In good markets and bad, investors are always scouring for a good deal in the stock market. In bull markets, it’s easier to pick top-performing growth stocks. In bear markets, we have to dig a bit deeper and seek out high-quality companies. That’s got investors looking for the most undervalued blue-chip stocks.
Blue-chip stocks are often on investors’ radar because they tend to perform well over long stretches of time. The hope is that these stocks keep pace or exceed the performance of the S&P 500 during bull markets and hold up better than the index during bear markets.
Admittedly, that’s a tough ask. However, that’s what we’re after when looking for the best stocks to buy. Let’s look at a few undervalued blue-chip stocks.
How much growth does Deere (NYSE:DE) have left in it? To be honest, I’m not sure. But I do know that the company keeps knocking it out of the park. Shares are down about 4% over the past year, but have increased by 193% over the last three years.
Analysts expect roughly 31% earnings growth in 2023 on revenue growth of 13.4%. In other words, Deere is pumping out some solid growth for its business. For this, investors are paying just 13 times earnings. Not to mention, it recently delivered strong results and raised its full-year outlook.
The stock doesn’t have the most robust dividend payout, yielding just 1.25%. However, that shouldn’t stop investors from taking a closer look at the name. The one hang up buyers may encounter is a potential recession. A large economic slowdown will send buyers into stocks like Johnson & Johnson (NYSE:JNJ) and out of cyclical names like Deere.
Johnson & Johnson (JNJ)
I have been writing a lot about Johnson & Johnson (NYSE:JNJ) lately, but it’s hard not to, especially when looking at undervalued blue-chip stocks. The company behind many health and hygiene brands like Tylenol, Neutrogena, Aveeno, Listerine and Johnson’s is a dividend stud, having raised its payout for 60 consecutive years. In April, investors expect the company to do so once again. Currently, the yield is just under 3%.
While the company is not blowing away investors with its growth, it’s quite consistent. Analysts expect roughly 3% revenue growth this year and next year, alongside roughly 3.5% earnings growth in 2023 and 2024.
However, it’s not like we’re paying 25 to 30 times earnings for this growth. Instead, JNJ shares trade at roughly 15 times this year’s earnings estimates. That’s incredibly reasonable for the consistency we’re getting here.
When shares of a blue-chip stock go on sale, it’s best to do some shopping. That’s exactly the case here, as shares previously declined in nine straight weeks.
No one wants to buy energy stocks at the top of the cycle, nor do they want to buy energy stocks ahead of a potential recession. Like Deere, investors in Chevron (NYSE:CVX) and energy stocks in general will need to keep an eye on how these stocks trade.
However, the reality is that these stocks command low valuations and high dividend yields amid a period of robust cash flow. While oil and natural gas prices have been under pressure, they have started to rebound in recent trading.
From the March 20 low to the high on April 4, crude oil has climbed over 27%. Natural gas prices are closer to a low than a high at this point, so it could become a catalyst down the road too.
As it pertains to Chevron, the company recently raised its annual dividend payout to more than $6 a share. As a result, it sports a yield of 3.6%.
Further, the company recently announced a $75 billion buyback plan. Given the company’s market cap of just $322 million, that’s a significant buyback plan. Despite down-to-flat growth expectations over the next 20 months, Chevron’s robust cash flow should generate shareholder value.
On the date of publication, Bret Kenwell held a long position in JNJ. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.