With the S&P 500 valued at 24.05x its trailing 12-month earnings and 22.27x the 12-month forward estimate, it’s not easy to find bargain blue-chip stocks. Especially, when you consider that its trailing 12-month P/E ratio a year ago was 19.61x, 18% cheaper than it is today. 

While most people consider the S&P 500 to be the ultimate blue-chip index, one could argue that an index like the CRSP US Mega Cap Index, the benchmark for the Vanguard Mega Cap ETF (NYSEARCA:MGC), would be a more appropriate choice. 

That’s because the median market capitalization of MGC is over $462 billion. Compare this to $314 billion for the SPDR S&P 500 ETF Trust (NYSEARCA:SPY).    

MGC has 206 stocks compared to 506 for the S&P 500. Tech stocks account for 40.87% for the former and 32.77% for the latter. However, the next largest sector for MGC is consumer discretionary (13.59%), while the next highest for SPY is financials (12.41%).  

It makes a slightly different portfolio composition. Based on MGC’s top three sectors — the third is health care (11.94%) — let’s examine three bargain blue chip stocks.   

Cisco Systems (CSCO)

Cisco Systems (NASDAQ:CSCO) has a weight of 0.45% in MGC. It has P/E and forward P/E ratios of 16.05x and 13.5x and a $190 billion market cap. Both of these multiples are lower than the S&P 500 and the company’s five-year average. 

Absolutely, Cisco stock has been in a funk the last five years, down nearly 17% over this period. It just can’t seem to stay above $55 for more than a few weeks. And, analysts don’t like it. Of the 28 that cover it, just seven rate it a buy, with a $53 target price, 12% higher than where it’s currently trading.

Part of the problem, as several media outlets concur, is that the company’s share price went too far, too fast after going public in 1990. It jumped 1000x in the ten years leading up to the 21st century. Since it hit an all-time high around $80 in March 2000, it has never retested this level. 

However, there’s enough good news at the networking solutions provider, to give investors hope. 

In June, it announced a $1 billion investment fund to develop secure artificial intelligence (AI) solutions. As part of the fund’s investments, it’s investing in Cohere, Mistral AI, Scale AI and others to help its customers integrate AI into their businesses. These go along with 20 AI-focused acquisitions it has made in recent years.

With an attractive 3.4% dividend yield, get paid to wait for better days ahead for CSCO stock.

Starbucks (SBUX)

I happened to watch the June Acquired podcast interviewing former Chief Executive Officer (CEO) Howard Schultz this past weekend. If you love Starbucks (NASDAQ:SBUX), it’s a must-listen. 

SBUX has a weight of 0.24% in MGC. It has P/E and forward P/E ratios of 21.25x and 19.41x and an $87 billion market cap. Both of these multiples are lower than the S&P 500 and well below the company’s five-year average. It’s easily sporting the cheapest valuation it’s had over the past five years.

The company is in the midst of altering its drinkmaking process to speed up service times while making the job of baristas easier. The “Siren Craft System” is expected to be in all 10,000 North American stores by the end of North America. 

In its first same-store sales decline in recent memory for Q2 of 2024, U.S. same-store sales were down 3% with a 7% decline in traffic. This forced the company to cut 2024 guidance. 

When Starbucks is handed a major challenge to overcome, it usually finds a way to do so. Down 37% since its all-time high around $121 in July 2021, now is an excellent time to buy this blue-chip bargain. 

UnitedHealth Group (UNH)

UnitedHealth Group (NYSE:UNH) has a 1.23% weight in MGC. It has P/E and forward P/E ratios of 30.20x and 18.32x and a $457 billion market cap. While it’s not super cheap at the moment, it is cheaper on a forward earnings basis than the S&P 500. 

At the end of the day, it’s an excellent bet on the American healthcare industry and worth owning for the long haul. Like the other two stocks, it’s down for the year, but up more than 101% over the past five years. 

The company’s Change Healthcare business, which it acquired for $13 billion, including the assumption of debt, in October 2022, had a cyberattack in February. That temporarily brought the health tech subsidiary to its knees and will cost the company $1.25 a share at the midpoint of its guidance, nearly $2 billion. 

For a regular organization, this would be a deathknell. For the country’s largest health insurer, losses are about 7% of its 2024 adjusted net earnings estimate of $27.75. Not many companies have that kind of financial clout. It finished the second quarter with nearly $79 billion in cash, cash equivalents, and long-term investments.

Of the 31 analysts covering its stock, 28 rate it a buy, with a $574 target price, 15% higher than it s current trading price.  

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.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.