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When Ray Dalio founded Bridgewater Associates in 1975, the office was just a two-bedroom apartment. Now the company manages over $100 billion in global investments for a wide range of institutional clients. In 2010, the fund was ranked as the largest and best-performing hedge fund manager. It has approximately 1,200 employees researching the market and generating analysis that informs bets on macroeconomic trends. It generated a return of 44.8% last year and returned 25.3% though the end of August this year despite the market turmoil.

We like stocks as long-term investments but we don’t want to overpay. That’s why we focus on the low PE stock picks of successful hedge fund managers. Some of these stocks may have significant issues that cause them to trade a discount but by focusing on Dalio’s picks we hope to limit the problem to a minimum. Below we compiled a list of top 20 stocks in Dalio’s latest 13F portfolio with PE ratio lower than 10 and market cap over $2 billion.

Company Name

Ticker

Value

Activity

PE

MICROSOFT CORP

MSFT

43498

3%

9.03

EASTMAN CHEMICAL

EMN

33078

49%

9.3

HEWLETT PACKARD

HPQ

28574

117%

8.23

L 3 COMMUNICATIONS

LLL

25858

461%

7.41

CLIFFS NATURAL RES

CLF

23549

173%

4.8

VALERO ENERGY

VLO

22443

71%

5.47

METLIFE INC

MET

20052

99%

5.46

DELL INC

DELL

19504

63%

7.74

FREEPORT MCMORAN

FCX

19476

193%

6.38

CONSTELLATION BRANDS

STZ

19328

206%

6.65

GENERAL DYNAMICS

GD

19326

176%

8.9

TECH DATA CORP

TECD

18411

126%

9.32

T R W AUTOMOTIVE

TRW

18349

141%

4.24

ALCOA INC

AA

17788

2%

9.9

HOLLYFRONTIER CORP.

HFC

15721

New

4.35

TESORO CORP

TSO

15567

14%

4.98

LINCOLN NATIONAL

LNC

14202

745%

5.89

DEVRY INC DEL

DV

14012

New

7.43

APPLIED MATERIALS INC

AMAT

14008

-59%

7.07

AVON PRODUCTS INC

AVP

13234

606%

9.75

In the third quarter, Dalio largely increased his position in Hewlett Packard Co (NYSE:HPQ) by 117%. According to the latest 13F of Bridgewater, the fund had $29 million invested in HPQ at the end of September. HPQ has a PE ratio of 8.23 and it returned 19.82% since the end of the third quarter, beating the 6.10% for SPY. John Paulson was also bullish about HPQ. His Paulson & Co had more than $300 million invested in this stock at the end of September.

Dalio also significantly increased his stakes in L3 Communications Holdings Inc (NYSE:LLL) by 461% to $26 million and his stakes in Cliffs Natural Resources Inc (NYSE:CLF) by 173% to $24 million. LLL has a PE of 7.41 and CLF’s PE ratio is only 4.8. These two positions generated a weighted average return of 14.03%, outperforming the market by nearly 8 percentage points. Ken Fisher also had $66 million invested in CLF.

The stock in Dalio’s portfolio with the lowest PE ratio is TRW Automotive Holdings Corp (NYSE:TRW), which has a PE ratio of only 4.24. Dalio invested $18.3 million in this stock at the end of September, up 141% from the end of June. TRW was down 7.55% since the end of September, but the stock seems to be trading at a discount, according to its extremely low PE.

During the third quarter, Dalio bought new stakes in HollyFrontier Corp (NYSE:HFC). Bridgewater disclosed to own $15.7 million HFC at the end of September. HFC lost 13.69% since the end of September, but its PE ratio is also super low – only 4.35. Other low PE stocks that Dalio were bullish about include Microsoft Corp (NASDAQ:MSFT), Eastman Chemical Co (NYSE:EMN), Valero Energy Corp (NYSE:VLO), Metlife Inc (NYSE:MET), and Dell Inc (NASDAQ:DELL). Overall we like the technology stock picks like HPQ, MSFT, AMAT, and DELL better because we think the entire PC-related stocks are undervalued. We also like Dalio’s energy picks because we think these stocks will keep delivering over the long term as demand for energy increases and inflation becomes an issue.


Disclosure: I am long MSFT.

Disclaimer: This article is based on SEC filings made by the fund discussed in the article. The stock holdings reflect aggregate positions held by the fund at the end of the reporting period. The fund may have other positions in its portfolios or the positions may have changed dramatically since the end of the reporting period. The author isn’t affiliated with the fund and isn’t compensated by the fund. The opinions discussed in the article are solely Insider Monkey’s and the fund doesn’t recommend or endorse the stocks discussed in the article. Investors should contact an investment professional to tailor their portfolios for their investment goals, risk tolerance, and investment horizon.

Source: Billionaire Ray Dalio's Stock Picks With Low PE Ratios