3 Undervalued Blue-Chip Stocks to Buy Now

  • American Express (AXP): The rebound of the travel sector and tourism industry plus a dividend raise create a bullish thesis.
  • Home Depot (HD): A pandemic winner with persistent revenue growth.
  • Caterpillar (CAT): An infrastructure stock poised to benefit from the $1 trillion U.S. government infrastructure bill.

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Blue-chip stocks provide a lot of advantages in almost all portfolios. They are shares of very large and well-established companies with a history of strong long-term financial performance. These undervalued blue-chip stocks are ideal for implementing the “set it and forget it” investment axiom. They prove their value under tough market conditions providing attractive returns in both good and bad times for the market.

In 2022, the war in Ukraine, rising energy costs and the tighter monetary policy set by the Federal Reserve have all forced us to reckon with the possibility of a recession. Rising interest rates put the valuation of equities on the front row.

Blue-chip stocks are high-quality stocks, have a reliable financial track record, are rather stable stocks and often offer an attractive dividend yield. By investing in undervalued blue-chip stocks, you gain a considerable margin of safety.

Here are four undervalued blue-chip stocks to buy now.

AXP American Express $186.96
HD Home Depot $306.67
CAT Caterpillar $230.50

 American Express (AXP)

an American Express (AXP) credit card sticking out of someone's pocket

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American Express (NYSE:AXP) has performed strong year-to-date and has been resilient against the broader U.S. stock market decline, as its shares have gains of 14%. Its credit card products and travel-related services are expected to support strong revenue growth as the travel and tourism industry is rebounding from the pre-pandemic levels gradually. A 21% dividend increase in the most recent quarter to 52 cents per common share from 43 cents is highly positive. AXP stock has a trailing twelve months price-to-earnings ratio of 19. The price-to-earnings growth is .11.

American Express’ earnings per share are expected to grow by 11.6% in the next three to five years. Free cash flow growth surged 218% in 2021 to $13 billion while revenue increased 20% to $43 billion and net income grew 157% to $8 billion.

The average annual return of AXP stock over the past 10 years has been 13.35%, a return that is indicative of a high-quality stock.

Home Depot (HD)

Here's Why Home Depot Stock is Worth Buying Over Retailing Rival Lowe's

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Home Depot (NYSE:HD) has seen its shares surging amid the pandemic as they moved from their March 2020 low of under $185 a share to nearly $417 at the beginning of this year. Right now, it’s down to $300.61 as of April 19, 26.4% off so far this year.

The HD stock has a P/E ratio of 20 and a forward dividend & yield of $7.60 and 2.5% respectively.

Sales growth accelerated in fiscal years 2021 and 2022 (ending Jan. 31), increasing 20% and 14% respectively, while profitability is very strong with net income growth of 28% in 2022 to $16.43 billion. The company generated consistent positive free cash flow growth from 2019 to 2021.

Expected EPS growth of 9.75% is good news, and a PEG of 0.64 signals an undervalued stock.

HD stock has a remarkable 10-year average return of 22.14% proving why blue-chip stocks are high-quality companies to invest in.

Caterpillar (CAT)

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Caterpillar (NYSE:CAT), a leading manufacturer of construction and mining equipment, is poised to benefit a lot from the U.S. government’s $1 trillion infrastructure bill to “rebuild the nation’s deteriorating roads and bridges and fund new climate resilience and broadband initiatives.”

This is undeniably a very positive catalyst for CAT stock, which has a P/E ratio of 20 and a forward dividend and yield of $4.44 and 1.9% respectively.

In 2022, Caterpillar has already shown a strong momentum as it has outperformed the S&P 500 with its shares having gains of 12%. The PEG is only 0.17, and this company is the textbook definition of a cash flow generation company. It generates consistent positive free cash flow.

In 2021, Caterpillar reported a 12.2% increase in free cash flow to $4.73 billion. An undervalued stock is even better if it is expected to show high growth too. The expected EPS growth is 12%, which is very strong.

Caterpillar’s business is resilient and very strong, and this has been fully reflected in its stock price history. CAT stock has an average annual return of 10.4%.

On the date of publication, Stavros Georgiadis, CFA  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.

Stavros Georgiadis is a CFA charter holder, an Equity Research Analyst, and an Economist. He focuses on U.S. stocks and has his own stock market blog at thestockmarketontheinternet.com. He has written in the past various articles for other publications and can be reached on Twitter and on LinkedIn.


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