30 Low P/E Stocks Hedge Funds Are Buying

Stocks with low P/E ratios are more likely to be undervalued compared with stocks with higher P/E ratios. However, there are exceptions, and some low PE stocks deserve these valuations. Most bankrupt companies become low P/E stocks at one point. That’s why investors should research these stocks carefully before investing. One of the most practical ways of investing in low P/E stocks is to focus on what hedge funds are buying. Hedge funds usually hire experienced investment professionals and devote significant resources in researching stocks and the market. That’s why they often have an edge over ordinary investors.

In this article, we are going to take a look at the low P/E US stocks that hedge funds are bullish on. All companies have at least $10 billion market cap and P/E ratios lower than 10. The market data is sourced from Finviz. These stocks are held by the most number of hedge funds tracked by Insider Monkey.

Ticker	Company	P/E	# of HF
C	Citigroup, Inc.	7.76	87
JPM	JPMorgan Chase & Co.	7.54	78
GM	General Motors Company	5.16	71
WLP	WellPoint Inc.	9.28	45
F	Ford Motor Co.	7.05	43
HPQ	Hewlett-Packard Company	8.07	43
FCX	Freeport-McMoRan	6.8	42
CI	Cigna Corp.	7.93	42
MET	MetLife, Inc.	6.22	39
COF	Capital One Financial Corp.	5.86	38
GLW	Corning Inc.	6.41	38
CVX	Chevron Corporation	8.03	38
AET	Aetna Inc.	9.34	38
MS	Morgan Stanley	9.41	38
DFS	Discover Financial Services	5.99	37
DELL	Dell Inc.	7.95	36
CF	CF Industries Holdings, Inc.	8.69	35
GD	General Dynamics Corp.	9.42	35
COP	ConocoPhillips	9.3	32
BK	The Bank of New York	9.47	32
MPC	Marathon Petroleum	4.21	31
AMAT	Applied Materials Inc.	7.59	30
APA	Apache Corp.	9.42	30
VLO	Valero Energy Corporation	5.21	29
NLY	Annaly Capital	8.36	27
IP	International Paper Co.	9.95	27
PNC	PNC Financial Services Group	9.48	26
LLY	Eli Lilly & Co.	9.52	25
DISH	Dish Network Corp.	8.84	24
RTN	Raytheon Co.	9.48	24

Due to the European debt crisis, financial stocks generally did not perform well during the past year. For example, Citigroup (C) lost 42.28%, and JPMorgan Chase & Co (JPM) was down 18.28% over the past 52 weeks, while SPY returned 2.36% in the same period. However, the poor performance of the financial stocks did not reduce hedge funds’ love for them. As of September 30, 2011, C and JPM are the top two stocks with low P/E ratios that hedge funds are bullish about. There are 87 hedge funds with Citigroup positions in their portfolios and 78 hedge funds reported to own JPM shares.

Though both stocks underperformed the market over the past 52 weeks, they did quite well since the end of the third quarter. C returned 11.48% and JPM returned 19.30%, versus 13.58% for SPY in the same period. John Paulson and Lee Ainslie are bullish about both stocks. Paulson & Co had $173 million invested in JPM and $643 million invested in C. Ainslie’s Maverick Capital reported owning $178 million worth of C and $211 milion worth of JPM shares.

Another stock with low P/E that is loved by a large number of hedge funds is General Motors Company (GM). At the end of the third quarter, there are 71 hedge funds that disclosed to own GM shares in their 13F portfolios. Among them, David Einhorn’s Greenlight Capital had the largest GM position. The fund had nearly $300 million invested in GM at the end of September. Since then, GM returned 13.58%, the same as the market. The stock has a market cap of $36B and a low P/E ratio of only 5.16.

Some other large-cap low P/E stocks that hedge funds love include Chevron Corporation (CVX), ConocoPhillips (COP), Hewlett-Packard Company (HPQ), Ford Motor Co (F), Apache Corp (APA), and Freeport McMoRan Copper & Gold Inc (FCX). The low P/E ratio of these stocks, together with their popularity among hedge funds, indicates that they have great potential to grow in the future. Additionally, a portfolio of these 30 stocks can provide enough diversification for investors. Therefore, we strongly recommend investors to consider adding some of these stocks to their portfolios.

Disclosure: I am long C, MS, COP.