7 Undervalued Blue-Chip Stocks to Buy Now

Undervalued blue-chip stocks are a little easier to find in the midst of the current bear market. There are bargains to be found for investors who can stomach short-term volatility. The broad-based decline in equities this year means that some of the best-run and most dominant companies in the U.S. are undervalued and trading at a huge discount relative to their current and future earnings.

This presents huge buying opportunities for investors. And while stocks may not have reached the bottom just yet, there are plenty of undervalued blue-chip stocks available at fire-sale prices. These stocks should pay off handsomely in the long term. Here are seven undervalued blue-chip stocks to buy now.

GOOG Alphabet $97
HD Home Depot $290
AMD Advanced Micro Devices $61
AXP American Express $147
TGT Target $168
BRK.A, BRK.B Berkshire Hathaway $438,000,$290
FDX FedEx $158

Alphabet (GOOG, GOOGL)

The shares of technology behemoth Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) are not likely to be this affordable again for a very long time. Following the Google parent company’s most recent earnings report, GOOGL stock dropped 6%, pulling its share price down to $97, its most affordable level since the company went public in 2004.

To be sure, Alphabet’s latest earnings print was ugly. Owing largely to a drop of online advertising on YouTube, Alphabet’s Q3 results missed analysts’ average expectations on both the top and bottom lines. The company announced earnings per share of $1.06 versus analysts’ average estimate of $1.25, according to Refinitiv’s data. Its Q3 revenue amounted to $69.09 billion compared to the mean estimate of $70.60 billion.

YouTube’s ad revenue fell 2%  year-over-year in the quarter while analysts, on average, were expecting an increase of 3%. In response to the poor Q3 showing, Alphabet announced several cost-cutting measures, including canceling the next generation of its Pixelbook laptop computer and plans to close its digital gaming service called Stadia. The company also said it plans to reduce its workforce in the coming months.

The added pressure on GOOGL stock following the Q3 earnings has dragged the shares’ value down a total of 33% on the year. (A 20-for-1 stock split in July also lowered the share price). While discouraging, the decline makes Alphabet stock look very attractive at its current levels. The company’s price-earnings (P/E) ratio has dropped along with the share price to an attractive level of 18 times, which is below the large-cap technology stocks’ average of 25 times.

This year’s pullback is one of the steepest in the company’s history. Investors should take advantage of this rare opportunity.

Home Depot (HD)

Down 30% this year, retailer Home Depot (NYSE:HD) was recently at its lowest level since before the Covid-19 pandemic struck in March 2020.

The decline of the share price hardly seems justified, considering that the Atlanta-based company reported the strongest first-quarter sales in its 44-year history. Home Depot reported Q1 earnings per share of $4.09, which beat analysts’ average forecast of $3.68. Its revenue totaled $38.91 billion, surpassing the mean outlook of $36.72 billion.

The company said it now expects its sales to increase 3% this year, while it anticipates EPS growth in the mid-single-percentage digits for all of 2022.

Home Depot’s Q2 results also beat analysts’ mean expectations, and the firm reaffirmed its full-year guidance. The company reported Q2 earnings per share of $5.05 versus the average estimate of $4.94, along with revenue of $43.79 billion compared to the mean estimate of $43.36 billion.

So far, Home Depot has been largely impervious to inflationary pressures. The company has been focused on serving professional homebuilders and contractors rather than just do-it-yourself renovators.

The earnings and positive guidance show that Home Depot has been unfairly dragged lower by this year’s market rout. Add in a P/E ratio on the stock of only 17 times and a quarterly dividend that yields 2.62%, and it’s easy to make the case that investors should buy the dip of HD stock.

Advanced Micro Devices (AMD)

Really, you could put any semiconductor stock on this list.

But among the semis, Advanced Micro Devices (NASDAQ:AMD) has been especially battered. The company’s P/E ratio is now at 25 times, lower than archrival Nvidia’s (NASDAQ:NVDA) P/E ratio of 43 times and below the industry average.

While AMD doesn’t pay a dividend, its earnings have continued to be strong this year, and its outlook is positive despite its ongoing challenges with supply chains and inflation pressures. In August, the company reported second-quarter results that showed its sales had beaten analysts’ average estimate.

AMD reported Q2 earnings per share of $1.05 versus the mean estimate of $1.03. Its revenue in the quarter came in at $6.55 billion, above the average estimate of $6.53 billion. However, the chipmaker forecast $6.7 billion of revenue for Q3, which was below the average forecast of $6.83 billion. AMD stock has fallen sharply as a result of the miss. In the past month, the company’s share price has declined 11%, bringing its year-to-date drop to 58%.

Still, each of its four business segments grew during Q2, and its overall revenue soared 70% YOY. By almost every measure, AMD is a best-in-class stock that investors should buy while it is on sale. At its current price of $61 a share, this stock is a steal.

American Express (AXP)

Credit card giant American Express (NYSE:AXP) just issued its third-quarter results, and they were impressive despite signs of a slowing global economy and weak consumer spending.

The payments company reported that its Q3 revenue grew 24% from the same period a year earlier to $13.6 billion, a record high. At the same time, American Express’ profit rose to $1.8 billion, or $2.47 a share.

Both the top-and bottom-line numbers beat the mean expectations of Wall Street analysts. Their average estimate called for earnings per share of $2.40 on $13.5 billion of revenue, according to data from FactSet.

AmEx said that it continues to benefit from customers who are managing to shop and travel despite high inflation and other economic pressures.

While AXP stock has risen in the days since its Q3 print, the company’s share price remains down 9% in 2022. The stock currently trades at 14 times its forward earnings and offers shareholders a dividend that yields 1.4%. Strike while the iron is hot!

Target (TGT)

Another major retailer whose stock looks cheap is Target (NYSE:TGT). In 2022, TGT stock has come down 27%.

The shares of the big-box chain had been holding up fairly well until April when the company reported second-quarter earnings which showed that inflation had affected its bottom line. It also reported that it had an excessive amount of inventory in its warehouses.

Inventory, in particular, has been a problem for TGT, with the retailer warning in June that its Q2 operating margin would likely fall to 2% from 5.3% in Q1 as it marks down unwanted items, cancels orders, and takes steps to get rid of excess products. The retailer blamed its Q1 earnings miss on pricey freight costs, higher markdowns, and lower sales.

Things got even worse when Target reported its Q2 earnings in August, announcing that its quarterly profit had fallen nearly 90% from Q2 of 2021. Despite the ugly Q2 print, Target reiterated its full-year guidance, saying it now expects revenue growth for all of this year in the low- to mid-single-percentage digits.

The earnings and inventory aside, Target still pays a decent dividend that yields 2.64% And its P/E ratio of 18 times indicates that the stock is currently undervalued relative to its peers.

Berkshire Hathaway (BRK-B)

Viewed by many as the ultimate blue-chip stock, Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK-B), the holding company of Warren Buffett, has not been immune to the market downturn this year. In the last six months, BRK-B stock has declined 14%.

In many ways the pullback is curious given Buffett’s excellent track record of finding bargains in down markets. The current bear market has been no exception, with Buffett spending more than $50 billion to take positions in stocks such as Occidental Petroleum (NYSE:OXY) and Ally Financial (NYSE:ALLY). He has also expanded positions in key holdings such as Apple (NASDAQ:AAPL).

While Berkshire Hathaway doesn’t pay a dividend, its stock has a ridiculously low P/E ratio of 0.038 times, and Buffett is aggressive when it comes to buying back his own stock anytime he feels it is undervalued. In the last year, he has repurchased a record $27 billion of Berkshire stock.

FedEx (FDX)

As one of the largest transportation, delivery and logistics companies in the world, FedEx (NYSE:FDX) would be a worthy addition to any portfolio. And right now, FDX stock looks like a bargain as it’s down 38.5% on the year.

FedEx’s share price has fallen alongside the downturn of the stock market and slowing e-commerce shipments. However, there is a reason for investors to be bullish on FDX stock.

Earlier this year, Raj Subramaniam took over as the firm’s CEO. One of his first moves was to hike the company’s quarterly dividend by 53%. It now yields 2.94%.

When announcing the dividend increase, FedEx also said that it is adding “total shareholder return” as a key performance metric to its executive compensation program. The new CEO has made clear that he is focused on shareholder value.

Investors should respond by scooping up FDX stock while it is trading at bargain prices. Its P/E ratio currently stands at an attractive 11 times.

Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.

Source link

Share with your friends!

Products You May Like

Get the latest stocks updates
straight to your inbox

Subscribe to our mailing list and get interesting stuff and updates to your email inbox.

Thank you for subscribing.

Something went wrong.