From early 2022 highs of close to $400, Tesla (NASDAQ:TSLA) stock plunged to lows of $102 at the beginning of the year. However, the stock is already higher by 120% for year-to-date and trades at $239. This is a good example of how blue-chip stocks can make a strong comeback even if there are temporary headwinds that play spoilsport.
As a value investor, I would therefore keep a close eye on promising blue-chip stocks that are trading at a valuation gap. Once sentiments reverse, these blue-chip stocks can surge higher. Of course, growth stocks are associated with quick returns. However, TSLA stock is just one example of the point that blue-chip stocks can skyrocket in quick time.
This column focuses on three promising blue-chip stocks that are likely to surge higher in the next 12 to 15 months. These stocks trade at a significant valuation gap and provide an excellent entry opportunity.
Let’s discuss the reasons to be bullish on these blue-chip stocks.
Blue-Chip Stocks: Pfizer (PFE)
Pfizer (NYSE:PFE) is among the top blue-chip stocks to consider at current levels. The stock trades at an attractive forward price-earnings ratio of 11 and offers a dividend yield of 4.5%.
There are two reasons for PFE stock trending lower. First, growth is likely to decelerate in a post-covid era. Further, with several drugs going off-patent in the coming years, growth is likely to be impacted. I, however, believe that the markets have discounted these factors.
Additionally, Pfizer has taken steps to ensure that growth accelerated. The first point to note is that the company has a deep pipeline of drugs. The company expects $20 billion in incremental revenue from new molecular entities by 2030.
It’s also worth noting that the company has been active on the acquisition front to diversify its product portfolio. Pfizer has already pursued few acquisitions in the last 12 months. The company expects $25 billion in incremental revenue from new business developments by 2030. As the markets look for value, I believe that PFE stock will trend higher from oversold levels.
AT&T (T)
AT&T (NYSE:T) is another massively undervalued blue-chip stock that deserves market attention. At a forward price-earnings ratio of 5.8, the stock can easily double in the next 12 months. T stock also offers an attractive dividend yield of 7.87%.
It’s worth noting that AT&T has made steady business progress in the last few years. Since Q2 2020, the company has added eight million postpaid phones and increased fiber subscribers by 3.4 million. Between 2018 and 2022, AT&T has invested more than $140 billion in its wireline and wireless network. These investments will continue to yield results in the form of subscriber and ARPU growth.
Another important point to note is that the company expects to deliver free cash flow of $16 billion in 2023. Robust FCF will ensure that dividends sustain. At the same time, AT&T is targeting to achieve net debt-to-adjusted EBITDA of 2.5x by 2025. As credit metrics gradually improve, T stock is likely to be re-rated.
Vale (VALE)
Among industrial commodity names, Vale (NYSE:VALE) stock is trading at a significant valuation gap. The stock looks attractive at a forward price-earnings ratio of 6.65 and offers a dividend yield of 6.35%.
Given the macroeconomic scenario, I believe that a fiscal stimulus is likely in China in the coming months. If this holds true, industrial commodities will surge. Also, with global economic growth expected to hold steady, I am positive on commodity players.
Specific to Vale, the company reported adjusted EBITDA of $4.1 billion for Q2 2023. Even with lower commodity price, EBITDA has been robust and free cash flow visibility is strong. Vale therefore has high financial flexibility to invest in growth projects.
In July, Vale announced a strategic partnership with Manara Minerals. The latter will be investing in Vale Base Metals, a holding entity for Vale’s energy transition metals business. The proposed investment values Vale Base Metals at $26 billion. I am bullish on the company’s energy transition metals focus from a long-term value creation perspective.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
