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.
Undervalued Blue-Chip Stocks to Buy
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 its current level of $88. At one point, the stock was as low $83 a share.
To be sure, Alphabet’s latest earnings print was ugly. Owing largely to a drop off in online advertising at 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 38% 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 19 times forward earnings, which is below the average among large-cap technology stocks 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.
Bank of America (BAC)
Bank of America (NYSE:BAC) stock looks extremely undervalued at its current price. Down 29% on the year amid a broad selloff in all bank stocks, BAC is currently one of the cheapest stocks to buy and is very well-positioned to rebound.
The decline of the shares doesn’t take away from the fact that Bank of America, the second-biggest lender in the U.S., remains a very appealing long-term investment.
Bank of America should perform well going forward as the interest on its variable rate loans resets at higher levels following rate hikes by the U.S. Federal Reserve.
Additionally, Bank of America has increased its deposit base, which now sits at $1 trillion, and has invested significantly in technology to improve its online presence and electronic transactions.
Plus, Bank of America has a big wealth management arm, and its trading unit continues to make hay out of the current stock market volatility. All in all, Bank of America remains a great, undervalued, blue-chip stocktha5t should be bought while it’s on sale.
Microsoft (MSFT)
Seattle-based Microsoft (NASDAQ:MSFT) is an undervalued blue-chip technology stock. Founded by Bill Gates and Paul Allen in 1975 and publicly traded since March 1986, Microsoft today is a well-diversified and battle-tested technology company that is involved in everything from computer software and video games to online search and cloud computing. The company is hugely profitable and generates positive cash flow. And its stock has been a consistent winner for shareholders over the years.
While MSFT stock is down 27% this year, it is up nearly 200% over the past five years and has gained 830% since November 2012. Today Microsoft has a market capitalization of nearly $2 trillion, a reasonable price-earnings ratio of 26, and is one of the few mega-cap tech stocks that actually pays shareholders a quarterly dividend.
While the company has not been immune to the economic headwinds afflicting the global economy this year, it remains one of the tech giants best positioned to weather the storm and come out stronger on the other side.
Currently trading at $236 a share, MSFT stock should be bought on weakness.
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 credit card network 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 11% in 2022. The stock currently trades at 14 times its forward earnings and offers shareholders a dividend that yields 1.36%.
Amazon (AMZN)
Amazon’s (NASDAQ:AMZN) stock is now trading near $84 a share. Consider that a Christmas gift.
Following Amazon’s disappointing third-quarter earnings and lowered guidance, AMZN stock is down nearly 50% in 2022. Even a 20-for-1 stock split undertaken at the beginning of June hasn’t helped the share price any.
Having given up most of the gains it achieved during the pandemic when consumers were forced to shop online, AMZN stock seems to have been abandoned by consumers. Yet analysts say that is a mistake, and the company is poised for a rebound.
For its part, Amazon is doing what it can to try to raise its share price, as the company earlier this year announced a $10 billion stock buyback program.
Amazon also completed its second Prime sales event of the year in October, which should give its fourth-quarter earnings a boost. Further, the company has reduced its staff levels and taken other cost-cutting measures as it tries to adjust to the current economic environment.
While Amazon’s price-earnings (P/E) ratio is hefty at 80 times earnings, it is not that high when one considers the company’s nearly $1 trillion market capitalization or that it generates more than $100 billion of revenue each quarter. Take advantage of the shares’ weakness and buy AMZN stock while its on sale at bargain basement prices.
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 risen a slight 2%. That’s better than the overall market, but it’s a weak performance for Buffett’s traditionally strong stock.
In many ways the performance of Berkshire’s shares 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 his 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 future earnings, 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.
Target (TGT)
Target (NYSE:TGT) stock has dropped 38% in 2022, making it one of the most undervalued stocks in retail.
The shares of the big-box department store chain had been holding up fairly well until late spring. That’s when the company reported Q1 earnings that showed that inflation had affected its bottom line and that it had excessive inventory.
While Target has made progress in unwinding its inventories, the company continues to struggle with a host of issues. In mid-November, Target reported a third-quarter earnings miss, warned of soft holiday sales, and trimmed its fourth-quarter guidance.
As one might expect, the Q3 print didn’t go over well with analysts or investors. Target cited inflationary pressures that are forcing consumers to prioritize spending as the reason for the poor financial results and difficult outlook. Target also announced plans to cut $3 billion in costs by 2025.
While TGT stock is currently declining, investors should play the long game with this security and buy shares while they are undervalued.
— Joel Baglole
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Source: Investor Place