- These seven large-cap stocks are undervalued, and are great long-term opportunities in today’s turbulent market.
- AutoZone (AZO): Shares in this auto parts retailer could show resilience despite inflation/recession concerns.
- Cleveland-Cliffs (CLF): The market may be underestimating how long boom times last for the steel industry.
- Dollar General (DG): The retailer could surprise with “less bad” results compared to its larger pers.
- Ford (F): No longer sporting an “EV premium,” now may be the time to enter a position in this automaker.
- Freeport McMoRan (FCX): Copper prices could stay elevated longer than expected, which will help FCX stock bounce back.
- Paramount Global (PARA): Buffett’s recent purchase of shares could change the market’s “on the fence” tune about this media conglomerate.
- Qualcomm (QCOM): A chip play with strong results/prospects, all while trading at a low valuation.
Stocks are teetering on the edge of a bear market. Investing strategists anticipate further declines. Stocks may have a ways to go before bottoming out. Yet while the headlines may suggest its high time to head for the hills, you may want to instead take advantage of opportunities that have emerged with some large-cap stocks.
Many stocks have deservingly moved lower. Rising interest rates and increased recession risk warrant their respective pullbacks. In the case of some stocks, however, the market has pushed them down to too low of a price. That’s not to say these names are about to bounce back, or that they have bottomed out in price.
But if you have a long time horizon, you may want to consider accumulating positions in these seven large-cap stocks. Trading at low valuations, each of them could perform well once today’s storms pass.
|DG||Dollar General Corporation||$187.60|
|F||Ford Motor Company||$12.50|
Large-Cap Stocks: AutoZone (AZO)
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More than doubling in price between early 2020 and now, at first you may think AutoZone (NYSE:AZO) is a stock with more room to fall. The auto parts retailer has seen a big increase in its earnings.
Largely, due to high car prices incentivizing motorists to keep their vehicles on the road longer, increasing aftermarket parts demand. Despite these strengths, it may seem like this boost to its business is temporary. After all, don’t inflation and a possible recession threaten its financial performance?
Not necessarily, as one Seeking Alpha commentator recently argued. The company’s high gross margins give it breathing room when it comes to inflation pressures. It’s also historically performed well during recessionary periods. Current market fears/uncertainties have pushed AZO stock to a low valuation. Right now, it trades for just 16.9x earnings. Consider it a buy after its recent slide below $2,000 per share.
Source: Pavel Kapysh / Shutterstock.com
If you think “old economy,” steel and iron ore company Cleveland-Cliffs (NYSE:CLF) is a name that should come to mind. Cleveland-Cliffs has been on a tear since late 2020. It even briefly became a meme stock during summer 2021.
This year, CLF stock has made wild moves. During February and March it zoomed higher, due to the supply shocks resulting from Russia’s invasion of Ukraine. More recently, it’s fallen back, as rising recession fears, along with China’s latest pandemic lockdowns, have heightened fears about a sharp drop in demand.
Although this sounds like bad news for Cleveland-Cliffs, these risks are more than accounted for in its current low valuation. Shares today trade for just 3.5x this year’s estimated earnings. With investors possibly underestimating how long the boom time will last for steel, this appears to be a beaten-down worth snapping up, after its latest dip in price.
Dollar General (DG)
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Following Target’s (NYSE:TGT) horrific earnings report on May 18, other discount retailer stocks plunged. Dollar General (NYSE:DG) was no exception. Shares in the discount chain fell by double-digits, as Target’s big quarterly earnings drop (due to rising costs) ratcheted up fears that other names in the sector would soon report similarly bad results.
That said, the market may be overestimating how much inflation will affect this particular retailer’s performance. Higher operating costs could be matched by increased traffic from inflation-pinched consumers. After the release of lackluster results from Target and Walmart (NYSE:WMT), all it may need to do is report “less bad” results in order to renew confidence in DG stock.
Trading for around 17.6x earnings, now may be a great opportunity to build a long-term position in Dollar General. Typically a recession-resistant stock, it could perform well from here.
Large-Cap Stocks: Ford (F)
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In hindsight, investors clearly became too excited about Ford’s (NYSE:F) electric vehicle catalysts. With its move to as much as $25.87 per share at the start of 2022, they were putting the cart before the horse, pricing-in too much of the automaker’s potential EV success.
Not to mention, bidding it up due to the then-high value of its stake in Rivian Automotive (NASDAQ:RIVN). Over the past few months, of course, this excitement has faded. Now, inflation and recession concerns outweigh its positives in the market’s view. Bad news for anyone who got into F stock near its multi-decade high.
Good news, however, if you haven’t bought it yet. Ford is no longer sporting an EV premium. Priced at a 6.6x earnings, reasonable for an automotive stock, downside risk may be minimal. All while the EV catalyst, while no longer priced-in, is still in motion.
Freeport McMoRan (FCX)
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Like other commodities stocks, copper mining giant Freeport McMoRan (NYSE:FCX) has surged and sank so far in 2022. Earlier this year, it zoomed due to the Russia-fueled run-up in copper prices. In the past month, it’s fallen by more than 27%, due to falling demand from China’s virus lockdowns.
That said, in recent days, copper prices have been bouncing back, as China’s lockdown starts to ease. More importantly, copper prices remain far above prior-year levels. As I discussed when talking about one of Freeport’s peers, Southern Copper (NYSE:SCCO), copper prices could stay high.
Strong demand from the EV industry (needing copper for EV batteries), coupled with limited supply, may keep copper above $4 per pound. This points to continued strong results, and in turn a rebound for FCX stock, which today trades for just 9.5x earnings, due to the expectation its earnings will drop next year.
Paramount Global (PARA)
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Paramount Global (NASDAQ:PARA), formerly ViacomCBS, just received a big boost, thanks to news of Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) buying a large stake in the media conglomerate. The company has made a big push to pivot from being an old-media (think cable TV) focused media company, to a streaming focused one.
While its subscription-based Paramount+ and ad-supported Pluto TV platforms have seen high growth, overall financial results have been mixed. Markets continue to wager that the company will not seamlessly move from linear TV to streaming without an impact to profitability.
That said, Buffett’s big bet could change the market’s tune. Further success with its streaming strategy could also push shares higher. On top of all this, there’s the possibility that Paramount is a takeover target. A big tech or big media rival could see buying it as an inexpensive way to acquire a content library.
Large-Cap Stocks: Qualcomm (QCOM)
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The tech sell-off has pushed mobile processor and chip maker Qualcomm (NASDAQ:QCOM) down nearly 30% year-to-date. Along with tech stocks falling out of favor, shares have dropped due to worries of an upcoming slowdown in demand for its mobile device components.
But as one sell-side analyst (Piper Sandler’s Harsh Kumar) recently pointed out, investors may be underestimating its growth potential in other areas. Namely, automotive and internet of things (IoT) chips. Furthermore, the analyst community continues to up its earnings forecast for QCOM stock in 2022 and 2023.
Other chip plays, still commanding premium valuation, may have room to fall. For example, Advanced Micro Devices (NASDAQ:AMD) or Nvidia (NASDAQ:NVDA). In contrast, Qualcomm is already at a bargain price. If you believe chip stocks will continue to deliver strong results, buying this name over either AMD or NVDA may be the best way to do it.
On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.