We recently published a list of The 10 best very cheap stocks to buy now, according to hedge fundsIn this article, we will take a look at how Everest Group, Ltd. (NYSE:EG) compares to other very cheap stocks according to hedge funds.
As we approach the third half of 2024, the market’s performance continues to attract both investors and analysts. After an average increase of 24% last year, the 500 U.S. stocks with the highest market capitalization closed the second quarter of this year with an impressive gain of over 3% on average. Overall, the unexpectedly robust U.S. economy and the rapid AI boom have driven stock prices to unprecedented levels.
Although markets are currently concerned about a slowdown, recent economic indicators complement this market trend and show the resilience of the U.S. economy. The Commerce Department reported a 3.1% year-on-year increase in the economy for the fourth quarter of 2023, driven primarily by solid consumer spending on restaurants, healthcare, and autos. The growth forecast for the world’s largest economy was revised slightly to 2.6% by the IMF this year, indicating the country’s resilience and adaptability to changes in the global economy. According to Economic Intelligence’s 2024 Consumer Goods and Retail Outlook Study, global retail sales are expected to grow 6.7% in 2024, supported by a 2% increase in volume, despite a decline in inflation.
This brings us to industries that sell at a discount, including broadcasting, which has an EV-EBITDA ratio of 7.31. According to The Business Research Company, the television and broadcast markets have grown strongly in recent years. They are expected to grow from $439.41 billion in 2023 to $466.83 billion in 2024, at a compound annual growth rate of 6.2%. According to Future Market Insights, North America has the largest market share in television broadcasting services globally, followed by Asia Pacific.
The introduction of digital broadcasting and the Internet has brought about major changes in the television industry. Broadcast television and cable coexist with cable substitutes such as HBO Max, Netflix, and Amazon Prime Video. Many others have canceled their cable connections entirely, choosing to get all of their television needs online. The Motion Picture Association of America reports that the film and television industry has a major economic impact, employing 2.5 million people and paying out over $188 billion in compensation annually.
Another industry that is trading at a discounted price is aviation, which has an EV-EBITDA ratio of 6.17. The Business Research Company reports that the size of the aviation market has grown dramatically in the past few years. The projected CAGR is 6.8%, which would mean an increase from $1,016.38 billion in 2023 to $1,085.37 billion in 2024. Moreover, the size of the aviation sector is expected to increase significantly in the next few years. With a CAGR of 6.5%, it will reach $1,394.51 billion in 2028.
The future expansion of the air transport market is expected to be driven by the growth of e-commerce and online shopping. For example, in September 2022, the U.S. Department of Commerce’s International Trade Administration reported that consumer e-commerce accounted for 30% of the total UK retail market (up from 20% in 2020), with e-commerce sales exceeding $120 billion annually. In the UK, 82% of individuals will have made at least one online transaction by 2021.
Methodology:
For our list of the 10 best very cheap stocks to buy now, according to hedge funds, we chose stocks with an institutional ownership of over 70% and a P/E ratio below 10 as of June 25. We narrowed our selection down to the 10 stocks most commonly held by institutional investors and ranked them in ascending order by the number of hedge funds that will own shares in them in Q1 2024. In cases where two or more stocks have the same number of hedge funds, we used the P/E ratio as the decision criteria.
To identify cheap stocks, we looked for companies with a strong earnings track record by evaluating their earnings per share over the past two to three years. Second, we only considered stocks that were recommended by analysts as a “buy” or “strong buy.”
Why do we care about the stocks hedge funds invest in? The reason is simple: Our research shows that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (See more details here.)
A modern insurance policy with a pen on it, symbolizing a customer’s signature.
Everest Group, Ltd. (NYSE:e.g.)
Number of hedge fund owners: 40
P/E ratio as of August 1: 5.45
Everest Group (NYSE:EG) is a leading global underwriting company that provides premium property, casualty and specialty reinsurance and insurance solutions. EG has a P/E ratio of 5.45 with hedge fund sentiments of 40 for Q1 2024. Joe Dimenna’s BRANCH DIMENNA PARTNERS is a shareholder in the company with 79,909 shares valued at $30.45 million. The average price target among Wall Street analysts for Everest Group, Ltd. (NYSE:EG) is $427.67, which represents an upside of 17.45% from the current price of $364.13.
Seasonal fluctuations affect the company’s performance. Catastrophe losses (hurricane risk) are a major factor. These losses are concentrated in Q3 2024 and can continue into Q4 2024. Everest Group stock has risen somewhat over the past 12 months, mostly staying in the $360-$400 range. Although the company has benefited from a quiet disaster environment, it has gained only 4% since May, lagging the market’s 8% gain.
Everest reported strong earnings in the second quarter of 2024. Gross written premiums increased 13% year-over-year to $4.7 billion. Net income was reported at $724 million, up from $670 million in the second quarter of 2023. The company generated an underwriting profit of $358 million, resulting in an overall combined loss ratio of 90.3%. However, catastrophe losses were modest at $135 million, compared to $27 million in the year-ago quarter, impacting the combined loss ratio. The reinsurance unit performed better than expected, with a combined loss ratio of 88.9% and an underwriting profit of $303 million. The insurance unit, however, fell short of expectations with a consolidated ratio of 94.4% and an underwriting profit of just USD 54 million.
Everest grew its reinsurance business, increasing total premiums to $3.2 billion, up 16.5 percent from the same quarter last year. Performance was weak, although the insurance business grew 6 percent to $1.5 billion.
Although Everest’s investment income rose to a record $528 million in the second quarter on higher interest rates, it is still uncertain whether there will be any major positive momentum. There are obstacles due to catastrophe risk and poor underwriting performance, especially with the uncertain hurricane season looming.
In 2023, the Company’s annual revenue increased by 20.95% year-on-year. Revenue in the first quarter of fiscal 2024 increased by 25.78% year-on-year due to higher premiums earned and net investment income.
Everest Re Group’s combined ratio target for 2025 is within reach as the company expects to end 2024 with a quarterly ratio of 93 to 94 percent.
The company is comfortable with its risk appetite and seeks to align its portfolio with the most promising profit prospects worldwide. Before the end of the year, EG plans to enter the Italian market and focus on growth in the areas it has already achieved.
Despite potential hurricane risks, Everest Group (NYSE:EG) is an attractive investment due to its excellent second-quarter performance and cash reserves that position it well for growth. The potential for continued financial stability and market prospects should be considered by investors.
Total EC 9th place on our list of very cheap stocks to buy. You can visit The 10 best very cheap stocks to buy now, according to hedge funds to see the other very cheap stocks that are on hedge funds’ radar. While we recognize EG’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than EG but trades at less than 5x earnings, read our report on the cheapest AI stock.
READ MORE: Analyst sees a new $25 billion “opportunity” for NVIDIA And Jim Cramer recommends these 10 stocks in June.
Disclosure: None. This article was originally published on Insider Monkey.
