Blue-chip stocks are recognized as being among the largest, most stable stocks an investor can own. And in this article, we’ll be looking at seven undervalued blue-chip stocks to consider now. Many pay a dividend that in many cases has been growing for several years. Better, these are the stocks that allow investors to rest easy during volatile times. That makes them an excellent choice for investors who are looking to stay in the market and protect their capital. Some of the top ones to consider include:
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JPMorgan Chase (JPM)
Strong fundamentals are a distinguishing quality of blue chips. And few banks have the balance sheet of JPMorgan Chase (NYSE:JPM). That strength was on display in the company’s first-quarter earnings report. JPMorgan reported earnings per share of $3.57 on revenue of $34.55 billion. Both numbers beat analysts’ expectations.
The significance of this double beat takes on more significance in a weakening economy. Banks are setting more money aside to protect against rising credit losses. However, as the largest U.S. bank, JPMorgan should have no problem delivering sufficient earnings that will allow it to support its dividend and continue its share repurchases.
JPMorgan Chase makes this list of undervalued blue chip stocks with a P/E ratio of 11.67. In addition, the JPM stock has been up 34% since the middle of Oct. Analysts suggest there’s approximately 11% upside for the stock price which is supported by a dividend that currently pays out $4 per share on an annual basis and has an appealing yield of 2.88%.
Merck (NYSE:MRK) just delivered another strong earnings report. On Feb. 2, the company Merck posted revenue of $13.83 billion and EPS of $1.62. It’s also one of the top undervalued blue-chip stocks to buy now.
A significant reason for the company’s strong results is likely the strength of the company’s Keytruda drug which has been approved for the treatment of several forms of cancer. Keytruda has become a cornerstone of Merck’s revenue growth since it was approved by the FDA in 2018. In fact, in 2022 it accounted for approximately 40% of the company’s pharmaceutical sales.
Unlike many stocks on this list, Merck did not benefit from the Jan. rally. After being up about 26% in 2022, MRK stock was down more than 6% in Jan. However, the stock trades for around 17x earnings. And the company’s earnings are projected to increase at an average rate of around 10% over the next five years which will be sufficient for future stock price growth.
With the performance of energy stocks in 2022, it might surprise you to find an oil stock on this list of undervalued blue-chip stocks. But things are cheap in the oil patch these days. And that’s great news for companies, like Chevron (NYSE:CVX).
Trading at around 9x earnings, CVX stock is a bargain, particularly as their stock is down about 5.5% to start the year. The company’s breakeven price for crude oil is well below the current price of around $80 per barrel. And crude prices may be rising as part of the ongoing budget negotiations between the House of Representatives and the Biden administration.
And the story of Chevron isn’t limited to fossil fuels. The company is one of the world’s leading exporters of liquefied natural gas (LNG) which is seeing increased demand, particularly from Europe.
Earnings reports can make investors prisoners of the moment. In my opinion, that’s the case of the approximately 6% drop in Caterpillar (NYSE:CAT) stock in the week it reported mixed earnings. The company beat on the top line but missed on the bottom line.
That was enough for investors looking for a reason to clip the wings of CAT stock which was up nearly 40% in the last 12 months. But it could also be that some investors were taking some profit before sending the stock to new highs. The thesis is simple. Much of the spending for the Infrastructure Act is only now making its way into the economy. And the company is also likely to benefit as the oil and gas sector may increase capital spending this year. That means that Caterpillar will likely see strong revenue and earnings growth for the next several quarters.
American Express (AXP)
American Express (NYSE:AXP) illustrates the bifurcation that’s happening in the U.S. economy. On the one hand, the company’s most recent earnings report showed that the company is having to set aside more of its profits to cover potential charge-offs as delinquencies rise.
This is troubling because American Express is typically associated with higher-income card members. However, investors may be seeing it as a natural, if an unfortunate byproduct of American Express adopting a business model that encourages cardmembers to carry a balance.
On the other hand, the company still is seeing strong revenue growth and is forecasting solid earnings growth for the rest of 2023. The company is benefiting from “high customer growth.” And that premium customer will likely be the company’s focus for the rest of the year. AXP stock trades for approximately 17x earnings and is up 16.78% in the last month. Despite the earnings report, the stock is still holding on to a 2% gain in the week since releasing earnings.
Home Depot (HD)
Next on this list of undervalued blue-chip stocks is Home Depot (NYSE:HD). HD stock is up more than 7% in 2023. That’s continuing a rally that started in the last three months of 2022.
The stock of Home Depot and competitors like Lowe’s (NYSE:LOW) was hit hard in 2022 as the housing market dried up in the face of higher interest rates. But prices are rallying as the company’s financials are proving the thesis that homeowners are choosing to love the house they have. This is a good reminder that Home Depot is a home improvement store. And that improvement goes on independently of the real estate market.
I considered putting Lowe’s on this list instead of Home Depot. But as of this writing, HD stock is trading at around 20x earnings which is slightly more attractive than LOW stock. And Home Depot pays a more attractive dividend that currently pays out $7.60 per share annually and has been increasing for the last 13 consecutive years.
Texas Instruments (TXN)
Analyzing stocks is an imperfect science. In Oct. I listed Texas Instruments (NASDAQ:TXN) on a list of semiconductor stocks that were drawing the attention of analysts. So far, that attention has led to TXN stock climbing by about 15%. This reflects renewed optimism surrounding the demand for semiconductor chips in 2023.
This week, General Motors (NYSE:GM) told analysts that it was seeing an unwinding of the supply chain struggles that have suppressed new car production. Since Texas Instruments gets approximately 25% of its revenue from the automotive market, news like this is likely to be bullish for TXN stock. The average new car now has over 3,000 semiconductor chips.
TXN stock is currently trading at a price-earnings ratio of around 19x which makes it slightly less expensive than the S&P 500. However, the company does pay a dividend that pays out $4.96 per share on an annual basis and has been increasing for 19 consecutive years.
On the date of publication, Chris Markoch had a LONG position in CVX. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Blue-Chip Stocks, Undervalued Stocks