Undervalued large-cap stocks present a particular opportunity here. Markets are rebounding from their September doldrums, but all three major indices in the U.S. remain down significantly on the year with both the S&P 500 and Nasdaq in a bear market.
The latest data out of the U.S. showed that inflation rose 8.2% in September from a year ago, its highest level in 40 years and still well above the U.S. Federal Reserve’s 2% target. This raises the likelihood that the central bank will continue raising its benchmark interest rate into 2023.
As rates continue climbing, stocks are likely to remain volatile. Stocks climbed significantly higher in October, but the pulldown over the first three quarters has left many large-cap stocks deeply undervalued. This presents an opportunity for investors who can tolerate the near-term ups and downs of the market and keep their eyes fixed on the long-term.
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Here are seven seriously undervalued large-cap stocks to buy now.
Undervalued Large-Cap Stocks: Amazon (AMZN)
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Amazon (NASDAQ:AMZN) stock is now trading under $100 a share. Consider that an early Christmas gift.
Following disappointing third-quarter earnings and lowered guidance, AMZN stock is down 44% on the year. Even a 20-for-1 stock split undertaken at the beginning of June hasn’t helped the share price.
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 AMZN 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 up. The company earlier this year announced a $10 billion stock buyback program.
Amazon also just completed its second Prime sales event of the year in October, which should give its fourth-quarter earnings a boost. 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 94 times, 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. Take advantage and buy the dip.
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You’d think that with the essential nature of most of the products it sells, Walmart’s (NYSE:WMT) stock would be holding up this year. But no.
So far in 2022, WMT stock has come down 2%. While the decline is much less than the broader indices, it is a poor showing for a company that is supposedly built for troubled economic times.
Much of the blame for this year’s 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 that missed Wall Street expectations. Walmart earned $1.30 a share, which was lower than the $1.48 expected among analysts.
The retail giant redeemed itself somewhat with its second-quarter print delivered in August. Earnings per share during Q2 came in at $1.77 versus the forecasted $1.62. Revenue in the second quarter totaled $152.86 billion compared to $150.81 billion expected.
The company’s e-commerce sales rose 12% compared with the year-earlier period and were up 18% over the past two years during Q2. Looking ahead, Walmart reaffirmed its outlook for the remainder of this year.
The elevated inventory levels that were a problem earlier in the year appear to be working themselves out. This is one of the undervalued large-cap stocks investors should be keeping an eye on, especially if the share prices softens further.
Undervalued Large-Cap Stocks: Nvidia (NVDA)
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Few large-cap technology stocks have been beaten down as much as semiconductor company Nvidia (NASDAQ:NVDA). NVDA stock is down 54% year to date. Last November, the company was trading above $300, and that was after a 4-for-1 stock split.
The share price has been hurt by mounting fears that demand for Nvidia’s chips and semiconductors will slow along with the global economy. To be sure, the company’s earnings for the second quarter were a disaster and didn’t help the share price any.
Nvidia reported Q2 earnings per share of 51 cents, which was 60% lower than the $1.26 per share in earnings that Wall Street was looking for. Revenues for the April through June quarter amounted to $6.7 billion, which was also well below the $8.10 billion analysts had called for.
Nvidia also lowered its forward guidance, saying it now expects revenue for the just-completed third quarter to come in at about $5.9 billion, which is below consensus estimates of $6.95 billion.
Nvidia CEO Jensen Huang has stressed that the company is grappling with a “challenging macro environment” this year. Still, Nvidia, whose chips are used in everything from supercomputers to artificial intelligence applications, remains a solid long-term buy.
The P/E ratio is a little high at 44 times, but it has come down this year with the share price. And, unlike many tech stocks, Nvidia pays a dividend that yields 0.12%. It’s not the most generous dividend, but it makes NVDA one of the more reliable undervalued large-cap stocks to buy.
Berkshire Hathaway (BRK-A, BRK-B)
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As is usually the case, legendary 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-A, NYSE:BRK-B) portfolio, Buffett has been taking advantage of the 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 only 2% compared to a 20% drop in the benchmark S&P 500 index.
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 to be $351 per share, which is nearly 20% higher than the $294 that it is currently trading at.
The median price target on BRK-B stock is currently $340, implying 16% upside from current levels. As if to acknowledge how undervalued it feels its share price is right now, Berkshire Hathaway bought back a record amount of its stock last year totaling $27 billion.
Undervalued Large-Cap Stocks: Apple (AAPL)
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Apple (NASDAQ:AAPL) stock is trading at around $150. The median price target on AAPL stock is currently $180 a share, with a high estimate of $200. The P/E ratio of 24 times is the lowest it has been in years and the stock pays a dividend that yields 0.61%.
With Apple, investors also get a company that buys back more of its own stock than any other publicly traded concern and 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.
AAPL stock took it on the chin after the company announced that it was scaling back production of its new iPhone 14 due to weaker consumer demand than initially forecast. The company’s most-recent earnings report was mixed but managed to beat Wall Street expectations.
Despite a rocky road this year, Apple’s lower share price should make the stock more appealing to value investors.
Additionally, Apple announced its board of directors greenlit a $90 billion share buyback program, which is on top of $85.5 billion in share repurchases last year. Long-term, AAPL stock remains a winner.
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Shares of big box grocery retailer Costco (NASDAQ:COST) are down 13% year-to-date. At one point this year, the stock was down more than 30% but has managed to recover by demonstrating its sales remain strong despite high inflation and rising interest rates.
The company’s latest quarterly results showed revenue of $72.09 billion, which was above the $72.04 billion that analysts had expected. Earnings per share of $4.20 beat analyst estimates of $4.17 a share.
Perhaps best of all, Costco announced as part of its quarterly print that it will not raise its membership fees this year, holding them at $60 for a regular annual membership and $120 for an executive membership.
A P/E ratio of 39 times 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 0.72%, but Costco has a history of paying out special, one-time dividends as well.
Undervalued Large-Cap Stocks to Buy: American Express (AXP)
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Shares of credit card giant American Express (NYSE:AXP) are fresh off a 52-week low and currently trading right around $146 apiece. Down 13% this year, AXP stock is at its most affordable level since the pandemic struck in March 2020.
The stock’s price-to-earnings ratio of 15 times is right around the average of companies listed in the S&P 500 index. It pays a 1.4% quarterly dividend.
With people all over the world traveling and vacationing again, there’s every reason to be bullish on AXP stock and the company’s future earnings.
But don’t take our word for it. Consider that American Express is one of legendary investor Warren Buffett’s favorite stocks. The Oracle of Omaha has held his current position in AXP stock for more than 30 years and never sold a single share.
Besides its traditional credit card loans, American Express also operates an end-to-end payment system that facilitates transactions between consumers and businesses. Revenue from those transactions is today the company’s biggest source of revenue.
On the date of publication, Joel Baglole held long positions in NVDA and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
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