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.
|BAC||Bank of America||$37.50|
|BRK.A, BRK.B||Berkshire Hathaway||$472,700,$313|
Undervalued Blue-Chip Stocks to Buy: Alphabet (GOOG, GOOGL)
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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 $95, its most affordable level since the company went public in 2004. 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 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 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)
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Bank of America (NYSE:BAC) stock looks extremely undervalued at its current price. Down 20% 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.
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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 28% 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 just over $240 a share, investors should take the opportunity to buy the dip of MSFT stock.
Undervalued Blue-Chip Stocks to Buy: American Express (AXP)
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 9% in 2022. The stock currently trades at 15 times its forward earnings and offers shareholders a dividend that yields 1.36%.
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The shares of big box grocery retailer Costco (NASDAQ:COST) are down 8% in 2022. At one point this year, the stock was down more than 30% but has managed to recover. That’s because the company has demonstrated that its sales remain strong despite high inflation and rising interest rates.
The company’s latest quarterly results showed revenue of $72.09 billion, which was above the $72.04 billion that analysts, on average, had expected. Further, its earnings per share of $4.20 beat analysts’ average estimate of $4.17 a share.
Perhaps best of all, Costco announced as part of its quarterly print that it wouldnot raise its membership fees this year, holding them at $60 for a regular annual membership and $120 for an executive membership.
COST’s P/E ratio of 39 times looks high at first glance, but investors need to keep in mind that Costco is on track to surpass $200 billion of sales this year, making this one of the more impressive undervalued blue-chip stocks to consider buying.
The company’s stock pays a dividend that yields just 0.69%, but Costco has a history of paying out special, one-time dividends as well.
Berkshire Hathaway (BRK-B)
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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.
Undervalued Blue-Chip Stocks to Buy: FedEx (FDX)
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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 32% on the year, making it an undervalued blue-chip stock.
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 2.63%.
When announcing the dividend increase, FedEx also said that it was 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 undervalued prices. Its P/E ratio currently stands at an attractive 12 times its forward earnings.
On the date of publication, Joel Baglole held long positions in GOOGL, BAC and MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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.