With the end of 2023 fast approaching, the recession has not hit the world’s biggest economies such as the US and China, which predicted by the analysts earlier in the year. In March, more than ~70% of National Association of Business Economics’ (NABE) survey panelists expected that the growth in consumer price index (CPI) should remain more than 4% by year end. Furthermore, ~24% of panelists expected that the recession is expected to start in 3Q23. With recession fears now over, there are some cheap stocks suggested by global hedge funds which can be considered by the investors.
In 31 October -November 1 meeting, the US Fed didn’t increase interest rates for 3rd consecutive time in previous 4 sessions. This was because the CPI declined to ~3.7% in September and it was at ~3.2% in October, as per Bureau of Labor Statistics. Employment rate was steady as there were modest fluctuations, and overall Wall Street indexes showed some resilience, with S&P 500 rising by ~19.23% and NASDAQ-100 increasing ~47.13% YTD as at November 24. Apart from these factors, the US GDP went up by ~4.9% in 3Q23, exhibiting a rise from ~2.1% in 2Q.
While some of the stock market experts can correctly expect market conditions and give accurate projections, the market is still unpredictable for a range of reasons. For instance, no one expected COVID-19 pandemic or war between Russia and Ukraine, and both these events sent global economy into significant chaos. However, there are several financial news websites which believe that investing in utilities, healthcare, and real estate sectors can help protect the investment portfolio during tough economic conditions. In these tough times, investors should invest in the best cheap stocks suggested by global hedge funds.
Hedge funds are considered as the great option during uncertain times. This is because leaving it to experts can help the investors during times of high uncertainty and lack of economic knowledge. Some of the renowned hedge fund managers are Ken Griffin, Seth Klarman, etc. Klarman’s Baupost Group was able to post average annualized returns of ~20% since the very inception of the fund. On the other hand, Ken Griffin’s Citadel Investments declared ~$16 billion of profits in FY22.
With this in mind, let us now look at best cheap stocks suggested by global hedge funds.
1. The Mosaic Company
Formed in 2004 due to the collaboration of IMC Global and Cargill’s fertilizer business, the company has been categorised as the leading producer of primary crop nutrients phosphate and potash.
The company saw net loss of $4 million, or $(0.01) per diluted share 3Q23, with adjusted EPS coming at $0.68 and adjusted EBITDA at $594 million. The company’s 3Q results highlighted the company’s versatility. Destocking of inventories in Brazil early positioned the company well for 2H23 and 2H24.
Its 3Q revenues came in at $3.5 billion, exhibiting a fall of 34% as compared to the year-ago period. This exhibited the impact of lower selling prices. Gross margin rate in 3Q came at 11.5%, down from 28.1% in the year-ago period. Mosaic Fertilizantes saw operating earnings of $77 million in 3Q as compared to $323 million in prior-year period.
Total capital expenditures have been anticipated in the range of $1.3 billion-$1.4 billion for 2023 and trend lower in 2024. The company continues to focus on high-returning investments with marginal capital needs.
Since the company has met its long-term debt reduction target of ~$1 billion, it now focuses on maintaining strong balance sheet which is sustainable across economic cycles. It anticipates to refinance upcoming ~$900 million maturity.
2. EOG Resources, Inc.
The company is an oil and gas producer with acreage in numerous U.S. shale plays, such as the Permian Basin, the Eagle Ford, and the Bakken.
It saw strong 3Q results because of its employees’ outstanding execution in foundational Delaware Basin and Eagle Ford assets. Apart from this, the company saw continued progress across its emerging plays. Key measures of the company, production volumes, capital expenditures, and per-unit operating costs, were all better than the expectations. As a result, the company updated full-year guidance to exhibit increased volumes and lower per-unit operating costs.
The company saw total 3Q oil production of 483,300 Bopd, which was above high-end of guidance range and was up ~1% from 2Q. Natural gas production remained at the high-end of the guidance range and was up by ~2% as compared to 2Q. The company posted cash flow from operations before working capital changes of $3.0 billion. EOG saw ~$1.5 billion of capital expenditures. Finally, the company closed the quarter with $1.5 billion in free cash flow.
It has increased its regular quarterly dividend by 10% to $0.91 per share, which exhibits $3.64 per share indicated annual rate. It also announced the special dividend of $1.50 per share.
3. Marathon Oil Corporation
The company is an independent exploration and production company, which is focused on unconventional resources in the US.
Adjusted net income of the company came in at $466 million or $0.77 per diluted share and its net operating cash flow was $1,066 million or $1,144 million before working capital changes. FCF of the company came in at $573 million or $718 million before working capital changes and including Equatorial Guinea distributions and other financing.
The company has further enhanced its investment grade balance sheet through gross debt reduction. It saw continued delivery on sector-leading commitment to return a minimum of ~40% of adjusted CFO to the shareholders.
Given the uncertainty of overall equity market, best cheap stocks suggested by global hedge funds should be considered by the investors and analysts. Investing in these stocks can help avoid losing a significant amount of money during economic turmoil.
Some of the value stocks are considered as the good option when the recession fears loom because the value stocks will do less damage to the investment portfolio. However, it should be remembered that value stocks are not considered as absolute protection against recession.