Undervalued large-cap stocks present a particular opportunity here. Markets continue to slide lower as inflation remains stubbornly high and interest rates keep rising to dampen it.
The latest data out of the U.S. showed that inflation rose 9.1% in June from a year ago, its highest reading since December 1981. This raises the likelihood that the U.S. Federal Reserve will lift its benchmark interest rate 75 basis points or more when it meets at the end of July.
As rates continue climbing, stocks are sinking, with both the S&P 500 and Nasdaq firmly in a bear market. However, the pulldown has produced many undervalued large-cap stocks.
This presents an opportunity for investors who can stomach the current volatility and keep their eyes fixed on the long-term.
Here are seven seriously undervalued stocks to buy now:
|BRK.B||Berkshire Hathaway Inc.||$285.93|
|COST||Costco Wholesale Corporation||$529.72|
|BABA||Alibaba Group Holding Limited||$100.61|
Undervalued Large-Cap Stocks: Amazon (AMZN)
Having given up most of the gains it achieved during the pandemic when consumers were forced to shop online, investors seem to have given up on Amazon stock. Yet analysts say that is a mistake and the company is poised for a rebound.
For its part, Amazon is doing what it can to try and get the share price to reverse its downward trajectory. In addition to the stock split, the company has also announced a $10 billion stock buyback program.
It is holding not one, but two Prime sales events this year – one in July and the other during the holidays at year’s end. The company has also increased wages and salaries for both employees and executives, and continues to grow its operations around the world.
While Amazon’s price-earnings (P/E) ratio is hefty at 53, it is not that high when one considers the company’s $1 trillion market capitalization or that it generates more than $100 billion in revenue each quarter.
You’d think that with the essential nature of most of the products it sells, Walmart (NYSE:WMT) stock would be holding up this year. But no.
So far in 2022, WMT stock has come down nearly 9%. Much of the blame for the decline can be ascribed to rising fuel costs and higher inventory levels. It also has been unable to raise prices fast enough to keep up with inflation.
WMT stock fell sharply after it issued first-quarter results in May. Walmart earned $1.30 a share, which was lower than the $1.48 expected on Wall Street. Revenue came in at $141.57 billion, which was slightly above the $138.94 billion that analysts anticipated.
Walmart also took a hit for lowering its profit expectations for the year, saying it anticipates earnings per share will decrease by 1% compared with the mid-single-digit increase it had previously forecast.
The company acknowledged that it’s having trouble keeping up with inflation and said that its inventory levels rose 33% in Q1 as it aggressively bought items in an effort to try and get ahead of rising consumer prices.
The inventory levels and inflation should work themselves out. But in the meantime, this is one of the undervalued large-cap stocks you should be keeping an eye on.
Few large cap technology stocks have been beaten down as much as semiconductor and microchip company Nvidia (NASDAQ:NVDA).
NVDA stock is down more than 42% year to date. Last November, the company’s share price was trading right around $350, and that was after a 4-for-1 stock split.
The price has been hurt by mounting fears that demand for the chips and semiconductors made by Nvidia will slow along with the global economy.
The company’s earnings show that Nvidia has remained resilient so far. Nvidia reported Q1 results of $1.36 per share, which was ahead of $1.29 forecast by analysts. Revenue of $8.29 billion also beat expectations of $8.11 billion.
However, investors and analysts took issue with the fact that Nvidia lowered its forward guidance, saying it expects revenue for the just completed second quarter would come in at about $8.1 billion, below the $8.54 billion that Wall Street had penciled in.
Nvidia CEO Jensen Huang stressed that the company is facing a “challenging macro environment.” Still, Nvidia, whose chips are used in everything from super computers to artificial intelligence applications, remains a solid long-term buy.
The P/E ratio is a little high at 46, but has come down this year with the share price. And, unlike most tech stocks, Nvidia pays a dividend that yields 0.10%. It’s not the most generous dividend, but it makes NVDA one of the more reliable undervalued large-cap stocks to buy.
Undervalued Large-Cap Stocks: Berkshire Hathaway (BRK.B)
As is usually the case, super investor Warren Buffett is riding out the current market downturn just fine. In addition to many of the stocks he holds in Berkshire Hathaway’s (NYSE:BRK.B) portfolio, Buffett has been taking advantage of the sharp drop in shares price to buy several new stocks, including Paramount Global (NASDAQ:PARA), Citigroup (NYSE:C), Chevron (NYSE:CVX), and Occidental Petroleum (NYSE:OXY).
He is spending more money on equities than he has in the last decade. While BRK.B stock has not been immune to the market downturn this year, its share price has declined 4%.
However, Berkshire Hathaway has an extremely low price-earnings ratio. Investor and analyst Whitney Tilson of Empire Financial Research has calculated Berkshire Hathaway’s intrinsic value at $351 per share.
The median price target on BRK.B stock is currently $373, implying upside from current levels. As if to acknowledge how undervalued it feels its own share price is right now, Berkshire Hathaway bought back a record amount of its own stock last year totaling $27 billion.
Apple (NASDAQ:AAPL) stock is trading at around $154. The median price target on AAPL stock is currently $185 a share, with a high estimate of nearly $220. The P/E ratio of 23 is the lowest it has been in years and the stock pays a dividend that yields 0.6%.
With Apple, investors also get a company that buys back more of its own stock than any other publicly traded concern, and a company that is increasingly diversified, venturing into new areas ranging from streaming to buy now, pay later.
Apple also remains the world’s leading consumer electronics company with its iPhones and Mac computers.
As with many companies, Apple is dealing with issues that include supply chain constraints, wage inflation and slowing consumer spending in the face of rising interest rates.
However, Apple’s earnings have held up well year to date with the company’s iPhone sales, which make up half of its global revenues, remaining robust.
In its latest financial results, Apple reported EPS of $1.52, which was higher than the $1.43 expected by analysts. It also reported revenue of $97.28 billion, which was higher than the $93.89 billion forecast and 9% higher than a year ago.
Apple also announced that its board of directors greenlit a $90 billion share buyback program, which is on top of $88 billion in share repurchases last year.
Shares of big box grocery retailer Costco (NASDAQ:COST) are down nearly 7% year to date.
At one point this year, the stock was down as much as 34% but has managed to recover by demonstrating that its sales remain strong despite high inflation and rising interest rates.
Discounted gasoline prices are certainly helping, but so too is the company’s incredibly loyal customer base that seems willing to continue paying an annual membership to shop in bulk at the company’s more than 800 warehouse retail outlets.
Costco provides monthly updates on the progress of its operations. The company just issued comparable sales for the five-week period ended July 3 that showed an increase of 20.4% from $18.92 billion last year.
Over the course of 44 weeks ended July 3, Costco’s net sales grew 17% year over year to $188.34 billion. The latest figures show that Costco continues to outperform despite the many economic headwinds it and other retailers are grappling with this year.
A P/E ratio of 41 looks high at first glance, but investors need to keep in mind that Costco is on track to surpass $200 billion in sales this year, making this one of the more impressive undervalued large-cap stocks to consider.
The company’s stock pays a dividend that yields 0.7%, but Costco has a history of paying out special, one-time dividends as well.
Undervalued Large-Cap Stocks: Alibaba (BABA)
Investors who have an appetite for risk might want to consider taking a position in Chinese technology behemoth Alibaba (NYSE:BABA).
Owing to the Chinese government’s crackdown on the country’s biggest publicly traded technology companies, BABA stock has fallen 48% over the last year and now trades at just over $100 a share.
In late 2020, Alibaba’s stock was trading near $310. The e-commerce company, which is often referred to as the Amazon of China, has been brought to its knees by repeated regulatory punishments, including a record $2.8 billion antitrust fine.
The good news for investors is that the crackdown in China appears to be over, or at least coming to and end. The Chinese government has signaled in recent months that it is backing off its efforts to reign in publicly traded companies and also expressed support for the country’s capital markets.
If this turns out to be correct, BABA stock could be in for a reprieve from the sharp drop it endured even before global markets peaked and turned negative starting last November.
Alibaba doesn’t pay a dividend, but it has a P/E ratio of 32, which is reasonable for a company with a market capitalization of nearly $300 billion. The company is also a global leader in everything from cloud computing to artificial intelligence, in addition to its core e-commerce business.
On the date of publication, Joel Baglole held long positions in AAPL, C and NVDA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.