While all major indexes continue to reach new highs, including the Dow exceeding 40,000 points for the first time last week, many notable stocks have surprisingly failed to keep up with the rally. It’s quite unexpected to see that among these underperformers are blue-chip stocks, companies recognized for their overall quality, stability, and reliable growth.
While the sell-offs in these stocks may be partially justified due to market conditions and company-specific challenges, they also likely present attractive opportunities. Despite the broader market’s exuberance, these overlooked blue-chip stocks now trade near their 52-week lows, offering potential value plays for those looking to capitalize on temporary weaknesses.
In this article, I will present three blue-chip stocks recently overlooked by the market. Their recent downturn may look alarming, though all three stocks exhibit robust fundamentals and promising outlooks. This setup makes them attractive buys for investors seeking quality additions to their portfolios at a discount.
McDonald’s (MCD)
McDonald’s (NYSE:MCD) appears to be one of the most compelling blue-chip stocks to consider, given its recent underperformance. The quick-service restaurant giant, boasting over 41,000 locations worldwide, has seen its shares fall by about 14.5% in 2024, lagging behind the broader market, which has recorded considerable gains over the same period.
The stock’s sell-off stems from market concerns over affordability, with fast-food prices increasing due to higher costs of food ingredients and labor. These are somewhat valid worries, as the company has experienced a modest slowdown, with same-store sales rising by just 1.9% in its most recent Q1 report.
That said, assessing McDonald’s performance through another lens tells a different story. Specifically, Q1 marked the 13th consecutive quarter of positive same-store sales growth. A temporary pause from McDonald’s usual mid-single-digit growth rates is understandable, while the fact that same-store sales continue to grow from already high levels is fantastic.
After its recent dip, MCD stock trades at just 20.8X this year’s expected earnings per share (EPS), notably below its historical average. I believe this multiple offers a wide margin of safety and potential for considerable upside, especially with Wall Street anticipating EPS growth to accelerate over the medium term.
Northrop Grumman (NOC)
Another beaten-down blue chip stock worth buying near its 52-week lows is Northrop Grumman (NYSE:NOC). The company is known for its advanced aerospace and defense technologies and weapons systems, including the B-2 Spirit stealth bomber, the Global Hawk unmanned surveillance aircraft, and the F-35 Lightning II fighter jet.
The company is rightfully considered one of the most solid blue-chip stocks in the space, having consistently increased its earnings and dividends for years. In fact, Northrop boasts an impressive track record of 20 consecutive years of dividend increases, with its dividend per share having grown at a compound annual growth rate (CAGR) of 11.9% over the past decade.
With such a strong performance historically, the company has solidified its status as a top investment in the aerospace and defense industry. Therefore, any underperformance in share price typically presents a compelling buying opportunity. This appears to be the case since NOC stock has declined 8% year-to-date against the broader market rally.
But apart from the stock’s recent decline, the bullish case for Northrop is strong anyway, particularly in today’s geopolitical climate, where the company stands to benefit greatly. Raised global tensions, including ongoing conflicts such as the war in Ukraine, the Israel-Hamas conflict, and instability in the Middle East, have led to notable increases in defense budgets worldwide. Northrop stock trading near its 52-week lows further adds to its overall attractiveness.
General Mills (GIS)
Last but not least, General Mills (NYSE:GIS) is another blue-chip that has seen its stock underperform lately, having declined by about 15% over the past year. The packaged foods company owns a portfolio of iconic brands and household staples. General Mills tends to generate stable and predictable cash flows with products such as Cheerios, Haagen-Dazs ice cream, Yoplait yogurt, and Pillsbury baked goods comprising consumer favorites.
In fact, General Mills is regarded by many investors to be a recession-proof name precisely because consumers tend to continue buying their favorite foods and snacks even during economic downturns, making the company less vulnerable to fluctuations in consumer spending. This resilience is underscored by General Mills’ robust track record of earnings and dividend growth. For instance, although the company halted its dividend increases from 2018 to 2020, temporarily ending its streak of consecutive hikes, it has never cut its dividend since 1990.
After its extended decline over the past year, General Mills is now trading near its 52-week lows and at what seems to be a really attractive valuation. A further valuation compression appears unlikely at a P/E ratio of just 14X, which is based on FY2024’s consensus EPS estimate of $4.49. Moreover, future EPS growth is expected to continue in the mid-single digits. Combined with a solid 3.8% yield and the company’s overall strengths, these factors collectively make for a compelling investment opportunity near its 52-week lows.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
