Warren Buffett still lives in the house he bought 66 years ago. Walmart founder Sam Walton drove a pickup truck instead of an expensive luxury car. Wipro founder Azim Premji often travels economy class.
Not all very rich people give up spending lavishly. However, many of the richest individuals on the planet like to get value for their money. This sometimes shows up in their investment activity. Billionaires are buying these three undervalued stocks. Should you?
1. Alibaba Holding Group
David Tepper’s net worth is $20.6 billion. THE hedge fund he founded Appaloosa Management in 1993 and now primarily manages Tepper’s money. Tepper and Appaloosa bet heavily on an undervalued stock – Alibaba Holding Group (NYSE:BABA).
Alibaba is Appaloosa’s main title. In the first quarter of 2024, Tepper increased his hedge fund’s position in the Chinese technology company by almost 159%. And he’s not the only billionaire investor snapping up more Alibaba stock.
Ken Griffin is worth $37.5 billion. His hedge fund, Citadel, increased its stake in Alibaba by almost 27% in the first quarter.
Why are these billionaires buying Alibaba hand in hand? The stock’s valuation is almost certainly a key factor. Alibaba is trading at a multiple of forecast profits a little over 9.5. That’s very cheap for a tech stock.
2. PayPal Credits
Tepper does not own any shares of PayPal credits (NASDAQ:PYPL). However, Griffin does. And it increased Citadel’s position in the stock by nearly 182% in the first quarter.
Another billionaire investor has also developed new interest in PayPal. Paul Tudor Jones, II, whose net worth is $8.1 billion, initiated a new position in the fintech company in the first quarter for his hedge fund Tudor Investment Holdings.
PayPal stock is down nearly 80% below its peak reached in mid-2021. Its shares trade at just 15 times forward earnings, well below the S&P500 multiple of the index’s forecast earnings of 21.2.
3. Verizon Communications
Billionaire Dan Loeb’s Third Point hedge fund has a large position in VerizonCommunications (NYSE:VZ) but has not increased its stake recently. It’s a different story for Griffin and his Citadel fund, however. Citadel purchased more than 6.2 million shares of Verizon in the first quarter, increasing its stake in the telecommunications giant by nearly 254%.
Verizon’s stock price remains well below its late 2019 high. However, the stock has performed well over the past 12 months, jumping more than 20%. About half of that gain was made this year.
I suspect Griffin was attracted in part by Verizon’s valuation. Its shares trade at around 9 times forward earnings. That’s less than half the S&P 500’s communications services sector’s forward earnings multiple.
Should you also buy these undervalued stocks?
Investors who aren’t billionaires might find a lot to like about these three stocks. However, they are not ideal choices for all investment styles.
Alibaba, PayPal and Verizon could attract value investors. Growth investors might be intrigued by PayPal’s prospects, but probably won’t be too excited about Alibaba and Verizon.
Income investors will not waste their time on PayPal since the company does not offer a dividend. They might also mock Alibaba, which has a low forward dividend yield of less than 1.3%. On the other hand, income investors should love Verizon with its ultra-high forward dividend yield of over 6.4%.
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Keith Speights holds positions at PayPal and Verizon Communications. The Motley Fool holds positions and recommends PayPal and Walmart. The Motley Fool recommends Alibaba Group and Verizon Communications and recommends the following options: June 2024 short calls at $67.50 on PayPal. The Motley Fool has a disclosure policy.
Billionaires are buying these 3 undervalued stocks. Should you? was originally published by The Motley Fool
