Billionaires Are Buying These 3 Undervalued Stocks. Should You?

Warren Buffett still lives in the house he bought 66 years ago. Walmart founder Sam Walton drove a pickup truck instead of an expensive luxury car. Wipro founder Azim Premji often flies in economy class.

Not every super-wealthy person foregoes spending lavishly. However, many of the richest individuals on the planet like to get a good value for their money. This sometimes shows up in their investing activity. Billionaires are buying these three undervalued stocks. Should you?

1. Alibaba Group Holding

David Tepper’s net worth is $20.6 billion. The hedge fund he founded in 1993, Appaloosa Management, now primarily manages Tepper’s own money. Tepper and Appaloosa have bet heavily on one undervalued stock — Alibaba Group Holding (BABA -2.00%).

Alibaba ranks as Appaloosa’s top holding. In the first quarter of 2024, Tepper upped his hedge fund’s position in the Chinese tech company by nearly 159%. And he’s not the only billionaire investor scooping up more shares of Alibaba.

Ken Griffin is worth a whopping $37.5 billion. His hedge fund, Citadel, increased its stake in Alibaba by almost 27% in Q1.

Why are these billionaires buying Alibaba hand over fist? The stock’s valuation is almost certainly a key factor. Alibaba trades at a forward earnings multiple of slightly over 9.5. That’s dirt cheap for a tech stock.

2. PayPal Holdings

Tepper doesn’t own any shares of PayPal Holdings (PYPL 0.42%). However, Griffin does. And he increased Citadel’s position in the stock by nearly 182% in Q1.

Another billionaire investor also developed a newfound interest in PayPal. Paul Tudor Jones, II, whose net worth is $8.1 billion, initiated a new position in the fintech company in Q1 for his Tudor Investment Holdings hedge fund.

PayPal stock is down nearly 80% below its high set in mid-2021. Its shares trade at only 15 times forward earnings, much lower than the S&P 500 index’s forward earnings multiple of 21.2.

3. Verizon Communications

Billionaire Dan Loeb’s Third Point hedge fund has a sizable position in Verizon Communications (VZ -0.94%) but hasn’t added to its stake recently. It’s a different story for Griffin and his Citadel fund, though. Citadel bought more than 6.2 million shares of Verizon in Q1, boosting its stake in the telecom giant by nearly 254%.

Verizon’s share price remains well below its late 2019 peak. However, the stock has performed well over the last 12 months, jumping more than 20%. Roughly half of that gain came this year.

I suspect Griffin was attracted in part by Verizon’s valuation. Its shares trade at roughly 9 times forward earnings. That’s less than half the forward earnings multiple of the S&P 500 communications services sector.

Should you buy these undervalued stocks, too?

Investors who aren’t billionaires could find much to like with these three stocks. However, they’re not ideal picks for every investing style.

Alibaba, PayPal, and Verizon might appeal to value investors. Growth investors could be intrigued by PayPal’s prospects but probably won’t be overly excited about Alibaba and Verizon.

Income investors won’t waste their time on PayPal since the company doesn’t offer a dividend. They could also turn up their noses at Alibaba, which has a low forward dividend yield of under 1.3%. On the other hand, income investors should love Verizon with its ultra-high forward dividend yield of over 6.4%.

Keith Speights has positions in PayPal and Verizon Communications. The Motley Fool has positions in and recommends PayPal and Walmart. The Motley Fool recommends Alibaba Group and Verizon Communications and recommends the following options: short June 2024 $67.50 calls on PayPal. The Motley Fool has a disclosure policy.