Investing in undervalued blue-chip stocks might be the safe harbor your portfolio needs at this time. In the past year, we’ve seen blue-chip stocks play second fiddle to tech stocks. The Dow Jones Industrial Average, which tracks 30 of the top blue-chip stocks, posted a modest 4.5% increase year-to-date, substantially behind the tech-heavy S&P 500’s 16.7% gain.
This scenario underscores the potential upside opportunity in undervalued blue-chip stocks that are trading at attractive valuations. Such investments promise stability and offer significant long-term gains. Though tech stocks continue basking in the spotlight, the resilience and enduring value of blue-chip stocks are tough to ignore.
That said, let’s look at three of the best undervalued blue-chip stocks, which the stock market has unfairly punished in recent months. These stocks continue posting strong operating results and are positioned to thrive despite navigating a tricky business environment.
Newmont (NEM)
Newmont (NYSE:NEM) is a top undervalued blue-chip stock that’s mostly moved sideways in the past year. Though its stock jumped 7.5% in 2024, it trailed comfortably behind the S&P 500’s 16.7% gain. Hence, it trades at just 2.9 times forward sales, yielding almost 3%.
There’s plenty of reason to believe that the gold mining giant is in for a strong rally ahead. The Federal Reserve is gearing up for its first-rate cut of 2024 soon, and the ensuing weaker dollar could lead to a rally in gold prices. Most analysts expect gold to fall in the $2,421 and $2,651 range this year, pointing to a robust upside at the upper end of the forecast.
On the operational front, Newmont continues to fire. This is shown by its solid asset foundation, which boasts 128 million ounces in gold reserves and 155 million ounces in resources. Moreover, gold sales and production surged over 30% year-over-year (YOY) in the first quarter (Q1). Moreover, Newmont reported an operating cash flow of $776 million in the same period, backed by a superior balance sheet and a powerful liquidity buffer.
Merck (MRK)
Merck (NYSE:MRK) is another attractively priced blue-chip stock that’s lagged behind the broader market lately. It’s a stand-out pharmaceutical play with a promising growth trajectory and a compelling dividend profile. To put things in perspective, it yields an excellent 2.4% and raised its payout for 13 consecutive years.
Its superb long-term positioning is underpinned by its healthy pipeline, featuring 80 programs in Phase 2 and 30 in Phase 3 testing. Its oncology segment, in particular, is expected to be a major cash cow for its business, potentially generating upwards of $20 billion in incremental sales by the mid-2030s.
Recent results haven’t been too shabby, either. First-quarter results showed a 9% increase in sales from a year ago, reaching $15.8 billion. Moreover, its non-GAAP earnings per share jumped 48% during the period. Consequently, Wall Street is bullish over its prospects, assigning a consensus “strong buy” rating and expecting a 16% upside from current prices.
Chevron (CVX)
Crude oil prices are inching higher, buoyed by expectations of an imminent rate cut. With the current backdrop, it’s an ideal time to consider investing in top oil and gas blue chips like Chevron (NYSE:CVX).
CVX stock ended in the red last year and has trailed the broader market this year. The past six months have been relatively better, but it’s still 12% behind its 52-week highs. Nevertheless, given the dip and its stellar prospects, Wall Street forecasts a 21% upside in CVX stock from current prices.
Despite its subdued stock market performance, there’s a lot to like about Chevron. It boasts an investment-grade balance sheet, which powers its aggressive mergers and acquisitions policy. Moreover, in line with its bold expansion strategy, Chevron is also in the midst of a $53 billion acquisition of Hess (NYSE:HES), which will likely turbocharge its operating cash flows significantly.
Another competitive advantage for Chevron is its low-cost assets that ensure strong operating and free cash flows, even with oil prices around $80 per barrel. With oil prices expected to rise, expect a gusher of free cash flows for the company.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.