In this article, we will take a look at 15 cheap stocks to buy now for beginners. If you want to explore similar stocks, you can also take a look at 5 Cheap Beginner Stocks to Buy.
Morgan Stanley's Big Bear: "It's Just A Much Less Predictable World"
On March 27 Morgan Stanley's chief U.S. equity strategist, Mike Wilson, gave an interview to Bloomberg where he discussed his view of the markets right now. Wilson noted that the bond market is not moving in coherence with the Fed, and he thinks the equities market will follow this trajectory. Here are some comments from Mike Wilson:
"It's just a much less predictable world, and this has been our theme for the last couple of years, that we're entering a period of economic volatility. The last 20 years has been a world of repression where all of these metrics were somewhat predictable, and that's for companies, that's for the Fed itself, that's for investors. And now we're entering a world when it's just not as predictable, and that means higher risk premiums. Whether we're talking about credit, whether we're talking about term premium in the bond market, or we're talking about equity risk premium. In our view, I think people are operating as if we're gonna go back to that predictable world and that's, I think, misplaced."
Mike Wilson said that the degradation in multiples that stocks had last year was due to higher interest rates and not higher risk premiums. According to Wilson, the market has started to "revalue, or devalue, the companies that are most at risk of missing estimates". The companies that are expected to come under pressure in a high interest rate environment and are most at risk of missing estimates, according to Wilson, include small-cap, lower quality, and cyclical companies.
Moreover, Mike Wilson pointed out that tech companies experienced significant declines in their stock prices last year due to their high valuations and sensitivity to rising interest rates. While these companies have cut costs, which has led to them rallying, Wilson believes that there are still risks associated with investing in them especially given the potential for further cost pressures.
There are some areas within the market that Mike Wilson thinks have repriced and are presenting an opportunity. The financials segment has "repriced in a meaningful way", said Wilson. Moreover, some consumer-focused businesses and the retail segment have also repriced. Mike Wilson thinks there are opportunities in individual stocks, as opposed to indices, which do not look as attractive to him at this point in time.
Finally, Mike Wilson thinks that valuations will reset over the next two quarters. However, he also said that he does not think stock valuations will stay low for long, and this is not a "secular structural bear market", it is actually a "cyclical bear market" and there is enough liquidity to stabilize things.
The markets are extremely volatile and uncertain right now, given sticky inflation and a hawkish Fed. In times like these, retail investors can feel overwhelmed when it comes to investing in the stock market. However, looking at where institutional investors are parking cash can be insightful, as they have the resources and expertise to make sensical investment decisions. We have compiled a list of the 15 cheap beginner stocks to buy now according to hedge funds, which include QUALCOMM, Incorporated (NASDAQ:QCOM), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), and Bank of America Corporation (NYSE:BAC). Let's now discuss these, among others, in detail.
We scanned Insider Monkey's database, which tracks over 900 elite hedge funds as of Q4 2022, to find the 50 most popular stocks among institutional investors. We then checked each stock's trailing twelve-month price-to-earnings ratio from Yahoo Finance and narrowed down our selection to the 15 stocks that had a TTM PE ratio of less than 15, as of March 28, and were the most widely held by money managers.
The idea was to identify cheap stocks that are safe for beginner investors who want to avoid volatility and risks.
We have ranked these stocks in ascending order of the number of hedge funds that have stakes in them. Where the number of hedge funds were the same, we used the PE ratio as the tie-breaker.
As of March 28, Occidental Petroleum Corporation (NYSE:OXY) is trading at a PE multiple of 5x and is offering investors a forward dividend yield of 1.21%. The stock is placed fifteenth among the best cheap beginner stocks to buy now according to hedge funds.
On March 28, TD Cowen analyst David Deckelbaum upgraded Occidental Petroleum Corporation (NYSE:OXY) to Outperform from Market Perform and raised his price target on the shares to $70 from $63.
At the end of Q4 2022, Occidental Petroleum Corporation (NYSE:OXY) was held by 71 hedge funds that disclosed collective stakes worth $16.6 billion in the company. Of those, Berkshire Hathaway was the largest shareholder in the company and held a position worth $12.2 billion.
Here is what Smead Capital Management had to say about Occidental Petroleum Corporation in its Q3 2022 investor letter:
“Our top-performing stocks in the quarter includes Occidental Petroleum (NYSE:OXY). Oil and gas have been the best game in the stock market town this year and it was a pleasant surprise to see home builders pick up even with dour news on interest rates and the economy. For the first three quarters of the year, we should change the name of our fund to the Jed Clampett Fund. Occidental Petroleum (NYSE:OXY), was one of the standouts. Up through the bear market came a “bubblin’ crude!”
Charter Communications, Inc. (NASDAQ:CHTR) was spotted on 74 investors' portfolios at the end of Q4 2022. These funds disclosed collective positions worth $4.61 billion in the company, up from $3.39 billion in the previous quarter with 68 positions. The hedge fund sentiment for the stock is positive.
On January 31, RBC Capital analyst Kutgun Maral updated his price target on Charter Communications, Inc. (NASDAQ:CHTR) to $440 from $460 and maintained an Outperform rating on the shares. As of March 28, the stock is trading at a PE multiple of 11x and has gained 15.61% over the past 6 months.
As of December 31, Harris Associates is the most prominent investor in Charter Communications, Inc. (NASDAQ:CHTR) and has a stake worth $1.32 billion.
ClearBridge Investments made the following comment about Charter Communications, Inc. (NASDAQ:CHTR) in its Q4 2022 investor letter:
“Cable stocks have been pressured for the past year as broadband growth has slowed following a pull forward of demand during the pandemic and the industry faces rising competition from wireless carriers offering fixed wireless access. In particular, shares of Charter Communications, Inc. (NASDAQ:CHTR) were pressured by its recently announced multiyear capex plan to accelerate network upgrades. While this reduces free cash flow available for buybacks in the medium term, it sustains the company’s competitive advantage and should accelerate long term growth. The company also has ambitious goals to expand its footprint into adjacent and rural markets, taking advantage of the federal and state broadband subsidies. We added opportunistically to Charter on the pullback.”
Other cheap stocks that are on hedge funds' radars right now include QUALCOMM, Incorporated (NASDAQ:QCOM), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), and Bank of America Corporation (NYSE:BAC).
This March, Evercore ISI analyst C.J. Muse raised his price target on Micron Technology, Inc. (NASDAQ:MU) to $75 from $65 and reiterated an Outperform rating on the shares.
As of March 28, Micron Technology, Inc. (NASDAQ:MU) is trading at a TTM PE ratio of 10.72 and has returned 28% to investors over the past 6 months. The stock is one of the best cheap beginner stocks to buy now.
At the end of Q4 2022, 74 hedge funds were eager on Micron Technology, Inc. (NASDAQ:MU) and held positions worth $2.13 billion in the company. Of those, Viking Global was the leading investor in the company and disclosed a stake worth $417.7 million.
Here is what Claret Asset Management had to say about Micron Technology, Inc. (NASDAQ:MU) in its third-quarter 2022 investor letter:
“Inflation is still higher than interest rates… not an incentive to save for most people. Either inflation must come down or interest rates have to go up further. Or both. And probably both. Now that they are taking the punch bowl away and the party is over, what happens next? For whatever reason, the stock market seems to always precede the economic reality: Micron reached a high of $98.45 on January 5th, 2022 and is trading at $50.00 today.”
Goldman Sachs Group, Inc. (NYSE:GS) has a TTM PE ratio of 10.59 and is offering a forward dividend yield of 3.14% to investors, as of March 28. This March, BofA analyst Ebrahim Poonawala raised his price target on Goldman Sachs Group, Inc. (NYSE:GS) to $425 from $384 and maintained a Buy rating on the shares.
At the close of the fourth quarter of 2022, 74 hedge funds were long Goldman Sachs Group, Inc. (NYSE:GS) and held collective stakes worth $4.89 billion in the company. As of December 31, Eagle Capital Management is the top investor in the company and has a position worth $1.12 billion. Goldman Sachs Group, Inc. (NYSE:GS) is placed twelfth among the best cheap beginner stocks to buy now.
Here is what Manole Capital Management had to say about The Goldman Sachs Group, Inc. (NYSE:GS) in its Q3 2022 investor letter:
“Back in 2019, The Goldman Sachs Group, Inc. (NYSE:GS) made a splash in the card industry by working with Apple and MasterCard on a credit card. The actual card is fairly sleek (as you can see below), as customers names are etched into an Apple titanium card. The no-fee card generated a lot of hype, as many early users were quick to post their latest card on various social media sites.
Biogen Inc. (NASDAQ:BIIB) was a part of 75 hedge funds' portfolios at the end of Q4 2022. These funds held collective stakes worth $3.69 billion in the company. As of December 31, D E Shaw is the largest stockholder in the company and has a stake worth $486.2 million.
On March 17, Stifel analyst Paul Matteis revised his price target on Biogen Inc. (NASDAQ:BIIB) to $324 from $331 and reiterated a Buy rating on the shares. As of March 28, the stock has gained 27.56% over the past 12 months and is trading at a PE multiple of 12.52. Biogen Inc. (NASDAQ:BIIB) is one of the best cheap beginner stocks to buy now.
ClearBridge Investments made the following comment about Biogen Inc. (NASDAQ:BIIB) in its Q3 2022 investor letter:
“Biogen Inc. (NASDAQ:BIIB) was the leading contributor among several biopharma names, boosted by positive, pivotal clinical data for its next-generation Alzheimer’s treatment Lecanemab. In a pivotal trial, the drug proved safe and efficacious in slowing progression of Alzheimer’s disease.”
Pfizer Inc. (NYSE:PFE) is one of the best cheap beginner stocks to buy now that is also offering a decent dividend yield. As of March 28, the stock has a TTM PE ratio of 7.31 and is offering a forward dividend yield of 4.10%.
This March, Jefferies analyst Akash Tewari started coverage of Pfizer Inc. (NYSE:PFE) with a Hold rating and a $43 price target.
At the end of Q4 2022, 75 hedge funds were long Pfizer Inc. (NYSE:PFE) and held stakes worth $2.50 billion in the company. Of those, AQR Capital Management was the leading investor in the company and disclosed a position worth $502 million.
On February 3, The Cigna Group (NYSE:CI) posted earnings for the fourth quarter of fiscal 2022. The company reported an EPS of $4.96 and outperformed EPS estimates by $0.09. As of March 28, The Cigna Group (NYSE:CI) is trading at a PE multiple of 12x and is yielding 1.92%.
On February 23, JPMorgan analyst Lisa Gill updated her price target on The Cigna Group (NYSE:CI) to $370 from $378 and maintained an Overweight rating on the shares.
At the close of the fourth quarter of 2022, 76 hedge funds were eager on The Cigna Group (NYSE:CI) and disclosed collective positions worth $4.42 billion in the company. This is compared to 76 hedge funds in the previous quarter with stakes worth $3.11 billion. The stock ranks ninth among the best cheap beginner stocks to buy now according to hedge funds.
As of December 31, GQG Partners is the largest stockholder in The Cigna Group (NYSE:CI) and has a position worth $797 million.
Baron Funds made the following comment about The Cigna Group (NYSE:CI) in its Q4 2022 investor letter:
“We initiated a position in Cigna Corporation (NYSE:CI), a health services organization with two primary segments, Cigna Healthcare and Evernorth. Cigna Healthcare provides health insurance products, including a business in which Cigna provides administrative services only to plan sponsors (employers, unions, and other groups). Evernorth provides a portfolio of health care services, including pharmacy benefit management (PBM) services, care delivery services, data and analytics solutions, and distribution of specialty drugs. Each segment has a portion of business that provides steady, predictable growth. These foundational businesses, which account for roughly 60% of total revenue, include the U.S. commercial business, the PBM business, and international. The other 40% of revenue comes from higher-growth businesses, including the specialty pharmacy business, care delivery services, and Medicare Advantage. Management targets 10% to 13% annual EPS growth over the long term. The stock trades at a significant discount to industry peers because of the company’s commercial health insurance and PBM business mix. We think the PBM business will benefit from the biosimilar wave in the next few years, and as Cigna’s higher growth businesses become a bigger percentage of the overall mix, we think the stock can appreciate at least in line with its annual EPS growth with potential for valuation expansion.”
Exxon Mobil Corporation (NYSE:XOM) was a part of 79 investors' portfolios at the close of Q4 2022. These funds held collective positions worth $7.10 billion in the company, up from $5.53 billion in the preceding quarter with 75 positions. The hedge fund sentiment for the stock is positive.
As of March 28, Exxon Mobil Corporation (NYSE:XOM) has gained 30.17% over the past 12 months and is trading at a TTM PE ratio of 8.08. This March, Mizuho raised its price target on Exxon Mobil Corporation (NYSE:XOM) to $147 from $140 and maintained a Buy rating on the shares.
As of December 31, GQG Partners is the most prominent shareholder in Exxon Mobil Corporation (NYSE:XOM) and has a position worth $3.6 billion.
In addition to Exxon Mobil Corporation (NYSE:XOM), other cheap stocks that hedge funds are pouring into include QUALCOMM, Incorporated (NASDAQ:QCOM), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM), and Bank of America Corporation (NYSE:BAC).
This March, Citi analyst Itay Michaeli updated his price target on General Motors Company (NYSE:GM) to $76 from $82 and maintained a Buy rating on the shares. As of March 28, the stock is trading at a PE multiple of 5x and is offering a forward dividend yield of 1.05%. General Motors Company (NYSE:GM) is one of the best cheap beginner stocks to buy now.
80 hedge funds disclosed having stakes in General Motors Company (NYSE:GM) at the close of Q4 2022. The total value of these stakes amounted to $3.4 billion, up from $3.3 billion in the previous quarter with 74 positions. The hedge fund sentiment for the stock is positive.
As of December 31, Berkshire Hathaway is the largest shareholder in General Motors Company (NYSE:GM) and has a stake worth $1.68 billion.
Citigroup Inc. (NYSE:C) has returned 10.27% to investors over the past 6 months, as of March 28, and is trading at a PE multiple of 6x. The stock is placed sixth on our list of the best cheap beginner stocks to buy now.
On March 24, RBC Capital updated its price target on Citigroup Inc. (NYSE:C) to $51 from $55 and maintained an Outperform rating on the shares.
At the close of the fourth quarter of 2022, Citigroup Inc. (NYSE:C) was held by 81 hedge funds. These funds held positions worth $7.49 billion in the company, up from $7.10 billion in the previous quarter with 85 positions. As of December 31, Berkshire Hathaway is the largest investor in the company and has a position worth $2.49 billion.
