In this article, we will be taking a look at the 16 most undervalued growth stocks to buy according to hedge funds. To skip our detailed analysis of current stock market dynamics, you can go directly to see the 5 Most Undervalued Growth Stocks To Buy According To Hedge Funds.
Growth Stocks in 2023 and Beyond
At the end of last year, when the Federal Reserve made optimistic comments on the state of the US economy and Chairman Jerome Powell noted that the Fed had managed to make good progress towards reaching its 2% inflation goal, the US equity markets entered into what many began to call an “everything rally.” According to a Factor Performance Analysis report published by Confluence Technologies this January, this rally favored growth and volatility in the equity markets, as opposed to value and yield. As a result, growth and volatility significantly outperformed value and yield in both the fourth quarter and generally in 2023 as well.
Today, stocks in the semiconductors, cloud computing, and biotechnology sectors are making up a significant chunk of growth stocks. These sectors are some of the best performers in the market so far this year, making them attractive investments for a long time to come. Growth stocks are typically those that have a high price-to-earnings (P/E) ratio, robust earnings growth, strong quarterly guidance and the capability to exceed this guidance, and immense volatility. Considering these factors brought together, especially the volatility factor, it can be said that with growth stocks, you either win big or lose quickly, depending on the state of the economy and the probability of a recession hitting the markets.
Growth vs. Value
Despite the volatility associated with growth stocks, many investors consider them to be attractive investments, and for good reason. As noted by Brandywine Global in its Quantitative Review of US Equities for the fourth quarter of 2023, growth stocks, particularly in the Russell 1000 Growth Index, significantly outperformed their value counterparts in the Russell 1000 Value Index. At the end of 2023, the growth index had raked in returns of 42.7%, whereas the value index lagged much further behind with its 11.5% gain.
The review noted a factor of interest. Over the past year, growth stocks performed better than value when long-term interest rates declined, but the opposite was true when long-term interest rates were on the rise. Resultantly, when interest rates began to fall in the fourth quarter of 2023, growth stocks found themselves as the best performers in the market. Although initially, the growth rally was spearheaded predominantly by large or mega-cap tech stocks, later in 2023 and even now in 2024, the focus shifted from a select few tech names to include stocks in our market capitalization brackets and sectors as well. As a result, investors now have a much more diverse range of stocks to choose from when dealing with their growth stock portfolios.
According to Brandywine Global, in 2023, Eli Lilly and Company (NYSE:LLY), Advanced Micro Devices, Inc. (NASDAQ:AMD), and Broadcom Inc. (NASDAQ:AVGO) were among the top 10 contributors to the Russell 1000 Index Returns, as per data collected from FTSE Russell and Bloomberg. These three companies brought returns of 60.9%, 127.6%, and 104.2%, respectively, for the full year of 2023. Considering this stellar performance, we have included them in our list of the most undervalued stocks in the growth category, found below. Our list includes some of the best performing growth stocks for January and February of 2024, alongside some of the most promising growth stocks to buy this year.
A Traders Desk showing different stocks, with traders hands hovering above the screen.
Our Methodology
We consulted the holdings of the iShares S&P 500 Growth ETF, stock upside potentials, and share price gains year-to-date as of March 22 to compile our list of the most undervalued stocks. We then used Insider Monkey’s hedge fund data for the fourth quarter to shortlist the stocks for our list. The stocks are ranked based on the number of hedge funds holding stakes in them, from the lowest to the highest number. Hedge funds’ top 10 consensus stock picks outperformed the S&P 500 Index by over 140 percentage points over the last 10 years (see the details here). That’s why we pay very close attention to this often-ignored indicator.
Most Undervalued Growth Stocks To Buy According To Hedge Funds
16. Booking Holdings Inc. (NASDAQ:BKNG)
Number of Hedge Fund Holders: 83
Share Price Gains Year-t0-Date: 4.4%
Upside Potential: 8.7%
Booking Holdings Inc. (NASDAQ:BKNG) is a hotels, resorts, and cruise lines company based in Norwalk, Connecticut. It provides online and traditional travel and restaurant reservations and related services.
JMP Securities analysts hold a Market Outperform rating and $3950 price target on Booking Holdings Inc. (NASDAQ:BKNG) as of February 26.
There were 83 hedge funds long Booking Holdings Inc. (NASDAQ:BKNG) in the fourth quarter, with a total stake value of $10.3 billion.
Like Eli Lilly and Company (NYSE:LLY), Advanced Micro Devices, Inc. (NASDAQ:AMD), and Broadcom Inc. (NASDAQ:AVGO), Booking Holdings Inc. (NASDAQ:BKNG) is among the most undervalued stocks to buy now.
15. ServiceNow, Inc. (NYSE:NOW)
Number of Hedge Fund Holders: 91
Share Price Gains Year-t0-Date: 13%
Upside Potential: 9.6%
On March 21, Keybanc analysts initiated coverage on ServiceNow, Inc. (NYSE:NOW) with an Overweight rating and a $1000 price target.
We saw 91 hedge funds long ServiceNow, Inc. (NYSE:NOW) in the fourth quarter, with a total stake value of $5.7 billion.
ServiceNow, Inc. (NYSE:NOW) is a systems software company based in Santa Clara, California. It provides access to end-to-end digital transformation, artificial intelligence, machine learning, robotic process automation, process mining, and more.
Baron Funds mentioned ServiceNow, Inc. (NYSE:NOW) in its fourth-quarter 2023 investor letter:
“ServiceNow, Inc. (NYSE:NOW) offers cloud-based solutions that improve workflow efficiency through automation and digitalization. The stock rose 26.4% in the fourth quarter, finishing the year up 82.0%. Stock appreciation was supported by strong quarterly results above expectations with 24.5% year-over-year subscription revenue growth in constant currency and 30% non-GAAP operating margins despite ongoing macro complexities. In addition, the stock benefited from growing investor expectations that the company would benefit from the integration of GenAI technology into its products, and a rise in software stocks more broadly. Management noted that key business drivers included strong traction with government customers, improving momentum with new customers, and budget consolidation into platforms like ServiceNow. In addition, the company launched its GenAI-supported product line, sold under a new higher-priced Pro Plus sku, at the end of the quarter and has already signed on multiple customers with hundreds more in the pipeline. The new product line should generate material efficiencies for customers as it improves their ability to automate and digitize, and hence we expect broader adoption of the Pro Plus sku, creating an additional growth engine for ServiceNow, supporting the company’s long duration of growth.”
14. Broadcom Inc. (NASDAQ:AVGO)
Number of Hedge Fund Holders: 91
Share Price Gains Year-t0-Date: 26.4%
Upside Potential: 15%
Broadcom Inc. (NASDAQ:AVGO) was spotted in the 13F holdings of 91 hedge funds in the fourth quarter, with a total stake value of $8.9 billion.
Based in Palo Alto, California, Broadcom Inc. (NASDAQ:AVGO) is a semiconductor company. It provides set-top box system-on-chips, cable, and digital subscriber lines, among more.
A Buy rating and $1720 price target were maintained on Broadcom Inc. (NASDAQ:AVGO) on March 21 by Benchmark analysts.
Carillon Tower Advisers said this about Broadcom Inc. (NASDAQ:AVGO) in its fourth-quarter 2023 investor letter:
“Broadcom Inc. (NASDAQ:AVGO) traded higher after closing on its acquisition of VMware. The company also announced earnings that were relatively in line with estimates with some benefit of better operating expenses. The stock appears to be one of the first real beneficiaries of generative artificial intelligence (AI) with meaningful revenue expected to show up in 2024.”
13. Merck & Co., Inc. (NYSE:MRK)
Number of Hedge Fund Holders: 98
Share Price Gains Year-t0-Date: 9.6%
Upside Potential: 8.4%
Merck & Co., Inc. (NYSE:MRK) is a pharmaceutical company on our list of the most undervalued stocks. The company offers human health pharmaceutical products, vaccine products, and animal health products.
At the end of the fourth quarter, 98 hedge funds were long Merck & Co., Inc. (NYSE:MRK), with a total stake value of $7.2 billion.
As of March 11, Cantor Fitzgerald analysts hold a $135 price target and an Overweight rating on Merck & Co., Inc. (NYSE:MRK).
12. Oracle Corporation (NASDAQ:ORCL)
Number of Hedge Fund Holders: 100
Share Price Gains Year-t0-Date: 23.2%
Upside Potential: 7.2%
Holding 18.5 million shares in the company, First Eagle Investment Management was the largest shareholder in Oracle Corporation (NASDAQ:ORCL) at the end of the fourth quarter.
Oracle Corporation (NASDAQ:ORCL) is another systems software company on our list of the most undervalued stocks. The company is based in Austin, Texas, and it offers cloud-based industry solutions alongside products and services addressing enterprise information technology environments.
Keybanc analysts hold a $150 price target and an Overweight rating on Oracle Corporation (NASDAQ:ORCL) as of March 21.
In total, 100 hedge funds were long Oracle Corporation (NASDAQ:ORCL) in the fourth quarter, with a total stake value of $6.4 billion.
11. Eli Lilly and Company (NYSE:LLY)
Number of Hedge Fund Holders: 102
Share Price Gains Year-t0-Date: 30.5%
Upside Potential: 7.5%
Eli Lilly and Company (NYSE:LLY) is another pharmaceutical company on our list of the most undervalued stocks. The company offers oncology products, human pharmaceuticals, and other healthcare products and services.
A total of 102 hedge funds were long Eli Lilly and Company (NYSE:LLY) in the fourth quarter, with a total stake value of $11.2 billion.
An $850 price target and a Buy rating were maintained on Eli Lilly and Company (NYSE:LLY) on March 22 by Truist Securities analysts.
Aristotle Atlantic Partners, LLC mentioned Eli Lilly and Company (NYSE:LLY) in its fourth-quarter 2023 investor letter:
“Eli Lilly and Company (NYSE:LLY) is a leading pharmaceutical company that develops diabetes, oncology, immunology and neuroscience medicines. The company generates over half of its revenue in the U.S. from its top-selling drugs Trulicity, Verzenio and Taltz. The company operates in a single business segment, Human pharmaceutical products.
Eli Lilly has a deep pipeline in treatment areas focused on metabolic disorders, oncology, immunology and central nervous system disorders. Currently, there are two phase three assets, Orforglipron, an oral GLP-1 and retatrutide, a triple incretin agonist, which have the potential to expand upon the potential success of Mounjaro. We believe that Mounjaro has the potential to commercialize beyond type 2 diabetes and obesity, potentially in the areas mentioned above of heart disease, sleep apnea, fatty liver disease and chronic kidney disease. We belief the premium valuation is supported by this outsized growth profile.”
10. Advanced Micro Devices, Inc. (NASDAQ:AMD)
Number of Hedge Fund Holders: 120
Share Price Gains Year-t0-Date: 30.3%
Upside Potential: 11.5%
On March 11, Cantor Fitzgerald analysts maintained an Overweight rating and a $190 price target on Advanced Micro Devices, Inc. (NASDAQ:AMD).
Advanced Micro Devices, Inc. (NASDAQ:AMD) was seen in the portfolios of 120 hedge funds in the fourth quarter, with a total stake value of $15.2 billion.
Based in Santa Clara, California, Advanced Micro Devices, Inc. (NASDAQ:AMD) is another semiconductor company on our list of the most undervalued stocks. The company offers data center graphics, processors, graphics processing units, and more.
Jackson Peak Capital said the following about Advanced Micro Devices, Inc. (NASDAQ:AMD) in its fourth-quarter 2023 investor letter:
“On the long side of the portfolio, a core theme we remain invested behind is the data center infrastructure buildout and AI chips arms race that we’ve discussed since our first letter in Q2. Some skepticism has crept into the market, and it’s understandable given the huge ramp in 2023. However, our research continues to suggest 2023 was the start of a multi-year platform shift. Value will accrue to varying segments of the AI value chain at different parts of the cycle. We continue to see value in the “boots on the ground” winners in the data center buildout (Vertiv, Modine Manufacturing, Celestica). Our positioning in AI semiconductor companies (NVDA and Advanced Micro Devices, Inc. (NASDAQ:AMD)) has ebbed and flowed given we are cognizant (perhaps too much so) that these names are crowded positions across investor style types. We’ve done well in these chip stocks since inception and NVDA is currently a long, and we’re trying to “let winners run” while using sizing to risk manage these names due to the market-wide positioning bias in semiconductors.”
9. Uber Technologies, Inc. (NYSE:UBER)
Number of Hedge Fund Holders: 129
Share Price Gains Year-t0-Date: 37.6%
Upside Potential: 7.9%
D E Shaw was the most prominent shareholder in Uber Technologies, Inc. (NYSE:UBER) at the end of the fourth quarter, holding 14.4 million shares in the company.
As of March 15, Piper Sandler analysts hold an Overweight rating and a $92 price target on Uber Technologies, Inc. (NYSE:UBER).
Uber Technologies, Inc. (NYSE:UBER) is an industrial company on our list of the most undervalued stocks to invest in. The company offers ride-hailing and ride-sharing services through its online application, among more.
In the fourth quarter, 129 hedge funds were long Uber Technologies, Inc. (NYSE:UBER), with a total stake value of $8.7 billion.
8. salesforce.com, inc. (NYSE:CRM)
Number of Hedge Fund Holders: 131
Share Price Gains Year-t0-Date: 20.8%
Upside Potential: 7.8%
In the fourth quarter, salesforce.com, inc. (NYSE:CRM) had 131 hedge funds long its stock, with a total stake value of $14.9 billion.
On March 7, Canaccord Genuity analysts maintained a Buy rating and a $350 price target on salesforce.com, inc. (NYSE:CRM).
Based in San Francisco, California, salesforce.com, inc. (NYSE:CRM) is an application software company on our list of the most undervalued stocks. It provides sales to store data, monitor leads and progress, forecast opportunities, and more through its customer relationship management technology.
7. Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Holders: 141
Share Price Gains Year-t0-Date: 14.7%
Upside Potential: 6.3%
Mastercard Incorporated (NYSE:MA) is a transaction and payment processing services company. It is based in Purchase, New York, and is among the most undervalued stocks to buy.
Akre Capital Management was the largest shareholder in Mastercard Incorporated (NYSE:MA) at the end of the fourth quarter, holding 5.1 million shares in the company.
Our hedge fund data for the fourth quarter shows 141 hedge funds long Mastercard Incorporated (NYSE:MA), with a total stake value of $16.9 billion.
A $540 price target and Buy rating were maintained on Mastercard Incorporated (NYSE:MA) on March 8 by Jefferies analysts.
6. Visa Inc. (NYSE:V)
Number of Hedge Fund Holders: 162
Share Price Gains Year-t0-Date: 10%
Upside Potential: 7.9%
Visa Inc. (NYSE:V) is another transaction and payment processing services company on our list of the most undervalued stocks to buy. The company offers transaction authorization, clearing, and settlement services.
On March 8, Jefferies analysts maintained a Buy rating and $320 price target on Visa Inc. (NYSE:V).
Visa Inc. (NYSE:V) had 162 hedge funds long its stock in the fourth quarter, with a total stake value of $26.5 billion.
Like Eli Lilly and Company (NYSE:LLY), Advanced Micro Devices, Inc. (NASDAQ:AMD), and Broadcom Inc. (NASDAQ:AVGO), Visa Inc. (NYSE:V) is among the top most undervalued stocks to invest in today.
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Disclosure: None. 16 Most Undervalued Growth Stocks To Buy According To Hedge Funds is originally published on Insider Monkey.