Oct 07, 2018
Those of you who invest with me know that I love uncovering the next big thing – the stocks that are virtually unknown today but have the potential to grow into the next Facebook (FB), Amazon (AMZN) and Alphabet (GOOGL). It takes a lot of work and requires a lot of patience, but in the end it is extremely rewarding.
While discovering tomorrow’s winners is my passion, I never ignore the companies that are already at the forefront of their industries yet still have plenty of upside ahead. And that’s what I want to talk about today. My research has led me to five blue-chip stocks trading at very attractive levels right now.
1. Caterpillar (CAT)
Caterpillar is one of the largest construction and mining equipment manufacturers in the world, and it typically trades on two factors – the economic strength of the U.S. and the growth in China’s economy. The former is strong with the ISM Index having hit its highest level since 2004 recently. Combine that with my belief that the China trade situation will be resolved soon and this stock could be setting up for a breakout.
Fundamentally, CAT trades with a forward P/E ratio of 12 and PEG ratio of 0.5. Both metrics suggest the stock is very undervalued. That’s attractive in and of itself, but when you take into account that it also pays a 2.25% dividend, this is a name definitely worth keeping on your radar.
2. Boston Scientific (BSX)
One of the most overlooked $54 billion companies in the market is medical devices maker Boston Scientific, which is enjoying a great year. And it’s backed by solid earnings growth – the bottom line is anticipated to grow double digits both this year and next.
But what really fuels my optimism here is the diverse mix of products the company offers and its continued expansion into new areas.
The stock is trading at its best level since 2004 and is poised to test its all-time high of $46.10, which gives it another 20% of potential upside. As a result, I would consider BSX a core healthcare holding.
3. CSX Corporation (CSX)
CSX is one of the major railroad operators in North America, and it is enjoying the benefits of the strong economy. Similar to Caterpillar, when the economy does well, so do the rails as higher demand for goods creates more demand for rail traffic.
After a few rough years financially, CSX turned around in 2017 and the future looks very promising. The stock is currently trading with a PEG ratio of 1 and its earnings are steadily increasing, so I view it as a good buy on any pullbacks as a proxy for the U.S. economy.
4. United Continental Holdings (UAL)
Most of the airline sector is boasting attractive valuations right now, and UAL stands out as it has shown great relative strength versus its peers this year. With a forward P/E ratio of 8.8, a PEG ratio of 0.57 and a price-to-sales ratio of 0.6, this stock should not be ignored.
The one factor that could slow UAL’s rally is oil prices. With oil nearing $80 a barrel, it could have a short-term negative effect on the airline sector as a whole. However, I believe prices will be capped at $80, and therefore the stock should be considered a buy at current levels.
5. American Express (AXP)
American Express has put together a solid year so far and rallied to hit an all-time high in September. However, it has fallen under the radar as this credit card company is often ignored for its competitors Visa (V) and Mastercard (MA).
From a fundamental perspective, everyone should be watching this company. The stock boasts a forward P/E ratio of 13.5 and a PEG ratio of 1.26, which makes it an interesting buy candidate. As long as employment remains robust and wages are increasing, credit card companies like AXP should continue to flourish.
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