Big and beautiful. Blue-chip stocks are industry behemoths that tend to offer investors safety and security over time. They are battle-tested businesses that have survived, if not thrived, during numerous business and economic cycles.
Because they are mature companies in well-worn industries, the high-growth days are likely behind them. What investors get in return is the promise of a steady performance. They are like the ballast in a ship. Blue-chip stocks keep your portfolio afloat by offering stability in times of turmoil.
Finding undervalued blue-chip stocks might not be comparable to hitting the lottery, but investors can still come out ahead by adding these discounted beauties to their portfolios. The following three blue-chip stocks all offer deeply discounted valuations that can lead to years of wealth creation.
Archer-Daniels-Midland (ADM)
One of the world’s biggest grains and oilseed traders is offering bargain-basement prices. Archer-Daniels-Midland (NYSE:ADM) is trading for just 11 times trailing earnings and next year’s estimates while offering a steep discount based on sales.
ADM stock was knocked down sharply due to falling commodity prices. Because it is sensitive to such volatility, shares can swing wildly from time to time. Today they are 13% lower than where they started in 2024 and sit 28% below their 52-week high. But Archer-Daniels-Midland is mounting a comeback as the stock has jumped 23% since mid-January’s lows.
The agricultural stock is a cyclical play that peaked in 2022 amid the rampant run-up in inflation to 40-year highs. Although consumer prices remain elevated, they have fallen from their historical peak. To help lessen the gyrations in its business and its stock, Archer-Daniels-Midland is branching out in new directions.
Through the expertise gained in agricultural products and processing, ADM is expanding its human, pet and animal nutrition business. If you just look at first-quarter results, you might think the business is declining. Operating profit, for example, plunged 39% from the year-ago period. However, its Decatur East facility suffered two explosions, a fire, and a rail accident last year, shutting the plant for an extended period. The facility is one of the world’s largest corn wet mills. The plant has since been restarted.
Look for Archer-Daniels-Midland stock to restart its growth trajectory, too.
3M (MMM)
Industrial conglomerate 3M (NYSE:MMM) might seem a curious choice to include in this list of undervalued blue-chip stocks. After all, it offered years of underperformance capped by slashing its dividend recently, leading to the stock being depressed. However, that’s the actual catalyst for a turnaround.
3M was beset by mounting legal liabilities due to faulty earplugs sold to the military and environmental pollution from so-called “forever chemicals.” The free cash flow it used to pay out its dividend was getting thin, and the prospect of having to divert its use to pay off legal claims grew. However, 3M has been settling claims at lower-than-feared amounts and may be able to put those woes behind it. Even so, the industrial stock slashed its dividend in half last month.
At the same time, 3M spun off its healthcare unit into a new company called Solventum (NYSE:SOLV). All the moves have freed up its FCF and cleared away a lot of the drag from its balance sheet, putting the company in a much better financial position.
The stock bounced 40% off the lows it hit in March and trades at 13 times next year’s earnings and at a discount-dweller 11 times free cash flow. The stock is up 28% over the last year, marking one of its best performances in recent memory.
AT&T (T)
Ma Bell is another example of a company that took the drastic step of slashing its dividend to improve its position. AT&T (NYSE:T) has long been weighed down by the debt it took on to acquire Warner Media when being all things to all people seemed like a good idea. It was not, and the telecom’s investors suffered because of it.
However, like 3M, it subsequently spun off the entertainment division into Warner Bros Discovery (NASDAQ:WBD). To account for the remaining leaner, more narrowly focused operations, AT&T also cut its dividend in half. The company is now also better off.
Shares of the telecom giant are up 35% from their lows as the ongoing rollout of 5G network infrastructure continues to inform its direction. Operating income rose 3% in the first quarter to $6.5 billion, and EBITDA hit $9 billion, a $536 million year-over-year increase. Free cash flow also dramatically improved. It produced $16.8 billion in cash profits last year and expects to generate between $17 billion and $18 billion this year.
Even with the reduced dividend, it still yields a mouth-watering 6.1% annually.
On the date of publication, Rich Duprey held a long position in MMM, SOLV, T and WBD stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
