In general, when we talk about a quick doubling time, it’s associated with growth stocks or penny stocks. Blue-chip stocks are known for steady upside and robust dividends. However, markets present opportunities where blue-chip dividend stocks can skyrocket from a meaningful valuation gap.
A recent example is Nvidia (NASDAQ:NVDA). The stock has surged by 192% year-to-date with the rally backed by healthy growth and opportunities in artificial intelligence.
It’s worth noting that the broader markets continue to face macroeconomic headwinds. This has translated into several blue-chip dividend stocks trading at attractive valuations. It’s a good time to consider these stocks with an initial investment horizon of 12 months. The big opportunity here is the possibility of robust returns from low-beta stocks.
Let’s discuss the reasons that make these blue-chip dividend stocks attractive.
Vale (VALE)
Vale (NYSE:VALE) stock is massively undervalued and poised to double in quick time. The blue-chip dividend stock trades at a forward price-earnings ratio (P/E) of 5.6 and offers an attractive dividend yield of 7.95%.
A big impending catalyst for upside is the possible separation of the base metal business into a separate entity. It’s being speculated that Saudi Arabia’s public investment fund is bidding for 10% stake in the base metal unit for a consideration of $2.5 billion. This would value the unit at $25 billion. To put things into perspective, Vale commands a valuation of $61 billion with the iron ore segment being the cash cow.
From a financial perspective, the following point is worth noting. For Q1 2023, Vale reported an adjusted EBITDA of $3.7 billion. Even with correction in commodities, the company is positioned for annual EBITDA in excess of $15 billion. Financial flexibility therefore remains high for dividends and for pursuing capital investments.
Pfizer (PFE)
Pfizer (NYSE:PFE) has been in a correction mode with a downside of 28% for the year. I believe that the bearish sentiments are overdone and PFE stock is attractive at a forward P/E of 11.5. The stock also offers an attractive dividend yield of 4.28%.
One reason to be bullish is the point that Pfizer is establishing a solid foundation for growth through 2030. From an organic perspective, the company has a deep pipeline of drugs in various stages of clinical trials. With aggressive investment in research and development, the company expects to deliver $20 billion in revenue from new molecular entity launches by 2030.
It’s also worth noting that the company delivered robust free cash flows from the sale of vaccines against Covid-19. The company is utilizing the cash buffer to pursue aggressive inorganic growth and broaden its product portfolio. Pfizer expects $25 billion in revenue from new business development by 2030.
Markets have been worried about growth post Covid and the impact of drugs going off patent. However, the correction is overdone as Pfizer prepares a strong base for the next leg of growth.
AT&T (T)
The wait for AT&T (NYSE:T) stock to rally after the spin-off of the media division continues. The stock trades at a forward P/E of 6.4 and offers a dividend yield of 7.18%. I am betting on T stock doubling in the next year.
Recently, President Joe Biden announced a $42 billion plan to provide every American household with high-speed internet by 2030. I believe that AT&T is likely to be a major beneficiary of this plan. Between 2018 and 2022, the company has spent more than $140 billion towards boosting its wireless and wired networks. The company is already expanding its 5G and fiber to connect rural, urban and tribal communities.
Of course, subscriber growth in the recent past has not been in-line with expectations. However, AT&T continues to report strong operating cash flows. This provides headroom for continued investments. Further, dividends seem secure. AT&T has also continued to deleverage and as credit metrics improve, the stock is likely to be re-rated.
On the date of publication, Faisal Humayun did not hold (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.
