In this piece, we will take a look at the 13 cheap blue chip stocks to buy. To skip our overview of the blue chip sector and the latest news about the stock market, take a look at the 5 Cheap Blue Chip Stocks To Buy.
Within the American stock market, the Dow Jones Industrial Average (DJIA) is one of the most prestigious stock indexes. It has been around in one form or the other for more than a hundred years, and over the course of this long history, the index is periodically re balanced. The stock index is constituted of firms that the S&P Global Inc. (NYSE:SPGI) believes are an adequate representation of the U.S. economy. Naturally given the central role that information technology plays in today’s world, the biggest companies part of the DJIA are Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT).
Informally, the DJIA is also referred to as a blue chip stock index – a term that is borrowed from poker chips. These chips are the most valuable in the stock market according to the DJIA’s creators, and along with the NASDAQ Composite and the S&P 500, the index is one of the most closely watched stock indexes in America. In terms of returns, the blue chip segment often lags behind the high growth NASDAQ 100 and NASDAQ Composite since they are comprised of a large number of high growth technology firms. However, on the flip side, the DJIA also offers stability to investors as its constituents are a stable set of companies with sizeable balance sheets and stable markets that serve them well during turbulent economic times. If you’re interested to learn more about the history of the DJIA blue chip stock index, you should check out 12 Undervalued Blue Chip Stocks To Buy According to Wall Street Analysts.
The DJIA, like the broader stock market, has been rattled by global geopolitical conflicts as well as the rapid interest rate hikes by the Federal Reserve to curtail inflation. 2022, which was quite a rattling time to be investing in the stock market saw the DJIA tank from its 2021 close of 36,338 to a bottom of 28,725 in September at what was the peak of the Federal Reserve’s rate hike frenzy. It closed the year at 33,147, to mark an 8.7% drop which was still digestible compared to the 21% drop at the September trough.
Fast forward to 2023 and the index represents a different picture. The first half of this year was spectacular for the stock market as big tech roared to life and soared to new highs due to the hype surrounding artificial intelligence. Between January and June 2023, the DJIA soared by 1,260 points or 3%. The second half has been rather flat in terms of returns, with the DJIA having lost 194 points so far and pared back some of the losses in November.
Why November? Well, November might be the first month where the Federal Reserve’s future interest rate strategy might be starting to become clearer. Throughout this year, investors have flirted with the idea of rates coming down sooner, and in November, Fed chairman Jerome Powell’s statements that the central bank was cognizant of soaring bond yields in its interest rate decision making provided relief to investors. Higher bond yields make borrowing capital more expensive, and there are some worries that when combined with a high policy rate, they can damage the economy far more than is needed to curtail inflation. The Fed chair’s comments, combined with a favorable employment report led to the DJIA and other major stock indexes to mark their strongest week in 2023 for the week that ended on November 3, 2023.
So, as the investment climate in the stock market appears to be cautiously improving, we decided to take a look at some cheap blue chip stocks to buy with the notable picks being Verizon Communications Inc. (NYSE:VZ), Walgreens Boots Alliance, Inc. (NASDAQ:WBA), and The Goldman Sachs Group, Inc. (NYSE:GS).
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Our Methodology
To compile our list of cheap blue chip stocks to buy, we ranked all stocks part of the DJIA by their forward price to earnings ratio. Then, those with the lowest P/E ratios were chosen as the top cheap blue chip stocks to buy.
13 Cheap Blue Chip Stocks To Buy
12. Amgen Inc. (NASDAQ:AMGN)
Forward Price To Earnings Ratio: 13.79
Amgen Inc. (NASDAQ:AMGN) is one of the latest additions to the DJIA as it secured its place in 2020. A healthcare company, it develops cancer, heart, and other medications. The firm’s biotech division secured praise from Truist in November 2023, as the firm upgraded the share price target to $320 from $260 and the rating to Buy from Hold.
Insider Monkey scoured through 910 hedge fund holdings for their June quarter of 2023 shareholdings and discovered 57 Amgen Inc. (NASDAQ:AMGN) shareholders. Out of these, Josh Overdeck and David Siegel’s Two Sigma Advisors owns the biggest stake which is worth $355 million.
Just like Walgreens Boots Alliance, Inc. (NASDAQ:WBA), Verizon Communications Inc. (NYSE:VZ), and The Goldman Sachs Group, Inc. (NYSE:GS), Amgen Inc. (NASDAQ:AMGN) is a top cheap blue cap stock to buy.
12. Dow Inc. (NYSE:DOW)
Forward Price To Earnings Ratio: 13.18
Dow Inc. (NYSE:DOW) is an American chemicals company headquartered in Midland, Michigan. Despite its hefty market capitalization of $34 billion, more than 60% of its shares are owned by institutional investors – for a sizeable stake that lends the stock confidence.
As of Q2 2023 end, 37 out of the 910 hedge funds part of Insider Monkey’s database had bought a stake in the company. Dow Inc. (NYSE:DOW)’s largest hedge fund investor is Richard S. Pzena’s Pzena Investment Management due to its $792 million stake.
12. Cisco Systems, Inc. (NASDAQ:CSCO)
Forward Price To Earnings Ratio: 13.11
Cisco Systems, Inc. (NASDAQ:CSCO) is a communications products provider that serves the needs of business customers. Despite a slowdown in corporate spending, the firm has beaten analyst EPS estimates in all four of its latest quarters. The shares are rated Buy on average.
During this year’s second quarter, 55 out of the 910 hedge funds part of Insider Monkey’s research were Cisco Systems, Inc. (NASDAQ:CSCO)’s investors. Peter Rathjens, Bruce Clarke, and John Campbell’s Arrowstreet Capital is the biggest shareholder among these courtesy of its $1 billion investment.
11. American Express Company (NYSE:AXP)
Forward Price To Earnings Ratio: 12.27
American Express Company (NYSE:AXP) is a financial and travel products and services provider. Despite high interest rates and inflation, the firm had a good third quarter that saw its spending volumes grow, leading to a strong set of results that beat analyst EPS estimates.
For their investments during 2023’s June quarter, 73 out of the 910 hedge funds polled by Insider Monkey had invested in the firm. American Express Company (NYSE:AXP)’s largest investor among these is Warren Buffett’s Berkshire Hathaway as it owns 151 million shares that are worth $26.4 billion.
10. Merck & Co., Inc. (NYSE:MRK)
Forward Price To Earnings Ratio: 12.21
Merck & Co., Inc. (NYSE:MRK) is one of the largest pharmaceutical companies in the world. The firm scored multiple wins in November 2023 that saw its kidney cancer perform well and receive FDA approval for treating biliary tract cancer.
Insider Monkey dug into 910 hedge funds for their investments during this year’s second quarter and discovered that 78 were Merck & Co., Inc. (NYSE:MRK)’s shareholders. Ken Fisher’s Fisher Asset Management owns the biggest stake among these which is worth $1.4 billion.
9. Caterpillar Inc. (NYSE:CAT)
Forward Price To Earnings Ratio: 11.67
Caterpillar Inc. (NYSE:CAT) is an industrial machinery provider serving the needs of the construction and agricultural sectors. Despite the fact that it beat analyst EPS estimates during its third quarter, the shares dropped after earnings as it sounded alarm bells about slowing sales in a tough economy.
By the end of this year’s second quarter, 50 hedge funds among the 910 tracked by Insider Monkey had bought the firm’s shares. Caterpillar Inc. (NYSE:CAT)’s largest hedge fund shareholder is Ken Fisher’s Fisher Asset Management as it owns 7.7 million shares that are worth $1.9 billion.
8. Chevron Corporation (NYSE:CVX)
Forward Price To Earnings Ratio: 10.29
Chevron Corporation (NYSE:CVX) is a diversified oil company with a presence from the oil field to the pump. The firm is currently pursuing a $53 billion acquisition of U.S. oil firm Hess Corp, and even though this has level analysts unimpressed, Chevron Corporation (NYSE:CVX)’s shares were upgraded to Outperform from Market Perform by Bernstein in November 2023.
Insider Monkey’s Q2 2023 survey covering 910 hedge funds revealed 73 Chevron Corporation (NYSE:CVX) investors. Warren Buffett’s Berkshire Hathaway is the firm’s biggest investor out of these which comes via 123 million shares and is worth $19 billion.
6. The Travelers Companies, Inc. (NYSE:TRV)
Forward Price To Earnings Ratio: 9.85
The Travelers Companies, Inc. (NYSE:TRV) is a financial services firm that provides insurance products all over the world. Despite income statement tightness that made it miss analyst EPS estimates during Q2 and Q3 2023, the firm is expanding its operations and acquiring a cyber insurance underwriter for $435 million.
For their June quarter of 2023 shareholdings, 41 out of the 910 hedge funds profiled by Insider Monkey had held a stake in the company. The Travelers Companies, Inc. (NYSE:TRV)’s largest hedge fund shareholder is Cliff Asness’ AQR Capital Management as it owns $136 million worth of shares.
Verizon Communications Inc. (NYSE:VZ), The Travelers Companies, Inc. (NYSE:TRV), Walgreens Boots Alliance, Inc. (NASDAQ:WBA), and The Goldman Sachs Group, Inc. (NYSE:GS) are some great cheap blue chip stocks.
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Disclosure: None. 13 Cheap Blue Chip Stocks To Buy is originally published on Insider Monkey.