7 blue-chip stocks trading a huge discount right now
Blue chip stocks are the backbone of any portfolio. These stocks protect investors’ capital in volatile markets and also create value through dividends and share buybacks.
Even during the recent market correction, there are still blue chip stocks trading at higher valuations. The reason for this is the flow of funds from growth stocks to low beta blue chip stocks. However, several blue chip stocks are trading at a discount due to short-term challenges.
When market sentiment improves, these stocks are positioned to trend higher. These blue chip stocks that are trading at a discount also offer investors a strong dividend yield. This would amplify the total return for investors when sentiment changes.
Above all, it makes sense to overweight blue chip stocks under current market conditions. The focus is on capital preservation and returns above inflation. I believe these seven actions can be considered for exposure at current levels to achieve key objectives.
|MO||Altria Group, Inc.||$41.81|
|JPM||JPMorgan Chase & Co.||$112.44|
Blue chip stocks: Altria Group (MO)
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Altria Group (NYSE:MO) the stock has corrected 21% in the past month. The main reason is that the United States Food and Drug Administration (FDA) has ordered JUUL products off the shelves. Subsequently, the FDA cleared JUUL products for sale, with the company appealing the order.
Regardless of the outcome, MO stock appears to be among the attractive blue chip stocks to buy. With a forward price-to-earnings (P/E) ratio of 8.5 and a dividend yield of 8.75%, the stock is too cheap to ignore.
One of the reasons to love Altria is the fact that Marlboro remains the cash flow machine. Even with stable revenues or a marginal drop in turnover, cash flow should remain robust. This allows Altria to maintain its dividends at current levels.
At the same time, Altria focused on expanding its non-combustible product portfolio. From the company oral tobacco category share in the United States has increased. Over the next few years, the incombustible segment will increasingly contribute to cash flow.
With guaranteed dividends and attractive valuations, MO stock is worth buying among blue chip stocks trading at a discount.
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Year to date, Pfizer (NYSE:DFP) the stock remained on the side. I think this is a good accumulation opportunity for a stock that offers a 3% dividend yield. Additionally, PFE stock is trading at a forward P/E of 7.7, indicating undervaluation.
On a relative basis, it is likely that the company’s revenue from sales of Covid-19 vaccines will decline even if countries impose booster doses. However, Pfizer’s growth story goes beyond the pandemic vaccine.
For the current year, Pfizer plans to invest $11.5 billion in research and development. With a strong pipeline of drug candidates, the company is positioned for steady growth in the years to come.
Pfizer has also seen a wave of acquisitions in recent quarters. With strong cash flow from Covid-19 vaccine sales, the company’s financial flexibility has improved. The acquisitions will allow the company to diversify and deepen the product portfolio.
As an example, the company estimates that the acquisition of ReViral can add $25 billion in risk-adjusted revenue to revenue by 2030. With visibility for sustained growth and cash flow at the rise, PFE stock looks deeply undervalued.
Blue Chip Stock: AT&T (T)
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After the split of the media division, AT&T (NYSE:J) the stock looks attractive among blue chip stocks. The stock looks good with a forward P/E of 8.2 and offers a dividend yield of 5.26%.
It should be noted that the T stock has seen a marginal rise of 6.5% over the past six months. The upward trend in difficult market conditions is an indication of undervaluation.
It should be noted that in the first quarter (Q1) of 2022, AT&T reported revenue growth of 2.5% to $29.7 billion. Additionally, free cash flow for the quarter was $2.9 billion. This implies a potential annualized FCF in excess of $10 billion. Therefore, AT&T is well positioned to maintain dividends and deleveraging.
AT&T also witnessed sustained growth in the number of postpaid telephone and fiber subscribers. With strong capital investments and a robust 5G network, the company is well positioned to benefit. For 2022, the company also aims to achieve savings of $4 billion to $6 billion. This should have a positive impact on key margins.
Target company (TGT)
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Retail inventories have been under pressure due to inflation and its impact on margins. A possible recession in 2023 has also added to concerns. However, these short-term headwinds provide a good opportunity to get into blue-chip stocks.
Target company (NYSE:TGT) the stock has fallen 35% in the past six months. A progressive accumulation can be envisaged. A forward P/E of 16.8 looks attractive. Costco (NASDAQ:COST) shares are trading at a forward P/E of 37.7. This is an indication of relative undervaluation.
For the first quarter of 2022, Target reported comparable sales growth of 3.3% on top of last year’s 22.9% growth. Digital sales also remained strong as Target bolsters its omnichannel retail presence.
In March 2021, Target committed to spend $4 billion a year. This investment is targeted at store remodeling, building new stores and improving online sales capacity. These investments, over the next few years, will ensure healthy growth for the company.
Blue Chip Stock: Intel (INTC)
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Intel (NASDAQ:INTC) is another blue chip stock to buy that looks deeply undervalued. After a nearly 30% correction over the past six months, INTC stock is trading at a forward PER of 10.7. The correction seems clearly overdone for this stock with a dividend yield of 3.95%.
One of the main reasons to love Intel is the big investments planned. For the current year, Intel forecasts net capital expenditures of $27 billion. Recently, the company also acquired land to build a manufacturing facility in Ohio with a planned investment of $20 billion. If CHIPS is passed in the United States, Intel will be a major beneficiary of semiconductor subsidies.
In March 2022, Intel announced that the company would invest 80 billion euros in the European Union over the next decade. The initial investment of 17 billion euros is targeted at a mega-site for the manufacture of semiconductors in Germany.
With healthy cash flow, Intel is well positioned to make big investments. This will translate into accelerated revenue growth in the years to come, as well as increased cash flow.
JPMorgan Chase (JPM)
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The banking sector has been an underperformer and there appears to be value in high quality banking stocks. JPMorgan Chase (NYSE:JPM) the stock is down 31% in the past six months and trades at a forward P/E of 9.9. The blue chip stock also offers a dividend yield of 3.6% and looks significantly undervalued.
The banking sector has short-term concerns. Inflation is likely to have an impact on purchasing power. Aggressive rate hikes will also impact credit growth. At the same time, JPMorgan should see some net interest margin expansion.
JPMorgan Chase also has a strong balance sheet. A recession can be navigated with relative ease. On the other hand, the bank is expected to post a loss in the wealth management and investment banking division. Weak equity markets will impact these segments. However, given the valuation, this factor seems to be discounted in the stock.
Overall, JPM stock is worth considering at current levels for sustained dividends and upside potential as macro headwinds subside.
Blue chip stocks: Exxon Mobil (XOM)
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Exxon Mobil (NYSE:XOM) is another quality name among blue chip stocks trading at a discount. With a forward P/E of 7.4, the stock is worth considering and a dividend yield of 4% is attractive.
In the short term, one reason to be bullish on Exxon Mobil is the strong growth in refining margins. For Q2 2022, the refining result is expected to increase by $5.5 billion. For the first quarter of 2022, Exxon generated $14.8 billion in operating cash flow. With visibility into accelerating cash flow, dividends are secure.
Exxon also owns high-quality oil and gas assets. In particular, the company’s Guyana project is likely to be a game-changer in the coming years. The company’s Permian production is also on track for a 25% increase in 2022. If oil holds above $80 a barrel, Exxon will be able to generate strong cash flow from exploration and production activities.
From a balance sheet perspective, Exxon reported a net debt ratio of 17% for the first quarter of 2022. Given strong cash flow, overall credit health should improve further. This can potentially ensure aggressive stock buyback and dividend growth.
As of the date of publication, Faisal Humayun does not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.
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