The stock markets had an outstanding first half. In terms of returns, the S&P 500 index was up 15.9%, while the technology-heavy Nasdaq 100 index soared 36%. However, breadth has been weak, and many stocks haven’t participated in the rally. Bargain hunters can find blue-chip stocks at lows to buy.
Considering the eight-month bull market from the October 2022 lows, any blue-chip stocks at lows must have some challenges. Some blue chip stocks in consumer staples, utilities and healthcare have been affected by sector rotation. Typically, investors overweight these stocks as defensive plays during downturns and bear markets.
Now that we’re recovering from a bear market, investors are dumping these stocks for technology, consumer discretionary and communication stocks.
Secondly, some have specific issues. For instance, after four consecutive quarters of falling crude prices, energy stocks are hitting 52-week lows. Also, good retailers have been affected by a shift to services from goods. Other stocks, such as Anheuser-Busch InBev SA/NV (NYSE:BUD) and Target (NYSE:TGT), have suffered from cultural issues.
Amid the carnage in these blue-chip stocks at lows, there are terrific opportunities for investors. Remember, these established large-cap companies have been through crises and emerged stronger. Buy these blue-chip stocks in July for their recovery.
CVS Health (CVS)
CVS Health (NYSE:CVS) is a pharmaceutical retailer and a managed care company in the U.S. It operates in three main segments: healthcare benefits, pharmacy services and retail segment.
Healthcare Benefits provides insurance products that serve over 35 million U.S. customers. Meanwhile, Pharmacy offers PBM solutions, including plan design offerings and management, retail pharmacy network management, formulary management and mail order pharmacy. Lastly, the retail segment sells prescription drugs and wellness products.
The company has suffered under a torrent of negative news. First, we’re now emerging from the Covid-19 pandemic. Therefore, no more test kits and vaccine sales. As a result, analysts expect revenues will decline in fiscal year 2023.
Secondly, the company is suffering from the issue of retail theft. Indeed, shrinkage has been a major threat to the extent that some CVS stores have put some items in lockable shelves. Analysts argue that this move has only led to lower sales as consumers avoid retail stores.
Thirdly, conditions on the regulatory front have been punitive. In December 2022, it agreed to an opioid settlement to pay $5 billion in 10 years.
Finally, insurance costs are rising, posing a headwind. Older patients are now more comfortable visiting their doctors. As a result, elective procedures are growing again, pressuring costs. As peer United Health (NYSE:UNH) highlighted, 2023 medical cost ratios might exceed estimates.
Despite the negative news, CVS is one of the best blue-chip stocks at lows to buy in July. As of this writing, the stock has tumbled from $110 to $69. Looking at the valuation, it now trades for a forward price-to-earnings (P/E) of 8. It’s even cheaper on a price-to-free cash flow basis at a trailing multiple of 7.
Management is also positioning the company for growth by investing in the value-based care space. Through CMMI and CMS, the government wants to get Medicare to include value-based care by 2030. Thus, it’s a huge growth opportunity. Management expects these services to add 1% to 2% to revenue growth.
Nasdaq (NASDAQ:NDAQ) stock has declined over 20% YTD. Much of the decline was a one-day 11% decline on June 12 after announcing the Adenza acquisition from Thoma Bravo. The decline presents an opportunity to add one of the top blue-chip stocks in July to your portfolio.
The company provides technology that powers exchanges and markets across the globe. It operates three cash equity exchanges: The Nasdaq Stock Market, Nasdaq BX and Nasdaq PSX. Market makers, institutional investors, broker-dealers, ATSs and registered securities exchanges rely on Nasdaq to meet their liquidity needs.
In the U.S., the Nasdaq Stock Market is the largest exchange. It is home to some of the largest equity listings, including Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG, NASDAQ:GOOGL).
Besides the equity exchanges, it runs six options exchanges: Nasdaq PHLX, Nasdaq BX Options, Nasdaq ISE, The Nasdaq Options Market, Nasdaq GEMX and Nasdaq MRX. They facilitate options trading in equities, indices, ETFs and foreign currencies.
Its other operating segments include Capital Access Platforms and Anti-financial Crime business. The capital access platform provides essential information to investors, creates and licenses Nasdaq-branded indices, and provides analytics to asset managers, investment consultants and institutions.
Lastly, the Anti-Financial Crime segment provides software solutions for fraud detection, anti-money laundering, and trade and market surveillance. After combining with Adenza, this business will comprise the financial technology segment and contribute 36% of revenues.
Management forecasts indicate that Adenza will accelerate the solutions business — capital access platforms and financial technology — growth rate to 8-11% from 7-10%. Nasdaq has a history of executing acquisitions and integrating them successfully. Buy the stock now before the market realizes its mistake.
Keurig Dr Pepper (KDP)
The first quarter saw a decline in beverage stocks as investors dumped consumer staples for technology. Then, poor first quarter results exacerbated the weakness in Keurig Dr Pepper (NASDAQ:KDP) stock.
Since releasing its Q1 2023 earnings on April 27, KDP stock has been in a downward spiral. Although first-quarter net sales increased 8.9%, investors were spooked by a lack of volume growth. The 9.9% net price realization accounted for the growth, with volumes lower by 1%.
Due to the volume declines coupled with overall consumer staple weakness, KDP stock has declined 12% since earnings. Considering the pullback, it’s one of the best blue-chip stocks at low prices to buy for the second half.
Its fundamentals are robust, and management’s outlook is quite optimistic. For FY2023, they expect revenue growth of 5%. At the same time, management forecasts adjusted diluted EPS growth of 6% to 7%.
Moreover, the company is growing market share in the U.S. Liquid Refreshment Beverages (LRB) category which makes up 60% of sales. Momentum in core brands such as Dr. Pepper and new launches are driving gains. The company is also growing by catering to the health-conscious consumer.
For a top-notch blue chip with a history of excellent returns, the valuation is reasonable. As of this writing, the stock trades at a forward P/E of 16.32. Besides, the company pays a respectable 2.56% dividend yield.
On the date of publication, Charles Munyi 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.