Today, I want to consider some large-cap sleeper stocks to buy. If you were able to travel back in time one year ago, the current market environment might feel like a bad dream.
Twelve months ago, stocks were still in a sustained (albeit somewhat tired-looking) bull run and making new all-time highs. While the Federal Reserve was laying the groundwork for wrapping up its asset purchase program, central bankers were split on whether there would be any interest rate hikes in 2022. Then inflation reared its ugly head, investors began fleeing high-growth stocks and, well, you know how this story goes.
Yet, it’s not all doom and gloom. Interest rates remain low from a historical perspective, the labor market is strong, and many large companies are sitting on huge amounts of cash stored up during the pandemic. With each of the three major indices currently in bear-market territory, some of the best stocks are on sale. This presents an opportunity for investors with a long time horizon.
So, without further ado, here are seven large-cap sleeper stocks to buy.
|SQM||Sociedad Química y Minera de Chile||$94.34|
|BJ||BJ’s Wholesale Club||$76.03|
Aptiv (NYSE:APTV) is an automotive technology supplier that, according to CEO Kevin Clark, “will usher in the next generation of active safety, autonomous vehicles, smart cities and connectivity.”
The company stands to benefit from a number of concurrent trends even if overall auto market sales decline. First, we are in the midst of a global electric vehicle revolution, with EV market share increasing rapidly in many parts of the world. We are also seeing the proliferation of advanced driver-assistance systems. Finally, autonomous and semi-autonomous driving is starting to gain a foothold.
Excluding the impact of currency fluctuations, Aptiv’s sales climbed 9% year over year in Q2, and it generated $95 million of cash from operations. In the first half of the year, EBITDA, excluding certain items, came in at an impressive $843 million.
Analysts are predicting the company will see revenue increase 10.2% this year to $17.2 billion and another 14.5% next year to $19.7 billion. Meanwhile, earnings per share are expected to jump 22.2% this year to $3.19 and 63% next year to $5.19.
Despite its meaningful growth, APTV stock looks undervalued, trading with a forward price-earnings ratio of just 15.8.
Sociedad Química y Minera de Chile (SQM)
Sociedad Química y Minera de Chile (NYSE:SQM) is the world’s largest lithium producer and one of only two names on today’s list of large-cap sleeper stocks to buy that is up over the past 12 months. Shares have advanced more than 90% in the past year. However, they currently sit 18% below their all-time high, made in May.
Seeking Alpha columnist Sean Daly recently said the company is “uniquely situated to benefit from the new secular demand for lithium,” noting that lithium-ion battery demand is “expected to grow 22x within the span of this decade.”
Much of this demand, of course, comes from the rapidly growing electric vehicle industry, which struggles to get enough refined lithium, according to Tesla (NASDAQ:TSLA) CEO Elon Musk. He recently encouraged people to get into the lithium mining business, saying “it’s a license to print money.”
Sociedad Química y Minera de Chile would know something about that. In the first half of 2022, the company saw net income soar 940% year over year to nearly $1.7 billion on a 314% jump in revenue.
It’s not just about lithium, though. As InvestorPlace columnist and veteran investor Louis Navellier points out, the company is benefitting from the “run-up in fertilizer prices due to the Russia/Ukraine conflict [resulting] in a tremendous jump in revenue and earnings.”
Analysts are calling for triple-digit revenue and earnings growth this year, and shares continue to look undervalued, trading with a forward P/E of just 4.9.
Shares of semiconductor chipmaker Qualcomm (NASDAQ:QCOM) have lost a third of their value in 2022. In addition to the broader tech wreck, the sector is contending with declining PC sales, decelerating data center revenue and anemic flash-memory growth, prompting management teams to lower their forecasts.
However, I noted last week amid sector weakness that Qualcomm was a bright spot, reporting it expects “the total addressable market for automotive chips to reach roughly $100 billion by 2030. Moreover, the chipmaker stated that its ‘design-win pipeline’ had jumped to $30 billion, versus its previous estimate of $19 billion.”
JPMorgan analyst Samik Chatterjee recently reiterated his “overweight” rating on QCOM stock, saying: “We believe there is limited credit that the company is getting yet for the success of its foray into Automotive and IoT [internet of things], in addition to success in RFFE [radio frequency front end].”
Chatterjee’s price target of $185 implies upside of 54% from the current level. Shares look cheap, trading at just 9.3 times forward earnings. QCOM stock is likely to perform very well over the longer term.
Next up on my list of large-cap sleeper stocks to buy is Volkswagen (OTC:VWAGY), which is set to become a big winner in the EV era. Bloomberg Intelligence predicted in June that the German automaker’s EV sales will surpass those of Tesla starting in 2024. With Volkswagen’s EV sales growing at a fast clip and it set to unveil many more EV models, that seems like a realistic prediction.
Meanwhile, Volkswagen has launched its own battery-production unit, PowerCo, to try to overcome supply chain snags. The unit is being financed by Volkswagen and its strategic partners, but management has said it is open to spinning off the unit through an initial public offering.
Speaking of IPOs, Volkswagen’s spinoff of Porsche, which is set to happen later this week, is on track to be one of Europe’s biggest initial public offerings. Investors have been enthusiastic about the IPO, which is being done to raise money for Volkswagen’s EV endeavors and should meaningfully improve the company’s balance sheet.
VWAGY stock has a minuscule forward P/E ratio of 5.4. However, as successful EV makers begin selling more software subscriptions along with their advanced vehicles, such low valuations are likely to become a thing of the past.
When searching for large-cap sleeper stocks to buy in the face of a possible recession, the health care industry is a good place to look. Medical device maker Medtronic (NYSE:MDT) is not likely to be impacted much by an economic downturn. Rather, it should continue to benefit from pent-up demand for routine and elective medical procedures following the pandemic.
RBC Capital analyst Shagun Singh has an “outperform” rating on the shares and $110 price target, which is 36% above the current price. Per The Fly, Singh noted, “Medtronic has a robust pipeline focused on technology differentiation while forecasting growth acceleration to mid-to-high single digits as pipeline opportunities fully unfold.”
Analysts are forecasting earnings will essentially be flat this year before increasing 5.6% in 2023 to $5.84 per share. MDT stock’s forward P/E ratio of 14.9 looks quite reasonable.
BJ’s Wholesale Club (BJ)
You don’t hear about Costco’s (NASDAQ:COST) competitors often, but they exist. Among the most successful is BJ’s Wholesale Club (NYSE:BJ). In fact, it happens to be the only stock besides SQM on today’s list of large-cap sleeper stocks to buy that is in the black over the past year, with shares up 13.5%.
The stock’s outperformance is not surprising. With inflation running hot, consumers are looking to cut costs. Many are turning to warehouse clubs to help them accomplish that goal.
BJ’s Wholesale reported better-than-expected revenue and earnings for the second quarter and raised its earning forecasts for the full year. Comparable sales, excluding gasoline, rose 7.6% year over year.
The strong results, which also included a 6% year-over-year increase in member count, promoted Bank of America analyst Robert Ohmesto to upgrade BJ stock to “buy.” “We view BJ’s as well-positioned in both the near-term as well as long-term given its strong value proposition (particularly in fuel, where comp gallons increased 18% in 2Q vs. a down overall market) in a highly inflationary environment which should enable the company to continue to gain share,” Ohmesto said.
BJ stock’s forward price-earnings ratio of just under 21 is reasonable. Shares are trading about 5% below their all-time high. While that doesn’t exactly make BJ seem like a sleeper stock, looking back a year from now, investors may feel differently.
Those who believe, as I do, that the U.S. economy is likely to significantly exceed expectations should consider buying large American regional banks such as KeyCorp (NYSE:KEY).
With interest rates rapidly rising, these banks’ net interest income should climb a great deal, significantly lifting their overall financial results. Meanwhile, they are largely insulated from the negative events in Europe.
Additionally, I expect U.S. regional banks, in general, and those in the country’s interior, in particular, to benefit meaningfully from the manufacturing/onshoring boom that’s occurring, partly due to the EV and energy revolutions. Based in Ohio, KeyCorp is well-positioned to benefit from those trends.
KEY stock has a low forward price-earnings ratio of 6.9 and provides investors with a hefty dividend yield of 4.8%.
On the date of publication, Larry Ramer 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.