In this article, we will take a look at 7 blue chip stocks with low PE ratios.
In the current financial landscape, characterized by shifting market sentiments and evolving economic indicators, the spotlight on blue-chip stocks with low price-to-earnings (P/E) ratios has intensified. As investors seek stable and potentially undervalued options, understanding the broader context of interest rate movements, inflation trends, and market performances becomes crucial.
Recent data indicates that bond traders are increasingly skeptical about the Federal Reserve’s likelihood of implementing further rate cuts this year. Current market expectations reflect only a 20% chance that rates will remain unchanged during either the November or December meetings. Just last week, following an unexpectedly strong jobs report, traders had anticipated over 50 basis points in cuts by year-end. This significant shift underscores a growing belief that robust U.S. economic data is diminishing the probability of consecutive cuts, which has implications for investment strategies across the board.
As a result of these evolving expectations, the dollar is currently on track for its second consecutive weekly gain, bolstered by a 0.5% increase this week alone. The Bloomberg Dollar Spot Index has gained 1.7% in October, propelled by resilient economic indicators that suggest a more cautious approach from the Fed. In contrast to other central banks that may pursue additional monetary easing, the Federal Reserve appears to be recalibrating its policy stance from a position of economic strength. This backdrop adds an additional layer of complexity for investors assessing their portfolios, particularly those interested in blue-chip equities.
Furthermore, the recent performance of the stock market has been notable, with major indices reaching new all-time highs as earnings season kicks off. A wide range of sectors within the market has shown improvement, with the S&P 500 extending its winning streak into a fifth consecutive week, the longest since May. The KBW Bank Index also saw significant gains, surging by 3% and reaching its highest level since April 2022. This upward momentum can be attributed to several financial institutions posting better-than-expected earnings, signaling a recovery that is gaining traction across various sectors.
Interestingly, inflation trends are also contributing to the current economic narrative. Recent reports indicate that U.S. producer prices remained unchanged in September, reflecting a more favorable inflation outlook. Although year-on-year increases in the producer price index (PPI) showed a modest rise of 1.8%, the smallest gain in seven months, market analysts predict a potential 25 basis points reduction in interest rates next month. Despite the uptick in inflationary pressures in certain sectors, most economists do not view these trends as signs of a broader resurgence in price pressures, suggesting that the overall economic environment remains stable.
As we navigate through this analysis, it will be vital to consider the backdrop of current economic conditions, including interest rate expectations and inflationary trends, to better understand the investment landscape and identify potential opportunities. With that, let us delve into the profiles of these promising blue-chip stocks that align with the search for stable investments amidst a fluctuating market.
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Our Methodology
For this article, we use stock screeners to identify nearly 12 stocks above $200 billion market cap and a forward Price to Earnings (P/E) ratio of less than 15 as of October 11, 2024. Next, we narrowed our list to 7 stocks that were most widely held by institutional investors. The hedge fund sentiment was taken from Insider Monkey’s Q2 database of 912 hedge funds. The seven blue chip stocks are listed in descending order of their forward price to earnings ratio.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
07. Chevron Corporation (NYSE:CVX)
Forward Price to Earnings (P/E) ratio: 12.95
Number of Hedge Fund Holders: 64
Chevron Corporation (NYSE:CVX) is a blue-chip energy company with a strong global presence, making it an attractive option for investors seeking stocks with low price-to-earnings (P/E) ratios. As of October 11, 2024, Chevron’s forward P/E ratio stands at 12.95, making it a compelling inclusion in the list of blue-chip stocks with low P/E ratios. Despite a slight miss on earnings expectations for Q2 2024, with reported earnings per share (EPS) of $2.55 compared to the expected $2.93, Chevron’s fundamentals remain robust.
Chevron Corporation (NYSE:CVX) production has been a standout factor, increasing by more than 11% year-over-year, supported by record output from the Permian Basin. The company is capitalizing on its deepwater expertise, with projects like the Anchor in the Gulf of Mexico poised to deliver high cash margins and low carbon intensity. Production growth is expected to reach 300,000 barrels per day by 2026, demonstrating Chevron’s long-term growth potential.
In terms of financials, Chevron Corporation (NYSE:CVX) reported Q2 2024 earnings of $4.4 billion, or $2.43 per share, with adjusted earnings of $4.7 billion, or $2.55 per share. Despite operational challenges, including downtime and higher exploration expenses, Chevron managed to generate nearly $9 billion in cash flow, excluding working capital adjustments. The company continues to prioritize shareholder returns, distributing $6 billion through dividends and share repurchases during the quarter.
Chevron Corporation (NYSE:CVX) strong balance sheet, with a net debt ratio of 10.7%, positions it well for future growth and stability. Furthermore, its ongoing capital projects, including green hydrogen and renewable diesel initiatives, highlight its commitment to transitioning towards sustainable energy solutions. These developments, coupled with Chevron’s efficient capital expenditure management and strong production outlook, make the company an appealing long-term investment.
Overall, Chevron Corporation (NYSE:CVX) steady cash flow, commitment to returning value to shareholders, and forward P/E ratio of 12.95 make it a strong candidate for inclusion in any portfolio of blue-chip stocks with low P/E ratios. The company’s ability to navigate short-term operational challenges while maintaining a focus on long-term growth reinforces its standing as a top-tier investment option in the energy sector.
06. Alibaba Group Holding Limited (NYSE:BABA)
Forward Price to Earnings (P/E) ratio: 11.63
Number of Hedge Fund Holders: 91
Alibaba Group Holding Limited (NYSE:BABA) is one of the largest e-commerce and technology conglomerates in the world, making it a prime candidate for inclusion among blue-chip stocks with low price-to-earnings (PE) ratios. As of October 11, 2024, Alibaba Group Holding Limited (NYSE:BABA) boasts a forward PE ratio of 11.63, a highly attractive figure for investors seeking undervalued opportunities within the tech sector. Despite missing earnings expectations in its Q1 2025 earnings report, the company’s long-term fundamentals suggest resilience and potential for future growth.
In the June quarter of 2024, Alibaba Group Holding Limited (NYSE:BABA) reported a revenue increase of 4% year-over-year, reaching RMB 243.2 billion, driven primarily by its domestic commerce and international segments. The company’s adjusted EBITDA, though down 1%, would have shown growth if not for changes in employee compensation structures. With a non-GAAP net income of RMB 40.7 billion and a strong cash position of RMB 405.7 billion, Alibaba’s financial health remains robust. Its free cash flow, while decreasing year-over-year, still stood at RMB 17.4 billion, showcasing the company’s ability to generate significant liquidity even in a challenging macroeconomic environment.
Key growth areas for Alibaba Group Holding Limited (NYSE:BABA) include its cloud computing and artificial intelligence (AI) divisions. Alibaba Cloud, excluding its consolidated subsidiaries, returned to positive growth, with AI-related product revenues seeing triple-digit growth. This indicates Alibaba’s potential to further penetrate the AI and cloud markets, leveraging its existing infrastructure to capitalize on growing demand for these services.
Moreover, the company is executing a well-rounded strategy of increasing operational efficiency and monetization across its various segments, including e-commerce, cloud, and digital commerce. Its international business, particularly Alibaba International Digital Commerce (AIDC), reported 32% revenue growth in the quarter, with cross-border e-commerce continuing to drive strong order growth.
In conclusion, Alibaba Group Holding Limited (NYSE:BABA) low forward PE ratio, combined with its strong presence in e-commerce, cloud, and AI, positions the company as an undervalued blue-chip stock with substantial growth potential. Its solid cash reserves and forward-looking strategy further reinforce its status as a stable investment for value-oriented investors.
Oakmark International Fund stated the following regarding Alibaba Group Holding Limited (NYSE:BABA) in its Q3 2024 investor letter:
“Alibaba Group Holding Limited (NYSE:BABA) was the top contributor during the quarter. The China-headquartered consumer discretionary company’s stock price rallied following the announcement of a multipronged stimulus package by the Chinese government. Despite the stock’s strong performance for the quarter, we continue to believe there is upside in the name and that the market is not fully pricing in the turnaround potential for the e-commerce business or other optionality the company possesses.”
05. Bank of America Corporation (NYSE:BAC)
Forward Price to Earnings (P/E) ratio: 11.57
Number of Hedge Fund Holders: 92
Bank of America Corporation (NYSE:BAC) is a leading financial institution and stands out as a blue-chip stock with a low price-to-earnings (P/E) ratio. As of October 11, 2024, its forward P/E ratio is an attractive 11.57, making it an excellent candidate for value investors seeking established companies with strong fundamentals. With a diverse portfolio and steady growth, Bank of America Corporation (NYSE:BAC) continues to be a reliable choice in the financial sector, particularly for those looking for blue-chip stocks that offer both stability and growth potential at a relatively low valuation.
In its Q2 2024 earnings call, Bank of America Corporation (NYSE:BAC) exceeded expectations, reporting earnings per share (EPS) of $0.83 compared to the anticipated $0.797. The company’s net income for the quarter was $6.9 billion, showcasing the strength of its diversified operations. A balanced revenue split between its consumer and institutional businesses highlights the firm’s ability to navigate changing economic conditions effectively.
One of the standout aspects of Bank of America Corporation (NYSE:BAC) performance was the growth in non-interest income, which helped offset a slight decline in net interest income (NII). Notably, the bank’s wealth management business saw a 14% increase in asset management fees, and investment banking fees surged by 29% year-over-year. Additionally, the Global Markets division achieved its ninth consecutive quarter of year-over-year growth in sales and trading revenue, further contributing to the firm’s strong fee performance.
The bank’s focus on operational efficiency is evident from its 2% year-over-year expense growth, well below inflation rates. This operational discipline, combined with strategic investments in digital innovation and wealth management, positions the company for sustained growth. Bank of America Corporation (NYSE:BAC) also demonstrated its commitment to shareholder value by repurchasing $3.5 billion in shares and paying out $1.9 billion in dividends during the quarter.
With a robust CET1 ratio of 11.9%, Bank of America is well-capitalized, giving it flexibility to continue returning capital to shareholders and supporting future growth. This strong financial foundation, combined with its low forward P/E ratio, makes Bank of America Corporation (NYSE:BAC) an appealing blue-chip stock for value-oriented investors.
04. Wells Fargo & Company (NYSE:WFC)
Forward Price to Earnings (P/E) ratio: 11.33
Number of Hedge Fund Holders: 83
Wells Fargo & Company (NYSE:WFC), one of the largest U.S. financial institutions, has consistently maintained a solid reputation as a blue-chip stock, making it a valuable inclusion in a portfolio focused on stability and long-term growth. As of October 11, 2024, the company’s forward price-to-earnings (P/E) ratio stands at an attractive 11.33, placing it among the blue-chip stocks with low P/E ratios. This makes it a compelling investment for value-seeking investors, particularly in an era where many financial stocks face heightened volatility.
In its Q2 2024 earnings, Wells Fargo & Company (NYSE:WFC) delivered strong financial results, beating expectations with an earnings per share (EPS) of $1.33 against an anticipated $1.29. Net income for the quarter totaled $4.9 billion, demonstrating the firm’s ability to generate substantial profits even in a challenging economic landscape. While net interest income declined by 9% year-over-year due to higher funding costs and lower deposit balances, the company offset these declines with robust fee-based revenue growth. This growth was particularly driven by gains in investment advisory, trading activities, and investment banking, highlighting Wells Fargo & Company (NYSE:WFC) diversified income streams.
Additionally, Wells Fargo & Company (NYSE:WFC) has made significant strides in cost management, driving efficiency through headcount reductions for 16 consecutive quarters. Its strategic initiatives, including launching new credit card offerings and expanding its corporate investment banking, position the company for future growth. Credit card spend and new account growth have remained strong, bolstering expectations for profitability as the portfolio matures.
From a financial perspective, the company continues to demonstrate strength. Average deposits grew $4.9 billion in Q2 2024, driven by growth in customer-facing businesses. Moreover, the company is maintaining a strong capital position, enabling it to return value to shareholders. Wells Fargo announced plans to increase its dividend by 14% and repurchased over $12 billion in common stock during the first half of the year, signaling confidence in its financial health.
In summary, Wells Fargo & Company (NYSE:WFC) forward-looking strategies, combined with its solid fundamentals and low forward P/E ratio, make it an attractive choice for investors seeking exposure to blue-chip stocks with growth potential.
03. Merck & Co., Inc. (NYSE:MRK)
Forward Price to Earnings (P/E) ratio: 11.19
Number of Hedge Fund Holders: 96
Merck & Co., Inc. (NYSE:MRK) operates as a healthcare company worldwide. It operates through two segments, Pharmaceutical and Animal Health. Merck & Co., Inc. (NYSE:MRK) is a strong candidate for inclusion in blue-chip stocks with low price-to-earnings (PE) ratios, sporting a forward PE ratio of 11.19 as of October 11, 2024. This pharmaceutical giant has consistently demonstrated robust financial performance and innovation, as reflected in its Q2 2024 earnings report, where the company exceeded earnings expectations with an EPS of $2.28, surpassing the anticipated $2.17.
One of Merck & Co., Inc. (NYSE:MRK) standout strengths lies in its diversified portfolio, including a significant presence in oncology, vaccines, and animal health. In Q2, the company generated total revenues of $16.1 billion, a 7% year-over-year increase, with its human health segment seeing 11% growth. This performance was primarily driven by the continued success of its blockbuster cancer drug, KEYTRUDA, which saw sales rise by 21% to $7.3 billion. KEYTRUDA’s growth was fueled by increased adoption in both earlier-stage and metastatic cancer treatments, solidifying Merck’s leadership in the oncology space.
In addition to its oncology portfolio, Merck’s vaccine division continues to perform well, with GARDASIL generating $2.5 billion in sales during the quarter. The company’s recent FDA approval for CAPVAXIVE, a pneumococcal vaccine designed for adults, further strengthens its position in the vaccine market and opens up new revenue streams. Merck & Co., Inc. (NYSE:MRK) recent acquisition of EyeBio also positions it as a future leader in ophthalmology, targeting retinal diseases—an area of unmet medical need.
The company’s animal health segment showed a solid performance with a 6% increase in sales, underpinned by growth in livestock products. Merck & Co., Inc. (NYSE:MRK) recent acquisition of Elanco’s aqua business has expanded its footprint in this sector.
From a financial standpoint, Merck & Co., Inc. (NYSE:MRK) gross margin improved to 80.9%, reflecting strong operational efficiency and favorable product mix. The company raised its full-year revenue guidance to a range of $63.4 to $64.4 billion, signaling continued growth potential. With a strong pipeline, disciplined investments, and robust earnings growth, Merck & Co., Inc. (NYSE:MRK) remains an attractive investment option for those seeking blue-chip stocks with low PE ratios.
Oakmark Equity and Income Fund stated the following regarding Merck & Co., Inc. (NYSE:MRK) in its Q3 2024 investor letter:
“Merck & Co., Inc. (NYSE:MRK) is a global pharmaceutical firm with leading oncology, vaccine and animal health franchises. Premier products in Merck’s portfolio include Keytruda, Gardasil, Winrevair and Bravecto. Outsized contributor Keytruda is an immuno-oncology drug that treats several cancers and tumors. Keytruda is an astounding clinical and commercial success that is on track to become one of the best-selling prescription drugs to date. Investor angst surrounding Keytruda’s pending U.S. patent expiration in 2028 presented a chance to buy shares at a discounted valuation. We believe opportunities to extend Keytruda’s duration through life cycle management are underappreciated. More importantly, discounted cash flows from products already on market cover today’s entire stock price, meaning there is minimal value ascribed to a promising pipeline with strong sales potential. We believe Merck is led by a capable management team that looks to reinvest these cash flows in an accretive manner.”
02. Shell plc (NYSE:SHEL)
Forward Price to Earnings (P/E) ratio: 8.83
Number of Hedge Fund Holders: 49
Shell plc (NYSE:SHEL) is a prominent name in the energy industry, known for its global presence in oil, gas, and renewable energy. As of October 11, 2024, the company boasts a forward price-to-earnings (P/E) ratio of 8.83, making it an attractive blue-chip stock with a low P/E ratio. This low valuation presents a compelling opportunity for value-focused investors, especially when considering the company’s strong financial performance and commitment to capital discipline.
In Q2 2024, Shell plc (NYSE:SHEL) exceeded earnings expectations, reporting an EPS of $1.97, surpassing analysts’ estimates of $1.82. This impressive result was driven by a robust performance across various segments, particularly in Integrated Gas and Upstream operations. Shell plc (NYSE:SHEL) adjusted earnings for the quarter were $6.3 billion, and it generated $13.5 billion in cash flow from operations, underscoring the company’s ability to generate significant cash even amid challenging market conditions.
Shell plc (NYSE:SHEL) strategic investments in liquefied natural gas (LNG) and upstream projects, such as the ADNOC Ruwais LNG project and new ventures in the Gulf of Mexico and Brazil, are expected to drive future growth. These initiatives will add substantial volumes to its LNG portfolio, enhancing its position as a global leader in the LNG market. Furthermore, Shell’s focus on operational efficiency is evident in its continued progress on cost-cutting measures, having already delivered $1.7 billion out of the targeted $2-3 billion in structural operating expense reductions.
The company’s strong balance sheet and shareholder returns strategy are additional points of appeal. In Q2 2024, Shell announced a $3.5 billion share buyback program, marking the 11th consecutive quarter of returning over $3 billion to shareholders. This consistent commitment to buybacks and dividends showcases Shell’s dedication to delivering value to its investors.
In summary, Shell plc (NYSE:SHEL) solid financials, strategic growth initiatives, and low P/E ratio make it a top choice for investors looking for blue-chip stocks with strong fundamentals and long-term growth potential.
01. Toyota Motor Corporation (NYSE:TM)
Forward Price to Earnings (P/E) ratio: 7.61
Number of Hedge Fund Holders: 14
Toyota Motor Corporation (NYSE:TM) designs, manufactures, assembles, and sells passenger vehicles, minivans and commercial vehicles, and related parts and accessories in Japan, North America, Europe, Asia, Central and South America, Oceania, Africa, and the Middle East. It operates through Automotive, Financial Services, and All Other segments. The company was founded in 1933 and is headquartered in Toyota, Japan. Toyota Motor Corporation (NYSE:TM), one of the largest automakers globally, is a prominent blue-chip stock known for its reliable performance, and currently, it boasts a forward P/E ratio of 7.61 as of October 11, making it an attractive investment for value-seeking investors. This low P/E ratio highlights Toyota Motor Corporation (NYSE:TM) strong earnings potential relative to its stock price, a critical consideration for those looking to invest in high-quality companies at a discount.
Despite facing a slight decline in U.S. sales in July 2024, with a -5.1% decrease in total units sold compared to July 2023, Toyota Motor Corporation (NYSE:TM) luxury Lexus division saw an impressive 16.1% increase in sales. This performance highlights Toyota’s ability to navigate market challenges while maintaining strength in key segments. Additionally, the U.S. automobile SAAR for July 2024 reached 15.8 million units, reflecting resilience in the broader automotive market.
Toyota Motor Corporation (NYSE:TM) financial metrics further strengthen its investment appeal. The company reported consolidated net income of $357 million for Q1 FY2025, slightly down from $392 million in the same period the previous year. This reduction was largely due to a $544 million rise in interest expenses, offset by gains in total financing revenues, which grew by $305 million. Additionally, Toyota experienced lower depreciation on operating leases and an increase in investment income. The company’s ability to generate solid revenues while managing expenses highlights its operational efficiency.
Toyota Motor Credit Corporation (TMCC), a subsidiary responsible for financing, also posted noteworthy results. The increase in financing revenues reflects strong demand for Toyota vehicles, despite a rise in credit losses due to economic conditions. This emphasizes Toyota’s ability to maintain financial stability through diversified revenue streams.
With a debt-to-equity ratio of 7.0x, up from 6.6x in the previous year, Toyota Motor Corporation (NYSE:TM) demonstrates sound financial management, using debt strategically to fuel growth. As a blue-chip stock with a low forward PE ratio and a robust financial foundation, Toyota Motor Corporation (NYSE:TM) remains a compelling choice for long-term investors looking for value and stability in the automotive sector.
While we acknowledge the potential of TM to grow, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than TM but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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