7 Dirt Cheap, Blue Chip Safe Havens With Substantial Upside

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 |  Includes: CAT, DIS, GE, HPQ, INTC, JPM, MSFT
by: David Alton Clark

In this article, we will discuss the following stocks: Microsoft Corporation (NASDAQ:MSFT), General Electric Company (NYSE:GE), Intel Corporation (NASDAQ:INTC), JPMorgan Chase & Co. (NYSE:JPM), Walt Disney Co. (NYSE:DIS), Caterpillar Inc. (NYSE:CAT) and Hewlett-Packard Company (NYSE:HPQ).

Company Reviews

The stocks covered are Dow Jones Industrial Average (NYSEARCA:DIA) large cap or better stocks with PEG ratios near or below one. Additionally, these stocks have great stories and positive catalysts for future growth. Furthermore, these stocks are considered Blue Chips by the NYSE and pay dividends.

Compelling Fundamental Statistics

Blue Chip Status

According to the New York Stock Exchange, a blue chip is a stock in a corporation with a national reputation for quality, reliability and the ability to operate profitably in good times and bad. The most popular index that follows U.S. blue chips is the Dow Jones Industrial Average. The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally the leaders in their industry. Additionally, most of these stocks are trading well below consensus analysts' estimates, have recent upgrades, and positive analyst comments: not to mention they are the seven most undervalued stocks in the Dow with PEG ratios of one or less.

PEG Ratios Near Or Below One

The PEG ratio is a widely accepted indicator of a stock's prospective value. It is favored by many analysts over the price/earnings ratio for the reason that it also accounts for growth. Similar to the P/E ratio, a lower PEG means that the stock is more undervalued. Many investors use one as the cut-off point for PEG ratios. A PEG of 1 or less is believed to be promising. As Warren Buffett would say, "Price is what you pay, value is what you get." There is one caveat regarding the use of the PEG ratio though, and it’s a big one, you need to perform additional due diligence and determine if the projected growth of the company is from healthy growth sources such as organic growth versus growth by acquisition or stocks buy backs, which are not necessarily bad, but may be unsustainable.

Moreover, most of these stocks are trading well below consensus analysts' estimates, have recent upgrades, positive analyst comments and some pay dividends. Below are two tables with detailed statistics regarding each company's current summary and fundamental information.

Company Summary Statistics

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Company Fundamental Statistics

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Possible Catalysts / Recent News

Microsoft Corporation - Back in July, Facebook video calling powered by Skype was launched. Recently, the Skype team announced its partnership with Facebook has reached yet another milestone with the launch of Skype 5.4 Beta for Mac and Skype 5.7 Beta for Windows allowing users to conduct a Facebook-to-Facebook call from within Skype. This new development in the Skype-Facebook partnership is the latest example of how Skype is removing communication barriers and making it easier to connect with friends, family and business colleagues. (Read more here.)

General Electric Company - The World Bank estimates that the developing world will grow more than twice as fast as high-income countries over the next two years. However, these nascent economic booms will require heavy investments in infrastructure, $1.2 trillion per year according to projections made by The Brookings Institution. GE’s broad industrial portfolio spanning turbines, locomotives, water treatment units, jet engines and other key solutions has the tools needed to solve many of the most pressing infrastructure needs. (Read more here.)

Intel Corporation - Intel recently reported record revenues and profits. Intel had a $3.1 Billion year-over-year revenue increase fueled by double-digit PC unit growth and data center strength. The current buyback authorization has been increased by $10 Billion. (Read more here.)

JPMorgan Chase & Co. - Chase is again America's largest SBA lender in number of loans and has already exceeded its 2011 small business lending commitment. The bank provided more than $12.6 billion in credit to over 300,000 small businesses in the first three quarters of 2011, a 71% increase over the same time last year. (Read more here.)

Walt Disney Co. - The Walt Disney Company and UTH Russia, one of the country's fastest growing media companies, recently announced that the two companies will launch an ad-supported free-to-air Disney Channel in Russia early next year. The broadly-distributed channel will appeal to families throughout Russia by featuring Disney's popular signature programming, as well as original Russian content. (Read more here.)

Caterpillar Inc. - Caterpillar recently celebrated the grand opening of its Winston-Salem, North Carolina, facility that will produce axle assemblies for the largest Cat mining trucks. Operations at the 850,000-square-foot state-of-the-art facility include machining, assembly, test and painting of axles to support Caterpillar’s increased capacity for expanding global mining operations. (Read more here (.pdf))

Hewlett-Packard Company – HP recently announced that it has completed its evaluation of strategic alternatives for its Personal Systems Group (PSG) and has decided the unit will remain part of the company. Meg Whitman, HP president and chief executive officer said:

HP objectively evaluated the strategic, financial and operational impact of spinning off PSG. It's clear after our analysis that keeping PSG within HP is right for customers and partners, right for shareholders, and right for employees. HP is committed to PSG, and together we are stronger. [Read more here.]

Market Snapshot

The market trudged sideways for virtually the whole session, eventually finishing flat Friday. The lack of action made for an unexciting finish to the stock market's worst week in more than a month. Nonexistent follow through of buying in Europe challenged the morning's enriched tenor causing stocks to slide at the open and never institute a trend. Movement in the S&P 500 was somewhat restricted due to resistance near 1225 and support at the weekly low of approximately 1210.

Friday’s action was nominal compared to the prior two sessions. Back-to-back drops each day before combined for a drop of over 3%, making up the majority of the almost 4% slip suffered by stocks for the week. Negative reports regarding the outcome of the Super Committee have the futures looking dim for US markets with the Asian markets mostly down.

Conclusion

It is hard to think beyond the current state of affairs when negative preoccupations always seem to repeat themselves, and you are stuck on a roller coaster ride of continual highs and lows. The conundrum is if you are waiting for all the difficulties creating the so-called “wall of worry” to be solved prior to starting a position, you may never buy a stock. Moreover, at that time, it will be most likely too late to buy due to the fact all the savvy investors bought in and stocks are no longer a good value.

Fortune favors the bold. Hopefully, you have some dry powder and can take advantage of these amazing buying opportunities. I’m not saying that you should buy into a full position today, but this may be a good opportunity to take profits in your winners and redeploy those proceeds by layering in to these stocks at a tenth or a quarter at a time. Particularly if you get an additional discount a la the not so super committee aftermath.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MSFT, GE, INTC, JPM, DIS, CAT, HPQ over the next 72 hours.

Additional disclosure: Please use this information as a starting point for your own due diligence.