The S&P 500 index has trended higher by 16% for year-to-date. The rally has been more pronounced in growth stocks. It’s also likely that the index will continue to trend higher as economic headwinds ease. In the current rally, there are blue-chip stocks that have skyrocketed. As an example, Nvidia (NASDAQ:NVDA) stock has delivered year-to-date returns of 218%. Its an example of one of those blue-chip stocks to buy.
On the other hand, there are attractive blue-chip stocks to buy that have remained sideways or lower. That’s not uncommon as there can potentially be company or industry specific headwinds that have depressed valuations. However, if fundamentals are robust, the under-performing stocks can be accumulated.
As the markets look for value, these stocks will be in the limelight and are likely to surge higher. The blue-chip stocks to buy that are discussed represent quality companies that have a positive outlook for the coming quarters.
My sense is that these undervalued blue-chip stocks can possibly deliver 100% total returns in the next 24 months. Let’s discuss the reasons to be positive on these stocks.
Vale (VALE)
Vale (NYSE:VALE) is possibly among the most undervalued blue-chip stocks to buy. The stock currently trades at a forward price-earnings ratio of 6.7 and offers an attractive dividend yield of 5.95%. I would expect 100% total returns from VALE stock in the next 24 months.
An important point to note is that global GDP growth is likely to remain stable in 2024 at 3%. This is positive for industrial commodities and iron ore has been trending higher in the last few weeks. I will not be surprised if this strength in iron ore translates into a meaningful rally for VALE stock.
I must add here that the iron ore segment is likely to remain the cash cow for the company. However, Vale in investing in metals that will support global energy transition. This includes copper and nickel. This will ensure that the company’s long-term growth is robust.
AT&T (T)
AT&T (NYSE:T) is another blue-chip stock under $20 that trades at a significant valuation gap. At a forward price-earnings ratio of 5.9, the stock looks attractive and offers a dividend yield of 7.7%. It’s another stock that’s likely to deliver 100% total returns in the next 24 months.
It’s worth noting that T stock has remained depressed even after the spin-off of the media division. At the same time, business developments have been positive and the company continues to deleverage. Re-rating of the stock is inevitable, which will be a catalyst for a big rally.
An important point to note is that between 2018 and 2022, the company has invested $140 billion. The investments have been directed towards boosting the company’s U.S. wireless and wire-line networks. The company is already witnessing sustained growth in phone and fiber subscribers. I expect this trend to continue coupled with growth in average revenue per user.
Overall, AT&T continues to report healthy cash flows, which will be utilized for dividends, deleveraging, and capital investments.
Barrick Gold (GOLD)
Barrick Gold (NYSE:GOLD) stock has remained sideways in the last 12 months. I see this as a good accumulation opportunity with the gold mining stock trading at an attractive forward P/E of 17.1.
An important point to note is that even with aggressive rate hikes, gold has sustained above $1,900 an ounce. I expect the precious metal to breakout on the upside backed by catalysts of inflation, geopolitical tension, and potential reversal in monetary policy in 2024.
Specific to Barrick Gold, the company has strong fundamentals and an investment grade balance sheet. I expect dividends to sustain and accelerate when gold is above $2,000 an ounce.
It’s also worth noting that the company’s gold reserve replacement ratio has been above 100% in the last few years. A strong asset base ensures clear cash flow visibility. I also like the fact that Barrick Gold has quality copper assets. The demand for copper is likely to remain high on the back of the push for green energy. Barrick is positioned to benefit.
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
