In this article, we discuss the 5 undervalued blue-chip stocks to buy now. If you want to read our analysis of these stocks, go directly to the 10 Undervalued Blue Chip Stocks to Buy Now.
5. Pfizer Inc. (NYSE:PFE)
Share Price as of June 6: $53.31
Number of Hedge Fund Holders: 79
Pfizer Inc. (NYSE:PFE) is a New York-based pharmaceutical and biotech giant that has spearheaded the fight against COVID-19 through the Pfizer-BioNTech vaccine. The stock is trading at a forward adjusted P/E multiple of 7.83x. This reflects a discount of over 37% from the five-year average forward adjusted P/E multiple of 12.54x.
Pfizer Inc.’s (NYSE:PFE) management is working on increasing innovation as it is moving past the peak in terms of healthy cash flow and bottom line generated by the COVID-19 vaccine and faces the possibility of the patent cliff by mid-decade. One such action taken by the management is the recent acquisition of Biohaven Pharmaceuticals Holding Company Ltd. (NYSE:BHVN) for $11.6 billion in cash on May 10. The New Haven, Connecticut-based company is the maker of NURTEC ODT, which is an approved therapy for the treatment of the episodic and acute treatment of migraine in adults.
ClearBridge Investments shared its insights on Pfizer Inc. (NYSE:PFE) in its Q3 2021 investor letter. Here’s what the firm said:
“While the level of general turnover abated as we progressed through 2021, it remained high in one area: post-COVID-19 recovery plays. The concept behind this investment thesis was, and still is, straightforward: with the advent of effective vaccines, the path from pandemic to endemic is just a matter of time. As this transition occurs, the estimated excess savings of over $2 trillion built up on U.S. consumer balance sheets will unlock dramatic pent-up demand for experiences, especially global travel. This investment case seemed especially compelling when the Pfizer vaccine positively surprised markets in November 2020. As a result, we made post-COVID-19 stocks (which were trading well below our estimate of recovery value) a sizable theme within the portfolio. We understood this to be a more aggressive tilt in positioning because it required a major improvement in demand to catalyze fundamentals and drive price toward higher business values. While we accepted that recovery would not be smooth and that it would take time to deploy vaccines both domestically and globally, we decided that recovery was the logical path of least resistance and we were being well compensated for these risks.
What we did not account for, however, was vaccine hesitancy and the risk of further infection waves. As a result, the first variant wave, Delta, was a negative surprise to both the market and our team. When the risk surfaced, we immediately updated our probability-driven models and debated how we should react. The resulting conclusion was that the recovery would be delayed and that we should reduce our exposure quickly, subsequently targeting the most aggressive recovery stocks such as cruise lines. We again acted swiftly and decisively to the positive surprise that Pfizer had delivered a high-efficacy antiviral COVID-19 pill. This pill should greatly reduce COVID-19 severity risks globally, increasing the probability of a global travel recovery in 2022. While this is still true, the emergence of the highly mutated Omicron variant set off another infection wave which spurred us to again act quickly and further reduce our risk exposure. This back-and-forth may sound exhausting, but it highlights our compulsion to act if we determine a surprise has a large enough impact on the probabilities that power our valuation-driven investment cases.”
Of the 912 hedge funds in Insider Monkey’s database, 79 funds held a stake in Pfizer Inc. (NYSE:PFE) as of Q1 2022.
4. 3M Company (NYSE:MMM)
Share Price as of June 6: $146.35
Number of Hedge Fund Holders: 51
3M Company (NYSE:MMM) is a Saint Paul, Minnesota-based diversified industrial conglomerate involved in worker safety, healthcare, and consumer goods. The company is a member of the esteemed Dividend King List, which comprises only 39 companies that have increased their annual dividends for the past 50 consecutive years or more. 3M Company (NYSE:MMM) has a dividend yield of 4.09% as of June 6.
3M Company (NYSE:MMM) is facing near-term headwinds as it anticipates a $300 million decline in revenue and 30 cents fall in EPS during the current quarter due to the supply chain challenges caused by the lockdown in China. Furthermore, the company is facing an overhang due to the settlement of the PFAS cases. However, 3M Company (NYSE:MMM) is expected to move beyond these short-term challenges and offer a significant upside potential to investors. These developments have caused 3M Company (NYSE:MMM) stock to trade at a forward adjusted P/E multiple of 13.65x. This reflects a 17.3% discount against the sector and a near 30% discount against the average five-year forward P/E multiple.
3M Company (NYSE:MMM) was held by 51 hedge funds as of Q1 2022.
3. American Express Company (NYSE:AXP)
Share Price as of June 6: $166.83
Number of Hedge Fund Holders: 69
American Express Company (NYSE:AXP) is a New York-based company that provides payment card services globally. The company is the third biggest holding in Warren Buffett’s Berkshire Hathaway Inc’s (NYSE:BRK-B) portfolio as of March 31,
At a forward adjusted P/E multiple of 17x, American Express Company (NYSE:AXP) stock is trading at a discount of 7.4% when compared against the five-year average forward adjusted P/E multiple of 18.36x. The company generates revenue from two sources: cardholders and merchant transactions. The revenue from merchant transactions reflects less volatility as it is dependent on the number of merchants using the service of American Express Company (NYSE:AXP). However, the cardholders would be impacted by the hike in interest rate as they are charged a variable APR on their balances.
In its Q2 2021 investor letter, ClearBridge Investments mentioned American Express Company (NYSE:AXP). Here’s what the firm said:
“In financials, American Express has done an excellent job demonstrating the resiliency of its franchise in the midst of a global pandemic that drove a 60% decline in its core travel and entertainment business. The company’s spend-centric model has been helped by fiscal stimulus ensuring a flush consumer, while management continues to execute well by adding millions of new consumer and small and medium business accounts, which should benefit the franchise over the medium to long term. We remain optimistic regarding the company’s prospects as travel and entertainment activity rebounds, adding to our position in the quarter.”
American Express Company (NYSE:AXP) was held by 69 hedge funds as of Q1 2022.
2. Philip Morris International Inc. (NYSE:PM)
Share Price as of June 6: $106.99
Number of Hedge Fund Holders: 55
Philip Morris International Inc. (NYSE:PM) is a tobacco company with a presence in over 180 countries. The most notable product in the corporation’s portfolio is Marlboro. The stock offers low volatility and is resistant to recessions. Philip Morris International Inc. (NYSE:PM) has a dividend yield of over 6% as of June 6.
As the number of smokers is on a declining trend across the globe, the New York-based company is making a strategic shift and preparing itself to move away from selling cigarettes in the majority of markets in the next 15 years. Philip Morris International Inc. (NYSE:PM) has invested $9.2 billion in IQOS heat sticks since 2014 to shift towards a smoke-free future. The investment in IQOS is paying off as it has become the second most popular nicotine brand around the world. Philip Morris International Inc. (NYSE:PM) has a forward P/E ratio of 17.54x as of June 6.
Here’s what Broyhill Asset Management said about Philip Morris International Inc. (NYSE:PM) in its Q2 2021 investor letter:
“Philip Morris (PM) shook off the prospects of a ban on menthol and a potential cap on nicotine and gained 23%. We shared our thoughts on these regulations during the quarter, which are available here.
‘PM Valuation. PM is up ~ 15% YTD and would have the most to gain under a nicotine cap. A cap would likely accelerate conversion to iQOS, which is 100% incremental for PM (PM also has zero exposure to combustible cigarettes in the U.S. and licenses its IQOS product for MO to distribute domestically). As such, the decline in PM was much more muted, with the stock hitting new 52 week highs a day after the Biden headline, driven by yesterday’s earnings release. It didn’t take long for investors to shift their attention back to fundamentals and the fundamentals here are best in class. In short, results beat estimates across the board (a recurring theme here), and management raised guidance for the full year (another recurring theme). IQOS continued to deliver impressive growth, recording continued market share gains on the heels of continued user acquisition growth, up 1.5M to 19.1M total users. Importantly, IQOS now represents nearly 30% of PM net revenues (management expects “smoke-free” products to represent more than half of their business by 2025, which should make the ESG folks happy), which is driving top-line growth and margin expansion. Hard to believe that they have created a product with higher margins than combustible cigarettes!! We expect PM operating margins to increase by 100bps – 200bps annually as IQOS continues to gain share. The stock trades at ~ 15x today or 2/3 of the market’s multiple for a business likely to generate $35B in cash flow – or 25% of the market cap – in just the next three years. Over the last decade, shares have traded at an average multiple of 18x and within a range of ~ 14x – 22x (+/-1 standard deviation). The stock yields 5.1% at the current price, and we expect management to resume share purchases in the back half of this year.’”
1. Meta Platforms, Inc. (NASDAQ:FB)
Share Price as of June 6: $193.39
Number of Hedge Fund Holders: 200
Meta Platforms, Inc. (NASDAQ:FB) is a Menlo Park, California-based diversified technology conglomerate and the parent organization of notable social media and instant messaging platforms like Facebook, Instagram, and WhatsApp. Meta Platforms, Inc. (NASDAQ:FB) is now making a strategic shift towards augmented reality through Metaverse and Oculus VR headsets.
Meta Platforms, Inc. (NASDAQ:FB) is undergoing a shakeup in the higher echelon of the organization. Within the previous week, the company announced the departure of COO Sheryl Sandberg and VP of AI Jerome Pesenti. The stock is currently trading at a multi-year low and has lost nearly 50% of its value since its peak in August 2021. The major reason for the decline in stock price is growth-related concerns and negative news flow. Meta Platforms, Inc. (NASDAQ:FB) is trading at a forward adjusted P/E multiple of 16.28x, reflecting a discount of 35.3% from its five-year average adjusted P/E multiple of 25.18x. For a dominant market leader, this is a cheap multiple.
Giverny Capital shared its insights on Meta Platforms, Inc. (NASDAQ:FB) in its Q1 2022 investor letter. Here’s what it said:
“If there is any good news, I don’t believe this group suffered material impairments to their long-term earnings trajectory. Rather, relatively small earnings misses or reductions to short-term guidance led to large stock declines. I added to several of these positions during the quarter.
However, our holding Meta Platforms, the detested social media business formerly known as Facebook, deserves some attention. It suffered an earnings miss in the fourth quarter of 2021 and provided sobering future guidance. While this qualifies as disappointing news, I think the market reaction was more of a primal scream than a considered response.
As a person who manages other people’s money for a living, I can tell you with confidence that clients don’t like Meta. A few of you won’t own it, restricting me from buying it for you. Others defer to me,
grudgingly. There is no other security in our portfolio like this. When a company is so widely disliked, the main reason to hold it is because it is “working,” to use the horrible Wall Street parlance. In other words, your manager owns it because it keeps going up. Once it stops going up, professional money managers happily accept the chance to sell it. No more cranky calls from clients questioning their ethical compass.The rub, however, is that despite the bad earnings news the economics of Meta’s social media businesses remain exceptionally good. In 2021, for every dollar of revenue generated Meta spent 63 cents on expenses and reported 37 cents of pretax profit. That was considered disappointing, even though very few businesses generate 37% profit margins. On top of that, fully one-third of expenses, or 21 cents on the dollar of revenue, is spent on research & development, which is investment in future growth. In Meta’s case, this amounts to about $25 billion a year invested in various new projects, the most important of which is the metaverse. R&D is not completely discretionary as companies have to invest in innovation or stagnate. But management certainly has flexibility as to the pace of spending…” (Click here to see the full text)
Meta Platforms, Inc. (NASDAQ:FB) was held by 200 hedge funds as of Q1 2022.
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