Professional money managers can be a good source of investment ideas, and you can get a peek at what they are doing through regular quarterly filings. The Securities and Exchange Commission requires money managers with over $100 million in assets under management to file Form 13F, allowing us to see what the brightest money managers are buying, selling, or holding.
Some stocks that savvy investors are scooping up now are Brookfield Infrastructure Partners (BIP 2.82%), ExxonMobil (XOM -0.09%), and 3M (MMM 0.57%). Here's why these companies could be no-brainer buys today.
1. Brookfield Infrastructure Partners
Brookfield Infrastructure Partners provides global infrastructure exposure across utilities, transportation, midstream, and data sectors and trades at a cheap discount compared with its broader market and its corporate twin, Brookfield Infrastructure Corporation.
Its cheap valuation likely attracted the interest of Renaissance Technologies, the hedge fund formed by mathematician-turned-quant Jim Simons. In the fourth quarter, Renaissance added 309,000 shares in the corporation. Other hedge funds adding Brookfield Infrastructure were CBRE Investment Management and Hillsdale Investment Management, which added 273,999 and 225,295 shares, respectively.
Brookfield Infrastructure is an appealing value stock because of its high dividend yield and reliable streams of cash flows. Long-term contracts and government-regulated rate structures comprise 90% of its funds from operations (FFO), making its cash flows incredibly stable.
These predictable cash flows support its dividend payout -- which has increased in each of the past 14 years. Over that period, it has grown its distribution to shareholders at a 9% compound annual rate.
Another benefit to Brookfield Infrastructure's business is its ability to adapt to inflation. Those long-term contracts and government rate structures are indexed to inflation, and 80% of its cash flows would benefit if inflation were to remain elevated. The company expects 10% growth in FFO which should more than cover its expected distribution increase of 5% to 9% annually.
2. ExxonMobil
Longtime dividend payer ExxonMobil is another stock that smart investors are scooping up. In the fourth quarter, Citadel Advisors, the hedge fund founded by Ken Griffin with $62 billion in assets under management, added nearly 1.4 million shares in the oil and gas giant. ExxonMobil trades at an appealing price tag, with a price-to-earnings (P/E) ratio well below its 10-year average P/E ratio.
XOM PE Ratio data by YCharts
ExxonMobil operates a balanced business model, which gives it stability to handle wild swings in oil and gas prices. Its stability comes from its upstream and downstream operations.
Its upstream operations include exploration and production, and it benefits from higher crude oil prices. This was an excellent source of revenue last year, and the segment revenue grew 131% to $36.5 billion.
While upstream did great last year, it tends to do poorly when oil prices fall. ExxonMobil has downstream operations to counterbalance this, including refineries and petrochemical plans. These businesses can perform well when oil prices fall since they benefit from falling input costs. This balanced business model is why ExxonMobil has achieved 40 consecutive years of dividend growth.
ExxonMobil is coming off a year when its free cash flow was $62 billion. It has used this cash flow to pay down debt, reward shareholders, and invest in lower-emissions products to dip its toe in the carbon capture and sequestration industry -- a market opportunity of potentially $4 trillion.
3. 3M
3M has faced mounting legal issues in recent years that led to a steep sell-off in this longtime dividend stock. Since its peak price in 2021, 3M stock has fallen by nearly 50%.
The company's lingering legal issues are plaguing the stock, including a class action lawsuit relating to earplugs that allegedly caused noise-related hearing loss and potential liabilities relating to its production of "forever chemicals." Through January, 3M revealed that it had spent $466 million in legal fees relating to earplug lawsuits. Bloomberg Intelligence also estimates that long-term legal liabilities relating to "forever chemicals" could reach $30 billion.
Despite these legal issues, hedge funds kept adding 3M stock. AQR Capital Management, a hedge fund founded by Cliff Asness that takes a systematic approach to portfolio construction, added 761,627 shares in 3M in the fourth quarter. Millenium Management, one of the world's largest alternative asset management firms, was also a buyer, adding 538,123 shares in the quarter.
MMM PE Ratio data by YCharts.
3M is appealing because of its cheap price tag and robust cash flows. Last year it generated $3.8 billion in free cash flow and has averaged $5 billion in free cash flow over the last decade. These strong cash flows are why it's been able to raise its dividend for 64 consecutive years -- something few others can claim. Its legal issues are well-known by investors at this point, and its cheap price tag and robust cash flows make it an appealing stock for investors willing to stomach the risks.
