With the overall surge in the broader equity indices last year, you might think that cheap blue-chip stocks would be difficult to find. To be sure, it ain’t easy. Still, with thousands of publicly traded securities available, it’s practically inevitable that some ideas – even the stalwarts – will fall by the wayside.
And it’s here where you can pick up discount blue-chip stocks. For example, while seemingly everyone is focused on the latest technology plays, several traditional enterprises with relevant and stable businesses tend to attract much less attention.
Just like in baseball, you hit ‘em where they ain’t. In parallel, look for compelling and cheap blue-chip stocks while everyone else is looking in another direction.
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Deere (DE)
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In many ways, agricultural equipment manufacturer Deere (NYSE:DE) represents the best of all worlds. If you want some growth, it offers exactly that thanks to its permanently relevant narrative. If you’re seeking innovation, it surprisingly has that too. And finally, if you’re seeking passive income, it’s going to give you that because of course it will.
Sure, in the past 52 weeks, DE lost a bit more than 7% of equity value. That’s not a confidence booster but then again, analysts rate shares a consensus moderate buy. They also anticipate the stock to hit $423.47, which implies about 7% upside. That’s low but the maximum price target lands at $493 and that may actually be more realistic.
How so? Deere is an innovator, leveraging artificial intelligence to develop an autonomous tractor. Moving forward, demand for autonomous equipment in the agricultural space should increase because let’s face reality: the kids aren’t clamoring to become farmers anytime soon.
Factor in the modest but reliable 1.35% dividend yield (with a payout ratio of 15.35%) and a trailing-year earnings multiple of 11.32X and you have a solid case for cheap blue-chip stocks to buy.
Shell (SHEL)
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A company that needs no introduction, Shell (NYSE:SHEL) is one of the biggest multinational oil and gas stalwarts in the world. Unlike other sector rivals, Shell performed quite well – considering the circ*mstances – in 2023. Part of that centers on the company not only embracing the renewable energy transition but actively participating in it. Moving forward, with encouraging data from the latest jobs report, SHEL may have more legs remaining.
Basically, increased commercial activity should translate to greater consumption of resources. Obviously, that includes energy resources. Further, the rise in the personal saving rate from November 2022 to November 2023 may have reflected understandable hesitancy on the American consumer. With the Federal Reserve possibly on the cusp of engineering a soft landing for the economy, sentiment may storm back.
If so, you’d probably want to be exposed to discount blue-chip stocks tied to the hydrocarbon space. After all, the world continues to run on oil. And analysts seem to agree, pegging shares a consensus strong buy. Oh yeah, it is actually discounted (I’m not just saying that). It trades at a lowly trailing-year multiple of 7.86X.
DuPont (DD)
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A multinational chemical company, DuPont (NYSE:DD) might as well compete for the title of most boring enterprise. I’m not casting aspersions. Rather, I’m just saying that in the world that has gone berserk for AI and machine learning and what have you, the chemical specialties industry will find an empty-ish room to talk to. Still, if you are a contrarian investor, DD offers an enticing opportunity.
Let’s go back to the December jobs report. Essentially, the print startled Wall Street because it demonstrated that the economy continues to run full-steam ahead. Also, more people have jobs, which means more dollars will chase after fewer goods. Further, the population will likely increase via immigration as people become attracted to the American growth engine.
Well, guess what? This dynamic translates to increased manufacturing of goods. And those goods require specialized chemicals and a robust applied sciences industry to exist. DuPont will be on the forefront of this industry, which is why analysts rate shares a moderate buy.
To bring home the point, DD trades at a super-low trailing-year earnings multiple of 7.93X. Is that too cheap for cheap blue-chip stocks? Again, with the economy marching forward, it seems a credible discount.
Toyota (TM)
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When it comes to electric vehicles, Toyota (NYSE:TM) lags badly. There’s no way around it. Yes, the company’s combustion-powered cars get the business done. I’ve witnessed these bad boys go without motor oil for thousands beyond the recommended service interval and it keeps on chugging. Try that in a German car, you’re not getting far. But man, its insistence on focusing on hybrids has driven some investors out of the game.
However, that might be an avenue for astute investors to exploit. While so many other market participants focus on the usual suspects, the Japanese automaker quietly printed a nearly 35% return in the past 52 weeks. And that’s not just technical analysis-based voodoo magic. Fundamentally, Toyota is making an aggressive transition to the EV ecosystem. Frankly, investors should pay more attention.
For starters, the company can leverage its brand reputation established across decades of reliable operation. Further, it enjoys a massive dealership network. So, in terms of the service component, Toyota should be able to outperform its rivals.
And yeah, it’s one of the discount blue-chip stocks, trading at 9.48X trailing earnings (without non-recurring items or NRI).
STMicroelectronics (STM)
Source: Shutterstock
Based in Switzerland, STMicroelectronics (NYSE:STM) – also known as ST – specializes in semiconductors. I’m going to just gently call out the word salad because all semiconductors basically say that they make a positive difference in people’s lives. I mean, what company would say it makes a negative difference? Specifically, ST intrigues because its chips go into several applications. These cover industries such as automotive, industrial, communications and healthcare.
So, in that sense, yes, ST is correct: it does make a positive difference because it’s integrated into practically everything we touch. I just wish that companies would say that instead of resorting to opaque language. Anyhoo, the global semiconductor industry should post revenue of over $613 billion this year. And by 2027, the market volume for the ecosystem may hit $736.4 billion. Given ST’s dominance, it’s going to take a large chunk of the market.
So yes, the idea here is to position yourself early. Right now, STM trades at a forward earnings multiple of 12.15X. That ranks lower than 89.55% of its semiconductor peers. And it’s no throwaway stat either. Consider that its three-year EBITDA growth rate clocks in at 39.8%, above the sector median 22.2%. Therefore, it makes a credible case for cheap blue-chip stocks to buy.
Everest Group (EG)
Source: Shutterstock
Admittedly, Everest Group (NYSE:EG) might not be the most popular idea among blue-chip stocks to buy. After all, how many young investors are interested in the reinsurance business? I didn’t say insurance business, which is boring enough. No, I said reinsurance, which is basically the insurance company for other insurance companies. Here’s how this works.
Practically all of us have a direct relationship with an insurance enterprise; for example, coverage for our vehicles (and any liabilities tied to “extracurricular” incidents) along with of course healthcare. However, what some folks might not realize is that these enterprises with which we engage also seek out risk management services from other entities. And that’s where Everest Group and the reinsurance industry comes into play.
From a speculative perspective, what I like about Everest is the prospect of a dovish monetary policy. If interest rates decline this year, the government bonds that Everest holds should be worth more because they’re at a (higher) fixed rate. Plus, Everest enjoys a superior return on equity (ROE) of 23.38%, implying high efficiency under difficult conditions.
Once those conditions ease up (no pun intended), EG could fly. And that’s exactly what analysts see, pegging shares a consensus strong buy with a $456.11 price target.
Archer Daniels Midland (ADM)
Source: Shutterstock
Arguably a long-term no-brainer idea among cheap blue-chip stocks, Archer Daniels Midland (NYSE:ADM) is a multinational food processing and commodities trading company. As a stalwart in the agricultural processing world, it handles a vast array of crops – soybeans, corn, wheat, etc. – transforming them into various products. These range from biofuels to food ingredients. That’s a long-winded explanation to state that Archer Daniels helps ensure food security across the globe.
Obviously, geopolitical tensions cloud this narrative. After all, food security has been a major concern for roughly the past two years now. More recent flashpoints further cloud the narrative because of disruptions to key commodities and their underlying supply chain flow. Still, humans have to eat. Given the entrenched position of ADM within the broader food landscape, it should eventually work through its funk.
For now, contrarian investors should look at the 52-week loss of almost 18% as a possible opportunity. To be sure, analysts are on the side of the bulls, rating shares a consensus moderate buy with a $91.60 price target. It’s also undervalued, trading hands at 10.7X forward earnings. Thus, it’s one of the discount blue-chip stocks to buy.
On the date of publication, Josh Enomoto 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.comPublishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare. Tweet him at @EnomotoMedia.
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I am an experienced financial analyst with a deep understanding of the equity markets and a track record of providing valuable insights into investment opportunities. My expertise lies in analyzing various sectors and identifying undervalued stocks with significant growth potential.
Now, let's delve into the concepts mentioned in the article about blue-chip stocks and provide additional information:
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Deere (DE):
- Deere is an agricultural equipment manufacturer with a growth-oriented narrative.
- Utilizes artificial intelligence to develop an autonomous tractor.
- Analysts anticipate a 7% upside with a maximum price target of $493.
- Offers a 1.35% dividend yield with a low payout ratio of 15.35%.
-
Shell (SHEL):
- A multinational oil and gas company actively participating in the renewable energy transition.
- Performed well in 2023, and increased commercial activity may boost its prospects.
- Analysts rate shares as a consensus strong buy.
- Trades at a low trailing-year multiple of 7.86X.
-
DuPont (DD):
- A multinational chemical company positioned for increased manufacturing demand.
- Benefits from a growing economy and increased population via immigration.
- Analysts rate shares as a moderate buy.
- Trades at a super-low trailing-year earnings multiple of 7.93X.
-
Toyota (TM):
- Toyota, a Japanese automaker, focuses on hybrids and is transitioning aggressively to the EV ecosystem.
- Enjoys a strong brand reputation and a massive dealership network.
- Printed a nearly 35% return in the past 52 weeks.
- Trades at 9.48X trailing earnings.
-
STMicroelectronics (STM):
- Based in Switzerland, specializes in semiconductors with a broad range of applications.
- Positioned to take a large chunk of the growing semiconductor market.
- Trades at a forward earnings multiple of 12.15X, ranking lower than 89.55% of its peers.
-
Everest Group (EG):
- Engaged in the reinsurance business, providing risk management services to insurance companies.
- Benefits from a dovish monetary policy and holds government bonds.
- Analysts rate shares as a consensus strong buy with a $456.11 price target.
-
Archer Daniels Midland (ADM):
- A multinational food processing and commodities trading company.
- Handles a variety of crops and transforms them into various products.
- Faces challenges due to geopolitical tensions but remains a long-term opportunity.
- Undervalued, trading at 10.7X forward earnings.
These blue-chip stocks offer diverse investment opportunities, combining growth potential, innovation, and stability in various sectors. Always conduct thorough research and consider your investment goals before making decisions.
