Contrary to what we’ve heard about a lot of bis stocks topping out, now is a great time to find undervalued large-cap stocks.
The S&P 500 stalled as August came around. After rallying 20% higher over the first seven months of 2023, the index of the 500 largest stocks on the market is down 2.5% so far this month.
Even after the gains, the benchmark index remains 7% below its all-time high. That means if you know where to look you’ll find undervalued large-cap stocks worth your consideration.
Despite the market’s push higher in 2023, the following seven undervalued large-cap stocks still look ripe for the picking.
You just might want to consider buying them now before the trade winds begin blowing again. Once their sails fill, their valuations won’t be nearly as attractive as they are right now, so take a good look at some of these undervalued large-cap stocks.
CVS Health (CVS)
Shares of pharmacy chain CVS Health (NYSE:CVS) are down 30% from last year because of worries about a recession and fears of legal exposure to the opioid crisis.
It was alleged the pharmacy failed to oversee the dispensing of opioids from its stores. CVS has since agreed to pay $5 billion over 10 years.
Coupled with its double-digit growth in its pharmacy benefit management business and robust growth still in pharmacy sales, CVS Health is deeply discounted at just eight times next year’s earnings estimates, a fraction of its sales, and an incredible five times the free cash flow it produces. This is one of the undervalued large-cap stocks that’s a no-brainer.
Cisco Systems (CSCO)
Long considered the backbone of the internet, Cisco Systems (NASDAQ:CSCO) has evolved into so much more today. But the blue chip tech stock has also struggled as a result.
The rise of Zoom Video and Microsoft Teams meant businesses relied less on its conferencing hardware. Cybersecurity remains a threat to corporations, but they’re not spending as much as they were previously. That resulted in softer sales for Cisco’s end-to-end security services.
Supply chain disruptions also made it harder for Cisco to obtain materials for its routers, switches, and other networking hardware.
The situation is normalizing, though. Growth is returning. Revenue is up 9% year to date with adjusted earnings 7% higher from last year. Cisco expects adjusted earnings to be 13% higher for the full year.
Even though the stock isn’t battered like CVS’s, it’s still one of the big-name undervalued large-cap stocks out there. They trade at 13 times next year’s estimates and the free cash flow it generates. With a dividend that yields 2.9% annually, Cisco is a large-cap stock to buy.
Molson Coors Beverage (TAP)
Brewer Molson Coors Beverage (NYSE:TAP) realized the secular decline in beer drinking meant it needed to broaden its portfolio.
It now includes hard seltzers, ready to drink beverage,s and a variety of non-alcoholic beverage offerings. The company also signified the change by renaming itself from Molson Coors Brewing to Molson Coors Beverage.
Beer still drives the brewer’s revenue, but it’s taking a more holistic look at drinks. For example, it just acquired Blue Run Spirits, a distiller of premium bourbon and rye whiskies.
Molson Coors is also capitalizing on the problems of its rivals. The marketing debacle of Anheuser-Busch InBev saw its No. 1 selling Bud Light brand topple to fourth place. While Constellation Brands Corona beer is now the top-selling beer, Molson Coors arguably is faring best.
According to data from Union, a hospitality market firm, Miller Lite beer was launched into the top spot in restaurants and bars with a 20.7% sales gain in June. Coors Light surged to the No. 3 position with a 19.4% sales jump.
The stock goes for only 11 times free cash flow and it offers a dividend yielding 2.6% annually.
Chevron (CVX)
Shares of integrated oil and gas giant Chevron (NYSE:CVX) are down 9% in 2023. The stock trades at just 10 times trailing earnings and 11 times next year’s estimates. The decline in oil prices had some big investors running for the exits in June. They bailed too soon.
Where West Texas Intermediate oil had fallen to $70 a barrel it’s since rebounded to $82 a barrel as of this writing. Brent crude is also up $10 to $86 a barrel. Demand hit a record high in July and is expected to spike further this year.
Chevron is in the driver’s seat here. It possesses superior financial rigor with a strong balance sheet that could withstand a drop in oil prices to $50 a barrel and still be profitable.
The oil giant also just completed the acquisition of PDC Energy (NYSE:PDC) for $7.6 billion in an all-stock deal. That will boost Chevron’s proved oil equivalent reserves by 10% for less than $7 per barrel.
Look for this large-cap stock to rally higher as the oil boom returns.
Halliburton (HAL)
In that same vein is oil and gas services behemoth Halliburton (NYSE:HAL) to jump higher as well.
CEO Jeff Miller believed it was inevitable there would be a resurgence in oil demand.
“It’s clear to me that oil and gas is in short supply, and only multiple years of increased investment in both stemming declines and reserve additions will solve short supply. I believe these investments will drive demand for oilfield services for the next several years,” he told investors earlier this year.
Halliburton provides services to oil and gas companies drilling wells. It is responsible for most of the hydraulic fracturing (fracking) operations in the U.S. As Miller also notes, “the fact is operators don’t produce more without fracking wells.”
Halliburton stock is also cheap at 15 times trailing earnings and 11 times estimates. Analysts also expect the industry services firm to grow earnings almost 24% annually for the next five years.
That means the stock trades at just a fraction of those growth rates and is a bargain at these levels.
JD.com (JD)
I’ll admit I’m leery of investing in Chinese companies. The political uncertainty surrounding Beijing and global geopolitical tensions can make it a crapshoot. But online retailer JD.com (NASDAQ:JD) is the exception that proves the rule.
JD.com and sister e-tailer Alibaba fell hard from their 2021 highs due to a crackdown by China’s government into tech stocks. With the investigations winding down or over with, the online retailers have room to grow again.
JD.com hosts the Chinese midyear shopping extravaganza known as 618 (June 18). It was first launched in 2004 to celebrate the retailer’s founding. This year the spectacle ran from the end of May through mid-June.
JD.com did not release gross merchandise value sold, but said it was a record. Analysts estimate it rose 6% to 8% more than the $56 billion worth it sold last year.
The online retailer’s stock is down 34% in 2023 and it’s trading at just fractions of its estimated earnings growth rate and sales. That makes it a cheap stock with plenty of upside ahead.
Archer-Daniels-Midland (ADM)
After hitting a 52-week low of $70 a share in June, agricultural products processor Archer-Daniels Midland (NYSE:ADM) has rallied 21% higher.
It’s still 13% below its highs, but there’s good reason to think it will continue its march higher. In short, people have to eat.
ADM processes oilseeds into vegetable oils and other food products. It also converts corn and wheat into products and ingredients used in food and beverages, some of which are used to make ethanol. It also makes flavors and additives for food, including animal food.
Skyrocketing commodity prices boosted ADM’s business and its profits. It reported record earnings of $7.85 per share in 2022. With inflation cooling off, ADM is witnessing a return to the mean, which brought down the stock.
A rebound is underway. Bloomberg Intelligence data indicates fuel demand is rising as prices fell. And cheaper grain made it more profitable to make ethanol. Reportedly profits surged by 70% this year to $0.80 per gallon.
In addition to strong tailwinds, Archer-Daniels Midland is a Dividend King. It has a better than 50-year record of raising its dividend, which yields 2.1% currently. It has a payout ratio of just 24%, meaning there is plenty of room for further increases with sufficient safety.
On the date of publication, Rich Duprey held a LONG position in CVX stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
