Warren Buffett still lives in the house he bought 66 years ago. Walmart founder Sam Walton drove a pickup instead of an expensive luxury car. Wipro founder Azim Premji often flies in economy class.
Not every super-rich person refrains from excessive spending. However, many of the richest people on earth want value for their money. This is sometimes reflected in their investment activities. Billionaires are buying these three undervalued stocks. Would you?
1. Alibaba Group holding company
David Tepper’s net worth is $20.6 billion. The hedge fund Appaloosa Management, founded in 1993, now mainly manages Tepper’s own money. Tepper and Appaloosa have bet heavily on one undervalued stock — Alibaba Group Holding (NYSE: BABA).
Alibaba is Appaloosa’s largest holding company. In the first quarter of 2024, Tepper increased his hedge fund’s position in the Chinese tech company by almost 159%. And he’s not the only billionaire investor acquiring more shares of Alibaba.
Ken Griffin is worth a whopping $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 over fist? The stock’s valuation is almost certainly a key factor. Alibaba trades at a forward earnings multiple of just over 9.5. That’s dirt cheap for a technology stock.
2. PayPal stock
Tepper owns no shares of PayPal shares (NASDAQ:PYPL). However, Griffin does. And he increased Citadel’s position in the stock by nearly 182% in the first quarter.
Another billionaire investor also developed a renewed interest in PayPal. Paul Tudor Jones, II, whose net worth is $8.1 billion, started a new position in the fintech company for his hedge fund Tudor Investment Holdings in the first quarter.
PayPal stock is down nearly 80% below its mid-2021 high. Shares trade at just 15 times forward earnings, far lower than S&P500 the index’s forward earnings multiple is 21.2.
3. Verizon Communications
Billionaire Dan Loeb’s Third Point hedge fund has a significant position in Verizon Communications (NYSE: VZ) but has not recently increased its stakes. For Griffin and his Citadel fund, however, it’s a different story. Citadel bought more than 6.2 million shares of Verizon in the first quarter, increasing its stake in the telecom giant by almost 254%.
Verizon’s stock price remains well below its late 2019 peak. However, the stock has performed well over the past twelve months, up more than 20%. About half of those gains came this year.
I suspect that Griffin was attracted in part by Verizon’s valuation. The shares trade at about 9 times forward earnings. That’s less than half the expected earnings multiple of the S&P 500’s communications services sector.
Should you also buy these undervalued stocks?
Investors who aren’t billionaires can find a lot to like in these three stocks. However, they are not ideal choices for every investment style.
Alibaba, PayPal and Verizon could be attractive to value investors. Growth investors might be intrigued by PayPal’s prospects, but probably won’t be too excited about Alibaba and Verizon.
Income investors won’t waste their time with PayPal since the company doesn’t offer a dividend. They might also turn their noses up at Alibaba, which has a low dividend yield of less than 1.3%. On the other hand, income investors should love Verizon, with its ultra-high dividend yield of over 6.4%.
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Keith Speights has positions at PayPal and Verizon Communications. The Motley Fool has positions in and recommends PayPal and Walmart. The Motley Fool recommends Alibaba Group and Verizon Communications and recommends the following options: Short Call June 2024 $67.50 on PayPal. The Motley Fool has a disclosure policy.
Billionaires are buying these three undervalued stocks. Would you? was originally published by The Motley Fool
