A shorthand method that famous fund manager Peter Lynch liked to use to search for potential value opportunities was to look for stocks that were trading below what their price would be if they were to trade with a price-earnings ratio of 15 or their median historical price-earnings ratio.
Ever since he detailed this method in his book “Beating the Street,” value investors have been using it as a tool to find potential investment opportunities. GuruFocus has also built the “Peter Lynch chart” based on this method, which is included in the summary pages of stocks to provide a quick reference.
With the stock market continuing its downtrend as we near the end of 2022, far more stocks are undervalued based on their Peter Lynch charts compared to this time last year. Thus, using the GuruFocus All-in-One Screener, a Premium feature, I screened the market for Peter Lynch value stocks that have been popular buys among gurus recently.
The stocks that made the top of the list based on gurus’ most recent 13F portfolio results for the second quarter of 2022 were Meta Platforms Inc. (META, Financial), Citigroup Inc. (C, Financial) and HCA Healthcare Inc. (HCA, Financial). You can find the full screening results here.
Investors should be aware that 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.
Meta Platforms
Appearing in the portfolios of 34 gurus as of the second quarter’s end, Meta Platforms Inc. (META, Financial) made the top of the list of popular guru stocks that are undervalued based on the Peter Lynch chart. During the quarter, 21 gurus bought share of Meta while 11 gurus sold the stock, resulting in 10 net buys.
Gurus were snapping up shares of the embattled social media giant in the first half of the year as retail investors sold off the stock in spades. On paper, the stock looks extremely undervalued compared to the earnings and valuation multiples it has achieved in the past.
However, the company is undergoing an enormous shift by leaving its existing social media brands like Facebook and Instagram in the dust to pursue investments in the Metaverse, a move that has the investing community divided on whether it can achieve its goals of becoming the “Apple (AAPL, Financial) of the Metaverse” or whether it is chasing a dream that will never achieve Facebook’s peak profitability.
It will likely take at least a few years before investors will be able to see concreate results from Meta’s foray into the Metaverse, and before then, profitability will likely continue to decline as Facebook’s growth stalls and the company pours money into Metaverse development. It will be interesting to see whether gurus have continued buying once the deadline for the third-quarter 13Fs rolls around.
Citigroup
Citigroup Inc. (C, Financial) also had 10 net buys from gurus in the second quarter, with 15 buying the stock and five selling shares. As of the quarter’s end, 20 gurus held the stock in their portfolios, meaning the second quarter saw guru interest in the stock double.
As a bank major, Citigroup suffered during the low interest rate environment, but is thriving now that interest rates are rising again. What makes it more popular than the other bank stocks, though? The answer to this question lies with the ongoing transformation plan under CEO Jane Fraser.
Citigroup is in the process of exiting its consumer banking franchises in 13 markets to free up capital for its digital transformation. It is seeking to gain an edge over competitors in an industry that has traditionally lagged behind in terms of technological innovation.
So far, Citigroup has had tremendous success in this plan. For example, the company’s engineers created a powerful machine learning, automation and artificial intelligence software which enables rapid virtualization of its digital technology performance tests. This new testing process is already helping the company increase its pace of innovations.
HCA Healthcare
HCA Healthcare Inc. (HCA, Financial) was bought by 14 gurus in the second quarter, while only two gurus sold shares of the stock, resulting in 12 net buys and bringing the total number of guru owners up to 18. In other words, this stock’s popularity among gurus is a very new development.
HCA Healthcare is a for-profit operator of hospitals, with 182 hospitals and more than 2,300 care facilities located in the U.S. and the U.K. One major macro factor working in its favor is the aging U.S. population.
This is nott just an ordinary hospital operator, though; HCA collects and analyzes the vast amounts of data that it gains from more than 35 million annual patient encounters and uses this data to develop new technologies, IT services, infrastructure operations and more.
For example, HCA Healthcare’s CereCore provides electronic medical record solutions, while HealthTrust provides systems that facilitate group purchasing, supply chain management, workforce management and data analytics. Developing and utilizing innovative technologies to improve patient outcomes is expected to continue playing a key role in the company’s growth.
