The term “blue chip stocks” can be traced back to poker, a game in which the blue chips have the highest value.
Today, blue-chip companies are known to weather economic downturns and operate profitably throughout all levels of the business cycle. In other words, blue-chip stocks are known to be recession-resistant.
At Sure Dividend, we define a blue-chip stock as a company with more than 100 years of operating history and a 3%+ dividend yield. You can download our list of blue-chip stocks here.
In today’s video, I introduce 5 undervalued blue-chip stocks that you can buy today.
For investors who prefer to learn through reading, I have included summaries of each of the 5 blue chip stocks discussed in this video below:
Blue Chip Stock #1: Altria Group (MO)
Altria is the largest cigarette company in the United States by market capitalization. It sells the Marlboro brand of cigarettes as well as a number of non-smokable brands and the Ste. Michelle brand of wine. Altria also has a 10% ownership stake in global beer giant Anheuser-Busch InBev (NYSE:BUD).
Here’s what Altria’s valuation looks like. We believe the company is likely to report earnings per share of about $3.96 in fiscal 2018. The company is trading at about $56 ($56.41) right now, which implies a price-to-earnings ratio of 14.2. Altria’s 10-year average valuation multiple is 16.2, which indicates that it is noticeably undervalued at current prices.
Blue Chip Stock #2: Leggett & Platt (LEG)
Leggett & Platt is an engineered products manufacturer. The company’s products include furniture, bedding components, store fixtures, die castings, and other industrial products. Leggett & Platt has 17 business units, 20,000 employees, and 130 manufacturing facilities across 19 countries. Leggett & Platt has increased its dividend for 46 years, which qualifies the company to be a Dividend Aristocrat.
Here’s what Leggett & Platt’s valuation looks like. The company in on pace to report adjusted earnings per share of about $2.75 in fiscal 2018. This implies a price-to-earnings ratio of about 16 for this high-quality dividend stock. Leggett & Platt’s 10-year average price-to-earnings ratio is 20. The company is meaningfully undervalued at its current price.
Blue Chip Stock #3: Verizon Communications (VZ)
Verizon Communications is the second largest telecommunications company in the United States, behind AT&T (NYSE:T). The company was created by a merger between Bell Atlantic Corporation and GTE Corporation in June of 2000. Verizon is the largest wireless carrier in the country, with wireless revenue contributing three quarters of its sales.
The company is also very undervalued today. Here’s what Verizon’s valuation looks like. The company should report earnings per share of about $4.35 in fiscal 2018, which implies a price-to-earnings ratio of 11.3 given its current stock price ($49.40). For context, Verizon has traded at an average price-to-earnings ratio of about 14 over the last decade. The company is statistically undervalued at current prices.
Blue Chip Stock #4: International Business Machines Corporation (IBM)
IBM is a diversified technology company with a market capitalization of $128 billion. The company was founded in 1911 and currently operates in five business segments: Cognitive Solutions, Global Business Services, Technology Services & Cloud Platforms, Systems, and Global Financing.
Here’s what IBM’s valuation looks like today. The company is on pace to deliver adjusted earnings per share of $13.80 in fiscal 2018. Given the company’s current stock price ($139.35), IBM is trading at a price-to-earnings ratio of just 10.1. Its 10-year average price-to-earnings ratio is 12.3. Valuation expansion will likely be a positive contributor to IBM’s future returns, which makes this blue chip stock a buy at current prices.
Blue Chip Stock #5: Owens & Minor (OMI)
Owens & Minor is a healthcare logistics company that provides package healthcare products for hospitals and other medical centers. The company has a market capitalization of $1.1 billion and distributes ~220,000 different medical and surgical supplies to ~4,400 hospitals systems worldwide.
Owens & Minor’s valuation has become absurdly cheap due to the potential entry of Amazon (NASDAQ:AMZN) into the medical distribution space. Here’s what the numbers look like.
Owens & Minor should deliver earnings per share of about $2 in 2018. The company’s current stock price ($17.71) combined with this earnings estimate gives a price-to-earnings ratio of 8.8. For context, Owens & Minor has traded at an average price-to-earnings ratio of about 18 over the last decade. The difference between Owens & Minor’s current valuation and its historical valuation is the largest among the stocks in discussed in this video.
Disclosure: I am/we are long OMI, MO, IBM.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.