Undervalued large-cap stocks present a particularly good opportunity right now with all three major indices in the U.S. continuing to trend lower to start the New Year.
The latest data out of the U.S. showed that inflation rose 7.1% in November from a year ago, which is still well above the Fed’s 2% target. This raises the likelihood that the central bank will continue raising its benchmark interest rate in the coming months, albeit at a slower pace than in previous months.
As rates continue inching higher and inflation slowly decelerates, stocks are likely to remain volatile. But the retreat of the markets seen in 2022 (the worst year for equities since the 2008 financial crisis) has left many large-cap stocks deeply undervalued. This presents an opportunity for investors who can tolerate the near-term ups and downs of the market and keep their eyes fixed on the long-term.
Here are seven seriously undervalued large-cap stocks to buy now.
| AMZN | Amazon | $83.55 |
| NVDA | Nvidia | $143 |
| NKE | Nike | $122 |
| AAPL | Apple | $126 |
| COST | Costco | $452 |
| MSFT | Microsoft | $224 |
| AXP | American Express | $145 |
Undervalued Large-Cap Stocks: Amazon (AMZN)
Amazon (NASDAQ:AMZN) stock is now trading under $85 a share, its most affordable level in more than five years.
Following Amazon’s disappointing third-quarter earnings and lowered guidance, AMZN stock is down 50% in the last 12 months. Even a 20-for-1 stock split undertaken at the beginning of June hasn’t helped the share price.
Having given up most of the gains it achieved during the pandemic when consumers were forced to shop online, AMZN stock seems to have been abandoned by consumers. Yet analysts say that is a mistake, and the company is poised for a rebound.
For its part, Amazon is doing what it can to try to raise its share price, as the company earlier this year announced a $10 billion stock buyback program.
Amazon also completed its second Prime sales event of the year in mid-October, which should give its fourth-quarter earnings a boost. Further, the company has reduced its staff levels and taken other cost-cutting measures as it tries to adjust to the current economic environment.
While Amazon’s price-earnings (P/E) ratio remains a hefty 75 times, it is not that high when one considers the company’s nearly $1 trillion market capitalization or that it generates more than $100 billion of revenue each quarter. Take advantage of the shares’ weakness and buy the dip of AMZN stock.
Nvidia (NVDA)
Few large-cap technology stocks have been beaten down as much as semiconductor company Nvidia (NASDAQ:NVDA). NVDA stock has tumbled 50% in the last year to $143. In November 2021, the company’s shares were trading above $300, and that was after a 4-for-1 stock split.
The share price has been hurt by mounting fears that the demand for Nvidia’s chips and semiconductors will slow along with the global economy. To be sure, the company’s earnings for the third quarter were a disaster with revenue down 17% year-over-year. The Q3 print didn’t help the share price at all.
Nvidia has also lowered its forward guidance multiple times this year. It most recently said that it expects about $6 billion of sales in Q4, lower than the average estimate of $6.09 billion among analysts who cover the company.
Nvidia CEO Jensen Huang has stressed that the company is grappling with a “challenging macro environment.” Still, Nvidia, whose chips are used in everything from supercomputers to artificial intelligence applications, remains a solid, long-term buy.
Its P/E ratio is high at 61 times, but that has come down over the last year with the share price. And, unlike many tech stocks, Nvidia pays a dividend that yields 0.11%. It’s not the most generous dividend, but it helps make NVDA one of the more reliable undervalued large-cap stocks to buy.
Nike (NKE)
The shares of the world’s largest supplier of athletic shoes and apparel have been pummeled over the past year. The stock of Oregon-based Nike (NYSE:NKE) has plunged 27% and now trades at $122 per share. The decline, while no doubt troubling to shareholders, makes NKE stock a screaming buy.
A year ago, Nike’s stock was trading at $167 a share. Its big decline has been due largely to the same issues that are vexing companies all over the world: Supply chain problems, excess inventories, Covid-19 lockdowns in China, and slowing consumer spending.
Just before Christmas, Nike reported fiscal second quarter earnings that surpassed the average outlook of the analysts on Wall Street, sending its stock more than 10% higher in a single trading session.
The shoemaker announced quarterly earnings per share of 85 cents versus the mean estimate of 64 cents. Its revenue came in at $13.32 billion compared to the $12.57 billion that had been expected.
NKE’s price-earnings ratio of 34 is slightly high, but it’s justified given the company’s market-leading position. And NKE stock pays a quarterly dividend that yields 1.1%. Grab this stock while it remains on sale.
Undervalued Large-Cap Stocks: Apple (AAPL)
Apple’s (NASDAQ:AAPL) stock just keeps getting more affordable and attractive. Its share price fell 15% in December alone, bringing its 2022 decline to 30%. The consumer electronics giant’s stock is now trading right around $125.
Analysts’ median price target on AAPL stock is currently $175 a share, which is nearly 40% higher than its current level. The shares’ P/E ratio of 20 times is the lowest it has been in years and the stock pays a dividend that yields 0.73%.
With Apple, investors also get a company that buys back more of its own stock than any other publicly traded concern. The company most recently announced that its board of directors had greenlit a $90 billion share buyback program.
Apple is also increasingly diversified, venturing into new areas ranging from streaming to buy now, pay later. Further, with its iPhones and Mac computers., Apple remains the world’s leading consumer electronics company
As with many companies, Apple is dealing with issues that include supply chain constraints, wage inflation and slowing consumer spending in the face of rising interest rates. Its iPhone production has also been hurt by Covid-19 lockdowns in China.
AAPL stock took it on the chin after the company announced that it was scaling back production of its new iPhone 14 due to the issues in China and weaker consumer demand than forecast. The company’s most recent earnings report was mixed but managed to beat analysts’ average expectations.
Apple’s lower share price should make the stock more appealing to value investors.
Costco (COST)
The shares of big-box grocery retailer Costco (NASDAQ:COST) are down 19% over the past 12 months. COST’s 52-week low is $406, well below its current level of $452. The retailer has managed to recover by demonstrating that its sales remain strong despite high inflation and rising interest rates.
The company’s November sales figures were mixed. Costco said its net sales for the period came in at $19.17 billion, up 5.7% year over year. However, the firm’s e-commerce sales fell 10.1% during the period. COST stock declined 3% on the data.
However, Costco has retained the loyalty of its customers by announcing that it would not raise its membership fees this year, holding them at $60 for a regular annual membership and $120 for an executive membership.
The stock’s P/E ratio of 35 times looks high at first glance, but investors need to keep in mind that Costco is on track to surpass $200 billion of sales for 2022, making it one of the more impressive undervalued large-cap stocks .
The company’s stock pays a dividend that yields 0.79%, but Costco has a history of paying out special, one-time dividends as well.
Microsoft (MSFT)
Seattle-based Microsoft (NASDAQ:MSFT) is a seriously undervalued technology stock. Founded by Bill Gates and Paul Allen in 1975 and publicly traded since March 1986, Microsoft today is a well-diversified and battle-tested technology company that is involved in everything from computer software and video games to online search and cloud computing.
The company is hugely profitable and generates positive cash flow. And its stock has been a consistent winner for shareholders over the years.
While MSFT stock is down 30% in the last year, it is up 160% over the past five years and has gained more than 500% over the last decade. Today Microsoft has a market capitalization of $1.67 trillion, a reasonable price-earnings ratio of 24, and is one of the few mega-cap tech stocks that actually pays shareholders a quarterly dividend (Its payout currently yields 1.13%).
While the company has not been immune to the economic challenges afflicting the global economy, it remains one of the tech giants best positioned to weather the storm and come out stronger on the other side.
Currently trading at $224 a share, MSFT stock is definitely worth buying at its current levels.
Undervalued Large-Cap Stocks: American Express (AXP)
The shares of credit-card giant American Express (NYSE:AXP) are fresh off a 52-week low and currently trading right around $145. Down 13% in the last year, AXP stock is at its most affordable level since the pandemic struck in March 2020.
The stock’s price-earnings ratio of 15 times is right around the average of companies listed in the S&P 500 index. It pays a 1.4% quarterly dividend.
With people all over the world traveling and vacationing again, there’s every reason to be bullish on AXP stock and the company’s future earnings.
But don’t take our word for it. Consider that American Express is one of legendary investor Warren Buffett’s favorite stocks. The Oracle of Omaha has held his current position in AXP stock for more than 30 years and never sold a single share.
Besides its traditional credit card loans, American Express also operates an end-to-end payment system that facilitates transactions between consumers and businesses. Revenue from those transactions is today the company’s biggest source of revenue.
On the date of publication, Joel Baglole held long positions in NVDA, MSFT and AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
