Undervalued Dow stocks allow investors to initiate positions with higher margins of safety. Instead of hoping that a high-flying growth stock continues its momentum, investors can incur less risk while increasing the likelihood of seeing an upside.
Even if an undervalued stock doesn’t take off, the losses aren’t likely to be massive. These types of stocks tend to have reasonable valuations, decent opportunities for growth and strong consumer demand. Investors looking for undervalued Dow stocks may want to consider these three picks.
Procter & Gamble (PG)
Procter & Gamble (NYSE:PG) is built to withstand economic uncertainty. The company has many brands under its umbrella that produce essential products for home care, grooming and other categories. The stock has been roughly flat over the past year — but is up by nearly 65% over the past five years.
Investors who buy PG shares now also get to enjoy a 2.50% dividend yield. Procter & Gamble is the oldest company on this list, having been around for almost 200 years. Of the 133 years that the firm has distributed dividends, it has increased its dividend for 67 consecutive years, making it a Dividend King. Shares trade at a 24.48 P/E ratio.
Procter & Gamble continues to achieve top- and bottom-line growth. The company grew net sales by 6% year-over-year in the first quarter of fiscal 2024. Diluted earnings per share jumped by 17% year-over-year. Beauty, grooming, health care, fabric, home care, baby care, feminine care and family care were the net sales drivers.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) continues to impress investors with excellent revenue and earnings growth. Cloud computing, PCs, office software, video games and artificial intelligence are some of the company’s growth drivers that offer opportunities for investors.
The stock currently trades at a 37.62 P/E ratio. Continued double-digit revenue and earnings growth can support more stock gains and strengthen the valuation. Revenue increased by 13% year-over-year while net income rose by 27% year-over-year to start fiscal 2024.
The stock has trounced major indices with a 61% return over the past year. The stock has gained 281% over the past five years. Those gains briefly turned Microsoft into the most valuable publicly traded company. Microsoft will have a tug-of-war with Apple (NASDAQ:AAPL) for that title.
Continued revenue and earnings growth can help the tech giant eclipse a $3 trillion market cap. The company also offers a dividend yield close to 0.80% which, while a nice bonus, is not the main focus of the equity.
Chevron (CVX)
Oil prices should increase as interest rates are projected to decrease and inflation remains elevated. After outperforming the market in 2022, Chevron (NYSE:CVX) took a back seat in 2023. Shares have dropped by 33% over the past year despite a 33% gain over the past five years.
Chevron offers investors a 4.10% dividend yield and does a good job of hiking the dividend. The quarterly dividend jumped from $1.42 per share in 2022 to $1.51 per share in 2023, marking a 6.3% year-over-year increase.
Red Sea disruptions can play a role and increase the demand for oil. Avoiding the Red Sea also means avoiding Egypt’s Suez Canal, which offers the most efficient route between Europe and Asia. Shippers are taking alternative routes that require more oil in a move that will also increase inflation. Similar to how heightened oil prices resulted in market outperformance in 2022, elevated oil prices can reignite Chevron stock.
On this date of publication, Marc Guberti held a long position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.comPublishing Guidelines.
