In general, when we talk about 50% to 100% returns in a year, it’s associated with growth stocks. However, there are instances where blue-chip stocks outperform backed by valuation factors or some major catalysts. A good example is Nvidia (NASDAQ:NVDA) stock that has surged by 242% for year-to-date. Similarly, Apple (NASDAQ:AAPL) stock has trended higher by 55% for the year.
Therefore, careful stock selection can translate into robust returns within a short time even for blue-chip stocks. Without doubt, the first screener is to look for relatively ignored blue-chip names that are trading at a valuation gap. Further, it needs to be seen if industry factors are supportive for a potential reversal rally.
With the likelihood of multiple rate cuts in 2024, I am positive on equities. This column discusses three quality blue-chip stocks that can surge higher in the coming quarters.
Let’s talk about the catalysts that back my bullish thesis.
Newmont Corporation (NEM)
In the last one month, Newmont Corporation (NYSE:NEM) stock has trended higher by 10%. However, the stock has remained sideways to lower on a 12-month basis. I believe that a big rally is impending with gold trading at $2,050 an ounce.
I must add that I expect further rally in gold price during the year. Even if gold trades at $2,200 to $2,300 an ounce, Newmont will be positioned for strong free cash flow upside. This will translate into higher dividends and stock re-rating.
Specific to Newmont, the Company recently completed the acquisition of Newcrest Mining (OTCMKTS:NCMGF). This sets stage for production upside at a time when realized gold prices will be higher.
Coming to the cash flow potential, Newmont reported operating cash flow of $1 billion for Q3 2023. With higher gold price and the benefit of the acquisition, Newmont is positioned for OCF of more than $5 billion in 2024. An investment grade balance sheet and strong cash flows makes NEM stock a potential value creator.
Vale (VALE)
If we look at returns of asset classes in the last 10 or 20 years, industrial commodities are the most undervalued. Given the possibility of rate cuts globally in 2024, I expect GDP growth to gain traction in emerging economies. This will be positive for industrial commodities and Vale (NYSE:VALE) looks deeply undervalued.
To put things into perspective, VALE stock trades at a forward price-earnings ratio of 7.3. With the stock remaining sideways in the last 12 months, a breakout on the upside seems likely.
It’s important to note that iron ore segment is the cash flow machine for Vale. However, the Company has been diversifying into metals that will support global energy transition. These include copper and nickel.
From a fundamental perspective, Vale reported EBITDA of $4.5 billion for Q3 2023. With commodities likely to trend higher next year, an annualized EBITDA of $20 billion seems likely. Vale will therefore have high financial flexibility to make aggressive investments. For the next year, the Company is targeting capital expenditure of $6.5 billion.
Pfizer (PFE)
If we look at Pfizer (NYSE:PFE) stock chart, there has been a downtrend, amidst volatility, since December 2021. After an extended period of correction, PFE stock looks attractively valued. Further, the stock offers a dividend yield of 6%. I would bet on a strong reversal and total returns of 50% in the coming year.
If we look at the estimates of 19 analysts providing a 12-month forward price forecast, the median price target for PFE stock is $32. This would imply an upside of 13% and total returns of almost 20%. I would however go with the optimistic price target of $45. Even if PFE stock trades at $40 by the end of 2024, total returns would be 50%.
From a growth perspective, there are two points to note. First, Pfizer has a deep pipeline of clinical trials and expects new molecular entities to contribute $20 billion in incremental revenue by 2030. Further, the Company has been aggressive on the acquisition front and expects $25 billion in incremental revenue by 2030 from new business deals.
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.
