 62 hedge funds tracked by Insider Monkey reported having stakes in Verizon
Communications Inc. (NYSE:VZ) as of the end of the third quarter of 2022. The total value of
these stakes was $1.4 billion.
Chevron Corporation (NYSE:CVX)
Number of Hedge Fund Holders: 66

Oil giant Chevron Corporation (NYSE:CVX) is one of the most undervalued Dow stocks
according to hedge funds. While Chevron Corporation (NYSE:CVX) has gained about 22% over
the past 12 months, its PE ratio stands at about 9 as of February 9.

For the fourth quarter of 2022, Chevron Corporation (NYSE:CVX)’s adjusted EPS was $4.09,
missing estimates by $0.20. Revenue in the quarter jumped by 17.3% to total $56.47 billion,
beating estimates by $2.5 billion.
A total of 66 hedge funds tracked by Insider Monkey reported owning shares of Chevron
Corporation (NYSE:CVX) at the end of the third quarter of 2022, up from 59 funds in the
previous quarter. The biggest stakeholder of Chevron Corporation (NYSE:CVX) at the end of
September 2022 was Warren Buffett’s Berkshire Hathaway.
https://www.insidermonkey.com/blog/is-chevron-corporation-cvx-a-good-dividend-stock-
1107997

Chevron Corporation (NYSE:CVX)

Number of Hedge Fund Holders: 66

Oil giant Chevron Corporation (NYSE:CVX) is one of the most undervalued Dow stocks
according to hedge funds. While Chevron Corporation (NYSE:CVX) has gained about 22% over
the past 12 months, its PE ratio stands at about 9 as of February 9.

For the fourth quarter of 2022, Chevron Corporation (NYSE:CVX)’s adjusted EPS was $4.09,
missing estimates by $0.20. Revenue in the quarter jumped by 17.3% to total $56.47 billion,
beating estimates by $2.5 billion.
A total of 66 hedge funds tracked by Insider Monkey reported owning shares of Chevron
Corporation (NYSE:CVX) at the end of the third quarter of 2022, up from 59 funds in the
previous quarter. The biggest stakeholder of Chevron Corporation (NYSE:CVX) at the end of
September 2022 was Warren Buffett’s Berkshire Hathaway.
https://www.insidermonkey.com/blog/is-chevron-corporation-cvx-a-good-dividend-stock-
1107997

American Express Company (NYSE:AXP)

Number of Hedge Fund Holders: 68

American Express Company (NYSE:AXP) ranks X in our list of the most undervalued Dow
stocks to buy according to hedge funds. Recently, Morgan Stanley analysts led by Betsy Graseck
upgraded American Express Company (NYSE:AXP) to Overweight from Equal-weight, citing
higher credit quality, sustainable revenue growth and positive operating leverage. The analyst
said in a note that American Express Company (NYSE:AXP) has lower risk credit skew as its
card members have higher FICO scores. The analyst expects American Express Company
(NYSE:AXP)’s credit losses meeting pre-COVID levels by 2024, while he believes “all other
card peers will overshoot on deterioration."
A total of 68 hedge funds tracked by Insider Monkey reported owning shares in American
Express Company (NYSE:AXP) as of the end of the third quarter of 2022.

Cisco Systems, Inc. (NASDAQ:CSCO)

Number of Hedge Fund Holders: 68

Cisco Systems, Inc. (NASDAQ:CSCO) remains one of the top stock picks of hedge fund and
analysts alike as the company is a key player in high growth markets like 5G, IoT, networking
and software. Recently, Bank of America analyst Anthony Cassamassino gave a Buy rating for
Cisco Systems, Inc. (NASDAQ:CSCO) shares, saying that the company is “ahead of product
cycles that span +35% of product revenues, including 400G, 5G, WiFi 6, and 400ZR/Optical.”
The analyst also sees comps improving for Cisco Systems, Inc. (NASDAQ:CSCO), which he
thinks would provide tailwinds for revenue. The analyst has a $52 price target for Cisco Systems,
Inc. (NASDAQ:CSCO) shares.
A total of 68 hedge funds tracked by Insider Monkey reported owning shares of Cisco Systems,
Inc. (NASDAQ:CSCO) as of the end of the third quarter of 2022.

The Goldman Sachs Group, Inc. (NYSE:GS)

Number of Hedge Fund Holders: 69

The Goldman Sachs Group, Inc. (NYSE:GS) ranks X in our list of the most undervalued Dow
stocks to buy according to hedge funds. As of the end of the third quarter of 2022, 69 hedge
funds tracked by Insider Monkey reported having stakes in The Goldman Sachs Group, Inc.
(NYSE:GS). The total value of these stakes was about $4.6 billion. The biggest stakeholder of
The Goldman Sachs Group, Inc. (NYSE:GS) during this period was Ken Fisher’s Fisher Asset
Management which owns a $1.4 billion stake in the firm.

Recently, The Goldman Sachs Group, Inc. (NYSE:GS)’s asset management arm announced that
it formed a new business focused on developing, acquiring, building and operating biomethane
plants across Europe. The Goldman Sachs Group, Inc. (NYSE:GS) plans to invest about $1.1
billion in the sector over the next four years.

Intel Corporation (NASDAQ:INTC)

Number of Hedge Fund Holders: 69

Intel Corporation (NASDAQ:INTC) has shed about 5% over the past 30 days as the company
posted a quarterly report and posted a guidance that surprised many. Intel Corporation
(NASDAQ:INTC)’s short-term outlook does not look good and some analysts are questioning
the safety of Intel’s dividend. However, Intel Corporation (NASDAQ:INTC) could be a decent
option for long-term investors as sooner or later the headwinds faced by the company due to the
broader market’s downturn are expected to fade. Intel Corporation (NASDAQ:INTC) is after all
one of the market leaders that is set to gain due to its presence in the semiconductor market for
AI, gaming and other applications.
A total of 69 hedge funds tracked by Insider Monkey reported having stakes in Intel Corporation
(NASDAQ:INTC) at the end of the third quarter of 2022.
https://www.insidermonkey.com/blog/do-you-think-intel-corporation-intc-has-an-upside-
potential-1084879

Merck & Co., Inc. (NYSE:MRK)

Number of Hedge Fund Holders: 82

Merck & Co., Inc. (NYSE:MRK) is not only a strong pharma stock with long-term growth
potential, it is also a solid dividend payer, with over a decade of consistent dividend increases.
Recently, Merck & Co., Inc. (NYSE:MRK) said its famous drug Keytruda, with chemotherapy,
met the primary goal of progression free survival (PFS) in patients with a type of cancer of the
uterus in a phase 3 trial.
Of the 920 hedge funds tracked by Insider Monkey at the end of the third quarter of 2022, 82
funds reported owning stakes in Merck & Co., Inc. (NYSE:MRK). The biggest stakeholder of
Merck & Co., Inc. (NYSE:MRK) during the period was Ken Fisher’s Fisher Asset Management
which owns a $1 billion stake in the firm.
https://www.insidermonkey.com/blog/is-merck-co-mrk-a-long-term-bet-1113456

The Home Depot, Inc. (NYSE:HD)

Number of Hedge Fund Holders: 89

The Home Depot, Inc. (NYSE:HD) ranks X in our list of the most undervalued Dow stocks to
buy according to hedge funds. The Home Depot, Inc. (NYSE:HD) shares gained on January 18
after a December 2022 NAHB Housing Market Index showed a jump. The Home Depot, Inc.
(NYSE:HD) shares are poised to gain even when the housing market is slow. When people aren’t
buying new homes, they spend renovating their existing homes. This home improvement trend
brings more sales for home improvement companies like The Home Depot, Inc. (NYSE:HD).
Hedge fund sentiment for The Home Depot, Inc. (NYSE:HD) is strong. At the end of the third
quarter of 2022, 89 hedge funds tracked by Insider Monkey reported having stakes in The Home
Depot, Inc. (NYSE:HD). The net worth of these stakes was about $5.6 billion. At the end of the
second quarter, 80 hedge funds had stakes in The Home Depot, Inc. (NYSE:HD). This shows
that more hedge funds piled into The Home Depot, Inc. (NYSE:HD) during the third quarter.
https://www.insidermonkey.com/blog/should-you-invest-in-the-home-depot-hd-for-dividend-
yield-1095267

JPMorgan Chase & Co. (NYSE:JPM)

Number of Hedge Fund Holders: 110

JPMorgan Chase & Co. (NYSE:JPM) is one of the biggest banks in the world. JPMorgan Chase
& Co. (NYSE:JPM) is a hedge fund favorite, as Insider Monkey’s database of 920 hedge funds
shows that 110 hedge funds had stakes in the company as of the end of the third quarter of 2022.
The total value of these stakes was $6.4 billion. The biggest stakeholder of the bank during this
period was Ken Fisher’s Fisher Asset Management which owns an $821 million stake in
JPMorgan Chase & Co. (NYSE:JPM).
JPMorgan Chase & Co. (NYSE:JPM)’s Q4 results were better than expected, though the stock
fell after the company said it plans to spend more in 2023 than it did in 2022. For fiscal 2023,
total net interest income is expected to come in at about $73 billion.
https://www.insidermonkey.com/blog/vltava-fund-on-jpmorgan-chase-co-jpm-the-strongest-and-
best-managed-bank-in-the-world-1075004