A lot of great stocks are trading at attractive valuations now. Even some stocks that have enjoyed big rallies over the last year still have price-earnings ratios (P/E) that are below the average among stocks listed on the benchmark S&P 500 index. This is especially true of blue-chip stocks that have not gained as much as technology stocks.
So, investors can pick up some great stocks at not only attractive prices but also low valuations, making them bargains. In time, blue-chip stocks that have strong fundamentals behind them can be expected to rise and appreciate. The key is to spot the opportunity and take a position before it is too late.
Let’s explore the three corporate giants now.
Waste Management (WM)
It’s time to buy the dip in Waste Management (NYSE:WM). The trash collection and recycling giant announced that it’s acquiring Stericycle (NASDAQ:SRCL) in a deal valued at $7.2 billion.
Stericycle specializes in collecting and disposing of medical and pharmaceutical waste at clinics, surgery centers and hospitals. Waste Management says it wants to gain a greater share of the fast-growing healthcare waste disposal market.
Additionally, WM is offering $62 per share for Stericycle. That represents a 20% premium to Stericycle’s stock price at the time the acquisition was announced. In a joint news release, the companies said that the deal is expected to close by year’s end. Moreover, it will generate more than $125 million in annual cost savings. While the deal should boost WM’s long term finances, the immediate reaction was to send WM stock down 5%.
Currently, Waste Management stock trades at 30 times future earnings estimates, which is reasonable for a company its size. Also, it pays a quarterly dividend of 75 cents per share, giving it a yield of 1.48%. WM stock has gained 23% over the last 12 months.
Berkshire Hathaway (BRK-A, BRK-B)
Did you know that Warren Buffett’s holding company, Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) controls 3% of the entire Treasury Bill market?
According to JPMorgan Chase (NYSE:JPM), Buffett now has $158 billion invested in Treasury Bills (T-bills). A T-bill is a short-term debt obligation backed by the U.S. Treasury Department with a maturity of one-year or less.
Interest is paid on T-bills when they mature or expire. With interest rates elevated, T-bills are currently paying 5% to 6% interest, depending on the length of time to maturity. Buffett favors investing Berkshire Hathaway’s excess cash in high-yielding treasuries as he finds stock prices too expensive and potential acquisitions lacking.
This conservative approach, plus the fact that Buffett is sitting on $182 billion in cash and T-bills, has frustrated analysts and investors. This partly explains why Berkshire Hathaway remains an undervalued blue-chip stock. Owing to its sheer size, Berkshire Hathaway’s Class B stock trades at less than one time its future earnings estimates. With the company, investors get a highly diversified blue-chip stock that also has a huge cash position and protective moat around it.
Berkshire Hathaway’s Class B stock has risen 24% in the last 12 months, including a 12% gain so far in 2024. That puts it in line with the benchmark S&P 500 index.
Dick’s Sporting Goods (DKS)
Shares of Dick’s Sporting Goods (NYSE:DKS) have enjoyed a big rally this year. Since January, the company’s stock has increased nearly 50%.
Yet, despite the big move higher, DKS still trades at a reasonable valuation of 18 times future earnings estimates. Also, the stock pays an attractive dividend of $1.10 per share each quarter for a yield of 2.03%.
The most recent leg up in DKS stock came after the sporting goods retailer announced first-quarter financial results that beat Wall Street forecasts across the board. Dick’s reported EPS of $3.30 versus $2.95 that was expected among analysts who track the company’s progress. Also, revenue totaled $3.02 billion versus $2.94 billion that was the consensus forecast on Wall Street. Sales rose 6% from a year earlier.
Management at Dick’s Sporting Goods attributed the strong results to consumers spending more on sneakers and athletic gear. The company said that consumers are still willing to buy popular sneaker brands such as Hoka and On Running. In fact, they will buy even as they cut back discretionary spending in other areas. DKS stock is up 517% over five years.
— Joel Baglole
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Source: Investor Place