Finding undervalued blue-chip stocks isn’t as easy as it seems. That’s mainly due to stock valuations, which have steadily risen since the March 2020 correction, when the S&P 500 lost 31% of its value from Feb. 21 through March 20. 

The average S&P 500 P/E at the time was 22.8x. As of May 29, it was 27.4x, 20% more expensive. The last time the index’s P/E multiple was this high was in May 2021. In 2021, it got as high as 39.3x in December 2020.

As a result of 2020’s big run from April through December, its P/E at the beginning of 2021 was 35.96x. So, it’s right to say that the index is valued at one of the highest multiples in its lengthy history.

To find undervalued blue-chip stocks, I’ll select three names from three sectors with a P/E lower than 22.80x, the multiple at 2020’s bottom. 

Here are my three choices. 

Tapestry (TPR)

Tapestry (NYSE:TPR) owns the Coach, Kate Spade New York, and Stuart Weitzman luxury brands. It is trying to buy Capri Holdings (NYSE:CPRI), the owners of Michael Kors, Versace, and Jimmy Choo, for $8.5 billion. 

There’s just one little problem in its way: the FTC (Federal Trade Commission) antitrust people want to stop the merger because handbags will be more expensive if it allows the combination to proceed. 

The Washington Post’s George Will believes the move is ridiculous. I couldn’t agree more. I said as much in early May. 

“It is strange that the FTC is worried about affordable handbags. It’s so odd that one of the wealthiest countries in the world doesn’t have a competitor to LVMH (OTCMKTS:LVMUY) and all the other luxury conglomerates in Europe and Asia,” I wrote on May 7.

Even if the FTC is successful, which would be a terrible overreach by a government agency, Tapestry has three excellent brands, and I’m sure it will buy more on the luxury spectrum in the future. 

It currently has P/E and P/S ratios of 9.6x and 1.5x, respectively. Further, as I said in early May, it has a trailing 12-month free cash flow of $1.3 billion through March 31. Based on an enterprise value of $11.37 billion, it has a free cash flow yield of 11.5%. Anything over 8% is undervalued in my books.

It’s a blue-chip stock on sale.

Corpay (CPAY)

What if I told you that you could own a business that’s grown revenues and adjusted earnings per share by 18% and 20% annually since 2010, but you only have to pay 19.6x its trailing 12-month earnings and 13.9x forward earnings? 

You can with Corpay (NYSE:CPAY), the new name of Fleetcor Technologies, the Atlanta-based company that helps businesses and consumers pay their expenses through a group of payment solutions for things such as vehicle-related expenses (gas and parking), travel expenses (hotel bookings) and payables (paying vendors). 

As the company’s website states, it helps its customers save time and money, which is a critical ingredient of any successful business.   

The biggest downer in its Q1 2024 results released on May 9 was the reduction in its 2024 guidance. 

On the top line, it lowered revenue for the year to $4.0 billion at the midpoint of its guidance, down from the previous outlook of $4.08 billion, a reduction of $80 million. On the bottom line, it expects to earn $19.00 a share, down from $19.40. It was also 37 cents lower than the consensus estimate. 

As for its balance sheet, it finished the quarter with a net debt of $5.45 billion, just 29% of its market capitalization.

Take advantage of the post-earnings correction and pick up some CPAY.

Lamb Weston Holdings (LW)

Lamb Weston Holdings (NYSE:LW) has lost nearly 21% over the past year. 

While the producer and processor of potato products, including frozen french fries, waffle fries, sweet potato fries, and other potato products, is down considerably in 2024, the company’s long-term business model is sound. 

The company’s fiscal year ends in May. In the first nine months of its fiscal year, it had $4.86 billion in sales, 33% higher than a year ago. On the bottom line, its adjusted operating income was $893.6 million, 32% higher than last year. 

For all of 2024, it expects revenue of $6.57 billion at the midpoint of its guidance, 23% higher than $5.35 billion in 2023, with adjusted net income of $810 million, 19% higher than in 2023.  

Those numbers are acceptable. What’s holding it back?

In February 2023, it acquired 50% of its European joint venture that it didn’t already own from Meijer Frozen Foods for 525 million euros ($567.0 million) in cash and 1.95 million shares of LW stock. It now owns 100% of its European business. 

Excluding the sales from the joint venture, its Q3 2024 sales fell 12%, or $152 million. However, the good news is that two-thirds of the revenue decline was due to the integration of a new ERP system in North America. That will all get sorted. 

In the meantime, its trailing 12-month P/E is 11.8x, while its price-to-cash flow ratio of 12.0x is considerably lower than its five-year average of 17.6x.

On the date of publication, Will Ashworth 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.