In this article, we discuss 11 most undervalued foreign stocks to buy according to hedge funds. If you want to see more stocks in this selection, check out 5 Most Undervalued Foreign Stocks To Buy According To Hedge Funds.
According to JPMorgan’s projections, the global economy is expected to grow at a meagre rate of approximately 1.6% in 2023. Factors that are expected to contribute to this slower growth include an overall tightening of financial conditions, the ongoing impact of the COVID-19 pandemic, particularly in China during the winter, and persistent natural gas issues in Europe. It is possible that in 2023, stock markets outside of the United States may face challenges due to a combination of factors such as high inflation, increasing interest rates, and a slowdown in economic growth.
The conflict in Ukraine, the increase of nationalist movements, and the ongoing effects of the COVID-19 pandemic are all contributing to a slowdown in globalization. This trend may have a negative impact on non-US stock markets, which have benefited from globalization over the past 30 years. However, Fidelity research suggests that even though there may be short-term difficulties, international stocks may perform better than US stocks in the long run, over the next 20 years.
Mislav Matejka, Head of European and Global Equity Strategy at J.P. Morgan, told investors on January 5:
“Within developed markets, the U.K. is still our top pick. As for EM, its recovery is mostly linked to China. Tactically, the Asia reopening trade led by China is overdue and the activity hurdle rate is very easy, with further policy support likely. We expect around 17% upside for China by the end of 2023.”
Some of the most undervalued foreign stocks to buy according to hedge funds include Canadian Natural Resources Limited (NYSE:CNQ), Nutrien Ltd. (NYSE:NTR), and Shell plc (NYSE:SHEL). To check out more foreign stocks, see 10 Best Foreign Stocks To Buy and 10 Best International Dividend Stocks To Buy.
We scanned Insider Monkey’s database of holdings of 920 elite hedge funds tracked as of the end of the third quarter of 2022 and picked the top 11 foreign stocks — companies headquartered outside of the US — that have P/E ratios of less than 10 as of January 23. The list is arranged in ascending order of the number of hedge fund holders in each firm.
Most Undervalued Foreign Stocks To Buy According To Hedge Funds
11. TotalEnergies SE (NYSE:TTE)
Number of Hedge Fund Holders: 22
P/E Ratio as of January 23: 7.33
TotalEnergies SE (NYSE:TTE) is a European multinational integrated energy and petroleum company that operates through four segments – Integrated Gas, Renewables & Power, Exploration & Production, Refining & Chemicals, and Marketing & Services. On January 12, TotalEnergies SE (NYSE:TTE) announced that it has commissioned its 18th biogas production unit in France. The site will convert 220,000 metric tons of organic waste into 200,000 metric tons per year of digestate and 160 GWh of biomethane, equivalent to the average annual consumption of 32,000 people. In 2023, it will produce 69 GWh and scale up eventually in line with demand.
On January 19, JPMorgan analyst Christyan Malek raised the firm’s price target on TotalEnergies SE (NYSE:TTE) to EUR 73 from EUR 68 and kept an Overweight rating on the shares.
According to Insider Monkey’s third quarter database, 22 hedge funds were bullish on TotalEnergies SE (NYSE:TTE), compared to 20 funds in the prior quarter. Ken Fisher’s Fisher Asset Management is the largest stakeholder of the company, with over 23 million shares worth $1.07 billion.
In addition to Canadian Natural Resources Limited (NYSE:CNQ), Nutrien Ltd. (NYSE:NTR), and Shell plc (NYSE:SHEL), TotalEnergies SE (NYSE:TTE) is one of the most undervalued foreign stocks to invest in.
“We added one new position this quarter, TotalEnergies SE (NYSE:TTE). TTE is one of the world’s largest energy companies. It develops and produces oil and gas, produces and sells refined products, is one of the largest producers and traders of LNG, and owns a large portfolio of renewable power generating assets. TTE has one of the lowest cost portfolios of oil and gas assets and therefore one of the lowest breakeven points in the industry. It also has one of the best balance sheets in the industry. We estimate it will reach a net cash position sometime in 2023.
The valuation of TTE—and that of Shell—is fascinating. TTE sells at approximately 4X earnings and has a 5% dividend yield. With its current buyback program and a recently announced special dividend, the owners yield is more than 10%. The valuation and owners yield are not dissimilar to those of Shell, which we also own and which trades at just under 5X earnings. To say that a discount is attached to European oil companies relative to US peers is an understatement. ExxonMobil sells at 8X earnings, Chevron 9X and Conoco 8X. If TTE and Shell redomiciled to the US, their share prices would probably double.
We have a few theories for the valuation anomaly. First, as mentioned above, Europe generally trades at a big discount to the US. In the case of TTE and Shell, this makes no economic sense. The oil and gas business is a global one, and TTE and Shell have attractive assets. The main explanation, we believe, is that large sections of the European asset management industry will not invest in oil and gas because of ESG restrictions. Yet if the recent war in Ukraine and the current energy crisis have shown us nothing else, the supply of energy is an enormous social good. Indeed, it is an existential good. Moreover, it is companies such as TTE that will invest billions to supply the LNG that Europe desperately needs to restore its economy and reduce the crushing cost burden on families who must now choose between heating their homes and eating. Finally, TTE is also investing billions per year in renewable power generating assets such as wind and solar. Such assets will likely never replace clean burning natural gas and nuclear as base power suppliers, but they are a valuable and clean adjunct to modern grids. We believe TTE’s renewable portfolio is worth between $25 billion and $35 billion and is moving from almost no profit contribution toward meaningful levels of profit over the next few years. We wonder how it makes sense for investors to disinvest from these kinds of assets on ethical grounds.”
10. Stellantis N.V. (NYSE:STLA)
Number of Hedge Fund Holders: 25
P/E Ratio as of January 23: 2.91
Stellantis N.V. (NYSE:STLA) is a Netherlands-based company engaged in the design, engineering, manufacturing, distribution, and sale of automobiles and light commercial vehicles, engines, transmission systems, metallurgical products, and production systems worldwide. On January 9, Stellantis N.V. (NYSE:STLA) signed an agreement with Element 25 to secure substantial supplies of raw materials for battery electric vehicle production. Shipments for a total volume of 45 kilotons will begin in 2026, with options to extend the supply term and volumes.
On October 20, Nomura analyst Anindya Das upgraded Stellantis N.V. (NYSE:STLA) to Buy from Neutral with a price target of EUR 19.80, up from EUR 15.70, citing better-than-anticipated year-to-date net pricing strength in Stellantis N.V. (NYSE:STLA)’s major markets of North America and Europe, lower risk of margin pressure from EV battery material prices in 2023 in light of the company’s “appropriately paced rollout of EVs in North America” compared to the “aggressive EV ramp-up plans of its Detroit peers”, and benefits from post-merger platform consolidation in Europe beginning in 2023.
According to Insider Monkey’s data, Stellantis N.V. (NYSE:STLA) was part of 25 hedge fund portfolios at the end of Q3 2022, and Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital is the largest stakeholder of the company, with 29 million shares worth $349.35 million.
9. Novartis AG (NYSE:NVS)
Number of Hedge Fund Holders: 26
P/E Ratio as of January 23: 9.50
Novartis AG (NYSE:NVS) is a Swiss company that researches, develops, manufactures, and markets healthcare products worldwide. The company operates through two segments – Innovative Medicines and Sandoz. On December 14, Harrow Health, Inc. (NASDAQ:HROW), an eye care pharmaceutical company, announced an agreement to acquire the exclusive U.S. commercial rights to several FDA-approved ophthalmic products from Novartis AG (NYSE:NVS). Per the agreement, Harrow Health, Inc. (NASDAQ:HROW) is expected to make a $130 million payment at the end of an additional $45 million subject to the commercial launch of Triesence injection, which is anticipated in the second half of 2023.
On January 3, JPMorgan analyst Richard Vosser upgraded Novartis AG (NYSE:NVS) from Underweight to Neutral with a price target of CHF 85, up from CHF 78. He sees a divide in the outlooks for European pharmaceutical companies in 2023, with some facing challenges from genericization and downside to consensus estimates. He advised avoiding companies like GSK and Roche, and instead favors firms with sustainable growth and more pipeline data points.
According to Insider Monkey’s data, 26 hedge funds were long Novartis AG (NYSE:NVS) at the end of September 2022, compared to 22 funds in the last quarter. Jim Simons’ Renaissance Technologies is the largest stakeholder of the company, with 3.18 million shares worth $241.85 million.
Here is what Madison Investors Fund has to say about Novartis AG (NYSE:NVS) in its Q3 2022 investor letter:
“We sold our position in Novartis. We like the company’s track record of innovation, and its diversified portfolio of drugs. However, we’ve become increasingly concerned about the outlook for some of its recently launched therapeutics, as well as some generic competition in a few of its mature drugs. If pressed, we still like the odds that Novartis will do well, but the outlook is a little cloudier than it’s been in a while. As noted above, we’ve been big fans of its Alcon unit for many years, and now that Alcon is independent, we decided to concentrate our investment there.”
8. Vale S.A. (NYSE:VALE)
Number of Hedge Fund Holders: 27
P/E Ratio as of January 23: 4.67
Vale S.A. (NYSE:VALE) is headquartered in Rio de Janeiro, Brazil, and the company produces and sells iron ore and iron ore pellets for use as raw materials in steelmaking worldwide. On January 10, the company announced that it has received multiple bids for a stake of up to 10% in its base metals business, following talks with sovereign wealth funds, automakers, and industrial groups.
On December 9, Morgan Stanley analyst Carlos De Alba upgraded Vale S.A. (NYSE:VALE) to Overweight from Equal Weight with a price target of $20, up from $14.50. The analyst believes China’s reopening will continue to benefit miners, but the path forward will be bumpy. He sees iron ore price momentum heading into the first half of 2023, due to reduced supply and China exiting its COVID Zero policy. He also believes that possible transactions that would “unlock value” from Vale S.A. (NYSE:VALE)’s base metals unit could be catalysts for a re-rating.
According to Insider Monkey’s data, 27 hedge funds were bullish on Vale S.A. (NYSE:VALE) as of the end of September 2022, and Rajiv Jain’s GQG Partners is the largest stakeholder of the company, with 21.40 million shares worth $285 million.
Here is what GMO LLC had to say about Vale S.A. (NYSE:VALE) in its Q1 2022 investor letter:
“Let’s look at Vale (NYSE:VALE), the world’s largest iron ore producer, as a case study for how shareholders can be rewarded. Vale’s stock price is about where it was at the beginning of last year. Despite the market’s lack of enthusiasm, the company generated about $20 billion of free cash flow last year. Not bad for a company with a market cap of a little over $100 billion and no substantive debt as of the end of March. 4 What did the company do with all that cash? Last year, Vale paid out about $9 billion in regularly scheduled dividends and distributed another $10 billion between extra dividends and share repurchases. Combined with dividends distributed in the first quarter of this year and a recently announced share repurchase, Vale has returned or announced the return of over $33 billion since the beginning of last year, almost a 32% yield relative to the market cap of the company. Not a bad way to win.”
7. Petróleo Brasileiro S.A. – Petrobras (NYSE:PBR)
Number of Hedge Fund Holders: 33
P/E Ratio as of January 23: 2.29
Petróleo Brasileiro S.A. – Petrobras (NYSE:PBR) explores for, produces, and sells oil and gas in Brazil and internationally. The company operates through Exploration and Production, Refining, Transportation and Marketing, Gas and Power, and Corporate and Other Businesses segments. On January 18, Petróleo Brasileiro S.A. – Petrobras (NYSE:PBR) announced that its total oil and gas production for FY 2022 was 2.68 million boe/day, surpassing its full-year target of 2.6 million boe/day. Italian steel pipe maker Tenaris S.A. (NYSE:TS) also disclosed that it signed a three-year deal to supply tubing with corrosion resistant alloys to Petrobras for work offshore Brazil.
According to Insider Monkey’s data, 33 hedge funds were bullish on Petróleo Brasileiro S.A. – Petrobras (NYSE:PBR) at the end of Q3 2022, compared to 30 funds in the last quarter. It is one of the most undervalued foreign stocks to buy according to hedge funds. Rajiv Jain’s GQG Partners is the leading position holder in the company, with over 214 million shares worth $2.6 billion.
Like Canadian Natural Resources Limited (NYSE:CNQ), Nutrien Ltd. (NYSE:NTR), and Shell plc (NYSE:SHEL), Petróleo Brasileiro S.A. – Petrobras (NYSE:PBR) is one of the most popular foreign stocks among elite hedge funds.
6. Shell plc (NYSE:SHEL)
Number of Hedge Fund Holders: 39
P/E Ratio as of January 23: 5.13
Shell plc (NYSE:SHEL) is a London-based energy and petrochemical company that operates through Integrated Gas, Upstream, Marketing, Chemicals and Products, and Renewables and Energy Solutions segments. On January 18, Shell plc (NYSE:SHEL) announced that it is purchasing Volta in a deal valuing the electric vehicle charging company at approximately $169 million.
On January 23, Morgan Stanley Martijn Rats downgraded Shell plc (NYSE:SHEL) from Overweight to Equal Weight and decreased the price target from 2,922 GBp to 2,767 GBp. This change is due to a more neutral outlook for the energy industry and a shift in the analyst’s overall industry view to “In-Line.” Additionally, the analyst noted that consensus estimates for the energy sector are already high, leaving little potential for further growth.
According to Insider Monkey’s data, 39 hedge funds were bullish on Shell plc (NYSE:SHEL) at the end of the third quarter of 2022, and Ken Fisher’s Fisher Asset Management held the leading stake in the company, comprising 20.7 million shares worth $1.03 billion.
Here is what Harding Loevner International Equity Fund has to say about Shell plc (NYSE:SHEL) in its Q1 2022 investor letter:
“While risks of unforeseen consequences arising from the Ukraine conflict are high, on this front we are cautiously optimistic that China will work hard to maintain its neutrality in a credible way, as it is a huge beneficiary of trade with the rest of the world, especially the rich developed nations. We think it likely that China, along with India, will continue to buy oil and gas from Russia (just as Europe, at least for now, plans to keep its gas pipelines open), and do not expect that fact to alter China’s trade relations with the West much. Nevertheless, we must contemplate that our optimism is misplaced on the importance of membership in the global network of exchange. If our central and optimistic case—admittedly an educated guess—is wrong, then we’d need to greatly modify our views of which companies in our opportunity set will face new barriers to profitable growth, and which might stand to benefit, relatively, from a further receding of globalization. (Global trade, after all, has never matched the peak share of GDP it reached in 2008, before the Global Financial Crisis.) We’d expect such a world to be less efficient, as the cold logic of comparative advantage is demoted as a determinant of which goods or services are produced and where. That would lead to a less prosperous world, since exploiting comparative advantage is a cornerstone of wealth creation. If regional blocs began to raise limits on the movement of capital as well as goods, we’d need to parse which of our multinational companies were at risk of declining sales from increasingly hostile, siloed countries. Royal Dutch Shell (NYSE:SHEL) has found its Siberian oil and gas joint venture assets stranded by the combination of sanctions and the public opprobrium of Russia’s actions.”
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Disclosure: None. 11 Most Undervalued Foreign Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.