Even as the market surges back into bull territory, some Dow stocks aren’t along for the ride. As tech-heavy indices like the S&P 500 and Nasdaq ride high on artificial intelligence and rebounding consumer sentiment, the Dow Jones Industrial Average is up a measly 5% since the beginning of the year.
Within the index, a few critical stocks are particularly beaten down. But much of that stock suppression is due to a string of bad luck and industry risk rather than fundamental issues with the firms themselves.
Ultimately, that means a few Dow stocks remain critically undervalued – representing an ideal investment for value investors in July.
Verizon (VZ)
Telecom stocks took a beating this week, and Verizon (NYSE:VZ) wasn’t spared. A recent report detailed issues with underground lead cabling used by many telecom firms, including Verizon, throughout the United States. Expecting lawsuits and costly fixes, shares in Verizon and peers plummeted.
But the industry-wide turbulence might represent a perfect investment opportunity for investors interested in undervalued Dow stocks. Firstly, analysts at Morningstar reported that they expect a low potential for legal liability as the matter develops. Notably, these experts detail past government investigations into the lead sheathing that indicated the firms followed proper procedures throughout the equipment installation.
But Verizon isn’t just a rebound play. Instead, the company offers viable growth opportunities in a mature sector. The company’s 2021 TracFone Wireless acquisition has yet to bear fruit but offers exposure to an untapped market. In 2020 there were more than 74 million prepaid wireless customers. Verizon now generates revenue from a substantial portion of that segment. But ultimately, the real long-term benefit may come from upselling prepaid services to long-term, postpaid Verizon plans.
Today, Verizon trades at an attractively low price-to-book ratio of around 1.8 and an attractive 8%+ dividend yield.
Critical analysts may mark the stock as a value trap, a valid concern. Still, the recent price hit and decent growth prospects make the firm decidedly undervalued today.
Chevron Corp (CVX)
Like Verizon, shares in Dow cornerstone Chevron Corp (NYSE:CVX) suffer from industry-wide instability. After significant global oil market turbulence, investors are finally cycling back into the industry as hedge funds and similar investment institutions snatched up oil futures contracts and slanted the overall outlook firmly into bullish territory.
Chevron, in particular, may benefit from the oil market bounce. The company’s low price-to-book ratio and healthy margin growth make it a solid long-term play on fundamentals alone. The company’s capital management strategy also indicates long-term growth potential as it plans to plunge $14 billion into oil field development and low-carbon initiatives throughout 2023. With a growing commitment to renewable fuel production, the company is also well on its way to transitioning to increased sustainability expectations marketwide.
Chevron remains committed to returning shareholder value despite a hefty capital expenditure plan. The company’s quarterly dividend yield jumped 6% compared to last year’s distribution. Chairman and CEO Mike Wirth affirmed Chevron’s investment potential: “We’re investing more to help grow future energy supplies. We intend to leverage our capital discipline, advantaged assets and financial strength to deliver lower carbon energy to our customers and superior cash distributions to our shareholders.”
This rosy outlook and attractive fundamental figures make Chevron an undervalued Dow stock for investors in July.
Walt Disney Co (DIS)
Disney (NYSE:DIS) took a beating in 2022 and has yet to rebound alongside the broader market. Down nearly 10% this year and a full 55% from its mid-pandemic high, Disney can’t catch a break. After much fanfare, Disney’s streaming service slumped and continues declining. Tightened wallets at home mean families are delaying vacations to Disney’s theme park and vacation properties. Still, little’s fundamentally changed in Disney’s dominant position, and the company is severely undervalued today.
Furthermore, CEO Bob Iger is critically examining what drives value for Disney. And he’s ready to trim the fat on what doesn’t to increase profitability. Iger caused a storm this week as he offhandedly mentioned he’s considering selling off the company’s stale TV assets to refocus on what works for the firm. Whether that shakes out remains to be seen, but it demonstrates a commitment to reorienting the Disney ship, particularly as Disney’s board renewed Iger’s contract last week to give the CEO more time to steer the company to success.
With a 1.60 price-to-book ratio, efficient capital structure, and healthy return on equity, Disney’s fundamentals remain sound and represent a bargain buy for potential investors. Although there may be further turbulence as Iger gets the company back on the right track, Disney is doubtlessly a buy-and-hold dream at these prices.
On the date of publication, Jeremy Flint held a long position in VZ. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
