In this article, we will look at the 7 Cheap Blue Chip Stocks to Invest in Now.
Should Investors Revisit the Idea of the S&P 500 Being a Low-Risk Investment?
The technology sector has been the highlight of the stock market. On September 23, Reuters reported that hedge funds bought US tech and media stocks at the fastest pace in the last 3 months, last week.
With the interest rates falling, industrial spending is expected to revive as the companies can now borrow at lower costs and upgrade their technology and other related products. These high borrowing trends within the businesses are expected to boost the earnings of the tech companies further.
However, as far as the consumer sentiment towards borrowing is concerned, it seems that the market demands more rate cuts before it starts borrowing. We discussed how the borrowing trends are expected to perform in 7 Cheap Beginner Stocks to Invest In. Here’s an excerpt from the article:
“The Federal Reserve has approved the interest rate cut of 50 basis points, which at least for the time being is turning out to be good for the stock market. The interest rate cut also means that businesses and consumers have received immediate relief, but is the public ready yet to jump out of their high inflation rate mindset?
According to a recent report by Reuters, even before the Fed announced a rate cut the financial markets had already begun making credit cheaper for consumers and businesses. Mortgage rates were slightly down, corporate bond yields were also cut, and day-to-day personal and auto loans were also eased. For instance, the average rate a person had to pay for a 30-year fixed home mortgage is 6% after decreasing 2 percentage points from a year ago. Moreover, as per Redfin, a real estate firm, the average median price of houses sold in the middle of September was $3,000 less than the all-time high prices in April and represented a 3% decrease year-over-year. A recent survey shows that while inflation has come down significantly during recent times, the public mood is still distracted due to the past two years of high inflation.”
Turning back to how investors might revisit their idea of S&P being a low-risk investment. This idea was pitched by Bill Nygren, the Chief Investment Officer at Oakmark Funds in a recent CNBC interview. His approach reflects a strategic shift as to how investors might view the S&P 500 and mega-cap stocks in the current market situation. He pointed out that while the index has traditionally been viewed as a diversified index, in reality, it is just a bet on a few large technology companies. Currently, around half of the S&P 500 is dominated by some 25 large tech names, which essentially diminishes its original diversification.
Bill Nygren, emphasized the importance of having a more diversified portfolio beyond just mega-cap stocks. He believes that diversification of the portfolio provides better risk-adjusted returns compared to relying solely on a few big companies. We have also discussed Matt Stucky, Northwestern Mutual Wealth Management’s chief equities portfolio manager, talking about a similar strategy in 13 Most Undervalued Blue Chip Stocks To Buy According To Analysts.
The investment strategy that Nygren is vouching for suggests that the current market scenario where investors are favoring positive momentum stocks can lead to missed opportunities in other undervalued sectors such as financials and energy. He believes that the potential lucrativeness of the Tech sector has overcrowded the space creating opportunity in other sectors.
Let’s now look at the 7 cheap blue-chip stocks to invest in now.
A portfolio manager at their work station, examining stock graphs of large-cap stocks.
Our Methodology
To curate the list of 7 cheap blue-chip stocks to invest in now, we used our previous articles, the Finviz screener, and ETFs. From an aggregated list of 20 blue chip stocks, we selected companies that were cheap, i.e. they were trading below a forward P/E of 23.98 (market average as per Wall Street Journal). Lastly, we ranked the cheap blue chip stocks in ascending order of the number of hedge fund holders, as of Q2 2024.
Why do we care about what hedge funds do? 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).
7 Cheap Blue Chip Stocks to Invest in Now
7. Comcast Corporation (NASDAQ:CMCSA)
Forward P/E Ratio: 9.57
Earnings Growth This Year: 5.50%
Number of Hedge Fund Holders: 61
If you are considering investing in a company that runs the media and television industry, you might want to add Comcast Corporation (NASDAQ:CMCSA) to your watchlist.
It is one of the biggest media and internet providers in the United States with operations internationally. It provides broadband and wireless connectivity services, video streaming services, and content creation and distribution services through renowned brands such as NBC, Telemundo, Universal Pictures, and Peacock. The company also operates various theme parks in the country providing entertainment for visitors.
With the traditional television broadcast services going out of trend it seemed the business of Comcast Corporation (NASDAQ:CMCSA) might be in trouble. However, its diversified mix of revenue streams is resulting in the company performing above analyst expectations.
In the second quarter of 2024, revenue declined 2.7% year-over-year, mainly due to the tough comparison with a strong quarter last year when a major film was released. Regardless, the company still exceeded analyst EPS expectations by 9%.
Internet Connectivity & Platforms remains one of the key segments for Comcast Corporation (NASDAQ:CMCSA). During the latest quarter, it added more than 322,000 wireless lines with a 12% penetration rate of domestic residential broadband customers. Overall, the company has more than 32 million broadband customers reinforcing its market leading position in the industry.
In addition, the management has remained focused on maintaining a healthy average revenue per user. During the second quarter, Comcast Corporation (NASDAQ:CMCSA) was able to maintain a good ARPU growth rate of 3.6%, which is within its historic range of 3% to 4%.
The stock is also trading at a 28% discount to its sector, with earnings expected to grow by around 6% during the year to reach $4.2. Thereby making it a cheap blue chip stock to invest in now.
ClearBridge Large Cap Value Strategy made the following comment about Comcast Corporation (NASDAQ:CMCSA) in its Q3 2023 investor letter:
“Long-term holdings Charter and Comcast Corporation (NASDAQ:CMCSA) delivered strong second-quarter results relative to expectations; their stable recurring revenue streams and undemanding valuations were rewarded in the current environment. Cable multiples compressed over the past 24 months on fears of heightened competition in their core broadband business from fixed wireless and fiber providers. While fiber remains a competitive alternative to cable broadband over the long term, high upfront investments and a materially higher cost of capital are resulting in slower buildouts than previously expected. Fixed wireless also continues to gain traction, particularly in rural markets, but share gains also appear to be moderating. At the same time, both Comcast and Charter are expanding their footprints into rural and adjacent markets while gaining wireless market share, leveraging their mobile virtual network operator agreements with Verizon. We think both cable companies are well-positioned to continue to grow while generating substantial free cash flows. We added to Comcast during the quarter.”
6. The Cigna Group (NYSE:CI)
Forward P/E Ratio: 12.49
Earnings Growth This Year: 13.60%
Number of Hedge Fund Holders: 66
The Cigna Group (NYSE:CI) is a leading global health insurance company that focuses on improving healthcare through two main branches: Evernorth Health Services and Cigna Healthcare. The Evernorth Health Services which contributes around 60% to the overall earnings of the company engages in insurances related to Pharmacy Benefits, Specialty Pharmacy, and Care Delivery and Management Solutions.
On the other hand, Cigna Healthcare which accounts for almost 40% of the earnings deals in medical insurance, Behavioral Health Services, Dental and Vision Insurance, and International Coverage. Overall, offers complete health care packages for individuals and businesses.
The fact that Cigna Group (NYSE:CI) has grown its adjusted EPS by more than 13% during the past 10 years, topped with its huge market capitalization of $99.2 billion and cheap valuation makes it a cheap blue chip stock to invest in now.
The company’s Evernorth Health Services has been leading the financial charts. During the second quarter of 2024, overall revenue for the segment was up 30% year-over-year. The robust revenue growth was on the back of its Pharmacy Benefit Services and Specialty and Care Services business outperforming the market. The segments grew their revenue by 41% and 18%, respectively adding around 7% adjusted income to the books.
Moreover, its Cigna Healthcare segment is also gaining more traction driven by growth in the company’s US employer select and middle market segments. The segment which contributes around 40% to the earnings ended the quarter with more than $13 billion in revenues up 3% year-over-year.
This robust growth portfolio stemming from strong performance across the board has uplifted management’s expectations for the company. Cigna Group (NYSE:CI) now expects revenue of at least $235 billion for 2024. Moreover, the stock was held by 66 hedge funds in Q2 2024, with total stakes worth $2.8 billion.
Here is what Davis New York Venture Fund has to say about The Cigna Group (NYSE:CI) in its Q3 2023 investor letter:
“In the attractive healthcare sector, we look beyond the obvious to identify businesses that simultaneously have exposure to this growth industry and also trade at low prices. We’re especially drawn to companies like Cigna Group, whose products or services play a part in helping to mitigate healthcare’s constantly rising costs. The healthcare industry has been a growing part of the U.S. economy for decades. As a result, many companies in this sector trade at high valuations reflecting their robust but well-known reputation for growth. For value-conscious investors like us, investing in healthcare requires looking beyond the obvious to identify businesses that have exposure to this growth industry but which trade at low prices. Furthermore, recognizing that the constantly rising cost of healthcare cannot go on forever, we have been particularly drawn to companies whose products or services play some role in managing or reducing the cost of care. As a result, we have positions in Cigna Group, a well-regarded provider of managed care.
5. The Goldman Sachs Group, Inc. (NYSE:GS)
Forward P/E Ratio: 13.47
Earnings Growth This Year: 60.40%
Number of Hedge Fund Holders: 68
The Goldman Sachs Group, Inc. (NYSE:GS) is one of the leading investment banks in the United States of America. It operates through the following business segments Global Banking and Markets, Asset and Wealth Management, and Platform Solutions.
The bank is a leader when it comes to equity, mergers, and acquisitions advising, debt underwriting, and wealth management. It also has a huge trading desk and lends and manages trillions of dollars for corporate giants.
It is also one of the cheap blue chip stocks to invest in now as it is trading at only 13 times its forward earnings with analysts expecting its earnings to grow more than 60% during the year.
The Goldman Sachs Group, Inc. (NYSE:GS) is a blue chip stock for a reason, the first being its huge market capitalization of more than $157 billion. The other reason is its strategic moat of being profitable during some of the toughest conditions. During the 2008 and 2009 market crash when other companies were struggling to keep their heads out of water, The Goldman Sachs Group, Inc. (NYSE:GS) had one of its best years ever in terms of profitability. Its revenue was close to being an all-time high whereas it maintained a 22.5% return on equity during the recession years.
Speaking of the present times, the second quarter earnings release highlighted continued revenue and net income growth for the bank. It generated more than $12.7 billion in revenue, a 17% increase year-over-year. Whereas, its net earnings skyrocketed 150% during the same time to reach $3.04 billion.
Management is focused on improving the overall returns of the company and to do this it is reducing its headcount and diminishing focus on consumer banking. The stock has remained popular amongst institutional holders. It was held by 68 hedge funds in Q2 2024, with total stakes worth $5.48 billion.
Ariel Appreciation Fund stated the following regarding The Goldman Sachs Group, Inc. (NYSE:GS) in its Q2 2024 investor letter:
“Shares of global investment bank, The Goldman Sachs Group, Inc. (NYSE:GS), also rose in the period following solid earnings results, highlighted by strength in fixed income, currencies 1 Sindreu, Jon. “The Second Quarter Split the Market.” The Wall Street Journal, July 1, 2024, p. B9. and commodities (FICC) as well as equities trading and better-than-expected investment banking fees. Meanwhile, GS continues to successfully execute on its strategic initiatives to improve the overall return of the company. It is right sizing headcount and narrowing its ambitions in consumer strategy through divestitures and working to improve profitability in Platform Solutions by 2025. With the possibility of increased capital requirements from its regulators, GS plans to reign in buybacks over the short-term but maintain its dividend. Looking ahead, we continue to view the near and long-term outlook for Goldman as attractive, given favorable business trends, continued positive momentum on strategic initiatives and active expense/capital management programs.”
4. Elevance Health, Inc. (NYSE:ELV)
Forward P/E Ratio: 14.49
Earnings Growth This Year: 12.40%
Number of Hedge Fund Holders: 73
Elevance Health, Inc. (NYSE:ELV) is a health insurance company in the United States. The company operates through its subsidiaries and manages Blue Cross and Blue Shield plans in 14 states with licenses to sell health insurance throughout the country. It offers various health plans for corporate groups and individuals including employer-sponsored plans, Medicare, and Medicaid.
The strategic moat of the company originates from its healthy mix of revenue streams and unique growth drivers such as Pharmacy Benefit Management (PBM) and Specialty pharmacies. Moreover, Elevance Health, Inc.’s (NYSE:ELV) Health Benefit segment which comprises Anthem and Wellpoint reached approximately 46 million members contributing more than $13.3 billion during the second quarter of 2024.
The second quarter earnings demonstrate the company’s ability to generate revenue from its product mix. The overall operating revenue of the company grew 2.2% year-over-year to reach $37.2 billion, with operating margins improving 20 base points during the same time.
Looking ahead, management remains focused on optimizing its Health Benefits program further to attain its pre-pandemic margins back. The reaffirmed adjusted diluted EPS of at least $37.2 reflects a 12% gain over the previous year.
It is one of the cheap blue chip stocks to invest in now. ELV is trading at 14 times its forward earnings with analysts expecting its earnings to grow by 12% during the year.
Artisan Select Equity Fund stated the following regarding Elevance Health, Inc. (NYSE:ELV) in its Q2 2024 investor letter:
“The top contributors to performance for the quarter were Alphabet, Lam Research and Elevance Health, Inc. (NYSE:ELV). Elevance shares rose 5% during the quarter. The business has been performing well and has delivered good profit growth this year, despite a flat top line. It has largely navigated the challenges related to Medicaid redeterminations, which have caused temporary volatility in membership and health care utilization levels. Its vertical integration strategy is gaining traction, with strong revenue and profit growth at its Carelon Services business. Elevance’s shares are trading at 13X earnings, which is a very attractive investment proposition for a durable business that expects long-term earnings growth of over 12%.”
3. Apollo Global Management, Inc. (NYSE:APO)
Forward P/E Ratio: 17.75
Earnings Growth This Year: 4.30%
Number of Hedge Fund Holders: 79
Apollo Global Management, Inc. (NYSE: APO) is another cheap blue chip stock to invest in now. It is a prominent financial company that specializes in managing investments and providing retirement services. Asset management is one of its key businesses, it invests money on behalf of clients and generates returns through Yields, Equity, and other strategies.
The company also engages in Retirement services through its subsidiary called Athene Holding Ltd, where it offers products such as Annuities and Funding agreements. For years the main source of growth for the company has been its investment grade credit.
During the fiscal first quarter of 2024, the company reached record assets under management of $671 billion, with total inflows reaching $140 billion. Investors and analysts like the double revenue mix of Apollo Global Management, Inc. (NYSE:APO) which originates from its role as an asset manager and annuity provider.
The second quarter of 2024 was driven by record fee-related earnings of $516 million, resulting in total revenues of more than $6 billion. The fee-related performance was up almost 50% year-over-year driven by the wealth-focused products of the company.
Apollo Global Management, Inc. (NYSE: APO) invests on behalf of other clients and these clients are usually large organizations attached to top industries. Therefore, growth in infrastructure and energy transition-related industries is expected to boost the investment income for the company over the next decade.
AP was held by 79 hedge funds in Q2 2024, with total stakes worth $5.80 billion.
Baron FinTech Fund stated the following regarding Apollo Global Management, Inc. (NYSE:APO) in its Q2 2024 investor letter:
“Strength in Tech-Enabled Financials was broad based, led by gains from alternative asset manager Apollo Global Management, Inc. (NYSE:APO) and specialty insurer Arch Capital Group Ltd. Apollo continues to benefit from disruptive trends in financial services, most notably the shift of retirement assets into higher-yielding private credit given the company’s dual role as an asset manager and an annuity provider.”
2. Johnson & Johnson (NYSE:JNJ)
Forward P/E Ratio: 16.42
Earnings Growth This Year: 1.10%
Number of Hedge Fund Holders: 80
Johnson & Johnson (NYSE:JNJ) is one the leaders when it comes to major healthcare companies. It mainly focuses on Innovative Medicine and MedTech and has developed treatments for various cancer, immune system disorders, brain-related, heart and lungs related diseases.
The company has numerous strategic advantages originating from its history of innovation and robust fundamentals to a diversified product portfolio. The company mentions that it has more than 25 products that contribute more than $1 billion in sales for the company. Moreover, Johnson & Johnson (NYSE:JNJ) generates most of its revenue from products that rank within the top two positions in their market category.
On top of this, the company is also undervalued with a forward price-to-earnings ratio of 16, a 25% discount to its sector, and earnings expected to grow by 1% during the year. Thereby making it one of the cheap blue chip stocks to invest in now.
If we look at the most recent quarter results, which is the fiscal second quarter of 2024, we see that Johnson & Johnson (NYSE:JNJ) has grown its international sales by 7.1% year-over-year. Whereas, its adjusted earnings per share has increased 10.2% during the same time.
The prospect of growth for the company is even brighter. Its psoriasis and ulcerative colitis drug Tremfya was recently approved by the FDA, indicating a strong addition to its product portfolio.
1. UnitedHealth Group Incorporated (NYSE:UNH)
Forward P/E Ratio: 20.76
Earnings Growth This Year: 19.70%
Number of Hedge Fund Holders: 114
UnitedHealth Group Incorporated (NYSE:UNH) is a leader when it comes to top healthcare insurance in the United States. It not only serves more than 75 million people worldwide through various insurance plans but has beaten the industry with its net margins.
The company has grown its revenue by more than 12% and net income by around 10% during the last decade and is the best cheap blue chip stock to invest in now. The core business of UnitedHealth Group Incorporated (NYSE:UNH) is concerned with offering a variety of health benefit plans designed to make healthcare more accessible to everyone. It has its strategic edge originating from another arm of business called Optum, which provides technology and data analytics services for healthcare and pharmaceutical companies.
In fact, during the second quarter of 2024, Optum led the company revenue to a $6 billion growth year-over-year. Growth for its UnitedHealthcare segment was not slow at all, consumers served under various plans grew to 2.3 million on a year-to-date basis.
For established businesses cash flows from operations are often a main source of income and so is the case for UnitedHealth Group Incorporated (NYSE:UNH). Its cash flow from operations was $6.7 billion during the quarter or in other words 1.5x the net income.
These robust financials topped with its cheap valuation make it a compelling investment opportunity. UNH is trading at 21 times forward earnings while the market average sits close to 24. Moreover, its earnings are also expected to grow by 20% to reach $27.71.
Invesco Growth and Income Fund stated the following regarding UnitedHealth Group Incorporated (NYSE:UNH) in its Q2 2024 investor letter:
“UnitedHealth Group Incorporated (NYSE:UNH): Like many managed care providers, United Health has come under pressure from rising medical costs and higher-than-expected utilization. The stock is currently undervalued based on our analysis. We view the company as a high-quality compounder with secular growth opportunities in the managed care segment. The US Presidential election may cause additional near-term uncertainty, but we believe United Health will be able to rebound once pricing and utilization issues normalize.”
While we acknowledge the potential of UnitedHealth Group Incorporated (NYSE:UNH) to grow, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for a promising AI stock that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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