Blue-chip stocks are companies that have been performing at a consistently high levels for a very long time. Most investors consider these to be some of the safest investments you can make. These companies are usually industry leaders that have a long history of growth and stability. Adding a foundation of strong, blue-chip stocks can be a great way to diversify and build your portfolio for the long term.
Often, blue-chip stocks can be considered boring and vanilla. Nonetheless, we see certain blue-chip picks as opportunities for excellent growth for shareholders, and in some cases, a generous annual dividend. In this article, we will set our eyes on three undervalued blue-chip stocks to buy into April as the second quarter kicks off.
Amazon (AMZN)
Amazon (NASDAQ:AMZN) is an American multinational eCommerce and technology company. As of April 2024, it is the sixth-largest company in the world by market cap and is considered one of the Magnificient 7 stocks. Despite already gaining 20% in 2024, its average one-year price target still gives almost 10% more to grow.
After ending March at an all-time high monthly closing price, Amazon is well positioned to climb back to all-time high prices later this year. Like its big tech peers, Amazon is making major bets on the AI industry. This includes everything from integration into its marketplace to improve user experience to leveraging its industry-leading AWS for developers. Amazon has also made multi-billion dollar investments into OpenAI competitor Anthropic which has a ChatGPT rival called Claude AI.
Is Amazon undervalued? Shares currently trade at just 3.2x sales, nearly half of that of Alphabet and a fraction of Microsoft, Tesla, and NVIDIA. With a 5-year revenue CAGR of 20%, Amazon’s price certainly has more room to grow.
Netflix (NFLX)
Netflix (NASDAQ:NFLX) is an American content streaming service that is available by subscription in over 190 countries around the world. This blue-chip stock currently trades at a slight premium to its average analyst price target.
For the first time in years, the company has the platform firing on all cylinders. Back in 2022, Netflix started a cheaper subscription price that comes with viewable ads. Last year, Netflix finally cracked down on password sharing. Not only has the platform seen a boost in subscribers, but Netflix has also been able to raise the monthly cost for both basic and premium subscribers. The platform is also adding live sporting events including boxing matches and a new long-term deal with the WWE.
Coming back to its valuation, we’ve noticed that Netflix has always traded at a historically higher valuation ratio. Currently, it is trading at about 8x sales and 35x forward earnings. Nonetheless, comparing it to its past four-year price-to-sales ratio and taking into account its healthy 5-year revenue CAGR of 16%, there looks to be plenty of upside for NFLX moving forward.
The Home Depot (HD)
Home Depot (NYSE:HD) is an American home improvement retail brand that was established in 1978 in Marietta, Georgia. Home Depot is a stock that both shareholders and analysts love. In March, Yahoo Finance analysts rated the stock as a Hold or higher, with 21 reiterating Buy or Strong Buy ratings.
The company recently announced an $18.25 billion acquisition for SRS Distribution, which is the largest deal in Home Depot’s history. Home Depot believes this will improve its reach to professional contracts and increase its total addressable market to more than $1 trillion! While the company expects this acquisition to dilute earnings-per-share for fiscal 2024, the long-term benefits of increasing its pro-builder market should outweigh any short-term pain for shareholders.
As with most blue-chip stocks, Home Depot trades at relatively safe multiples. The stock is trading at about 2.5x sales and 24x forward earnings. As revenues have plateaued post-pandemic, however, we notice that its P/E ratio has now settled slightly higher than its ten-year historical range. Nonetheless, we see its historically great shareholder returns and 35 consecutive years of strong dividends as reasons to stay bullish on this company into the coming months.
On the date of publication, Ian Hartana and Vayun Chugh did not hold (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.
