Investors can load up on undervalued blue-chip stocks that have plenty of momentum behind them. These types of stocks can comfortably outperform the stock market during bullish economic cycles, but there’s a problem with this strategy.
Many of the same stocks that record impressive gains during the good times end up with significant losses during the bad times. While these stocks can recover as we saw after the 2022 meltdown, some investors prefer to accumulate undervalued blue-chip stocks trading at bargain prices. If you’re looking for good deals, these discounted stocks are good places to start.
American Express (AXP)
Credit and debit cards aren’t going out of style. They’re far more convenient than cash and come with enticing rewards programs to draw in more cardholders. Transactions are also more secure and credit cards let people access extra cash before having it in the bank.
American Express (NYSE:AXP) is one of the leaders in this industry, and it’s also one of the cheapest credit and debit card issuers in the stock market. Shares only trade at a 19.5 P/E ratio despite a nearly 24% year-to-date gain. The company’s 34% year-over-year net income growth in Q1 2024 outpaced its year-to-date gains. Revenue came in 11% higher compared to the same period last year.
The fintech firm is winning more traction among Millennials and Gen Z consumers. More than 60% of the company’s new account opens came from those two cohorts. Continuing to attract younger generations will help American Express deliver impressive returns for many years. It’s trading at a discount relative to its potential to gain market share in the years ahead.
Texas Roadhouse (TXRH)
Texas Roadhouse (NASDAQ:TXRH) is a fast food steakhouse chain that trades at a lower valuation than many high-growth fast food restaurants. It trades at a 35 P/E ratio despite delivering 12.5% year-over-year revenue growth in Q1 2024. Net income surged by 31.0% year-over-year as profit margins continued to expand.
Restaurant expansion was a small part of the story. While the company had 7% more restaurants than last year and opened an additional 12 locations (nine company restaurants and three franchises), comparable restaurant sales were up by 8.4% year-over-year at company restaurants. This figure came to 7.7% year-over-year for the franchise restaurants.
Although the valuation is low for this blue-chip stock, its returns aren’t. The stock is up by 44% year-to-date and has gained 234% over the past five years. Investors also receive a quarterly dividend from a stock that is currently yielding 1.42%. The restaurant chain has maintained an annualized dividend growth rate of 16.05% over the past decade.
Nu (NU)
Nu (NYSE:NU) is a digital bank that serves roughly 100 million customers in Latin America. The stock trades at a 45 P/E ratio and is up by 74% over the past year. NU is currently rated a “strong buy” with a projected 14% upside.
The digital bank’s recent earnings report explains the buzzing excitement around the stock. Revenue increased by 69% year-over-year in Q1 2024 while net income surged by an astonishing 167% year-over-year. High net income growth explains why the digital bank stock still offers good value despite its 45 P/E ratio. The fintech firm’s 28 forward P/E ratio demonstrates the type of value long-term investors will get from this stock.
Nu offers several financial products that are generating more activity from its users. The digital bank offers bank accounts, brokerage accounts, credit cards, insurance policies, loans and other resources. Each of these products can increase the average lifetime value of each customer and reward patient shareholders.
On this date of publication, Marc Guberti held a long position in TXRH. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
