Strong fundamentals, steady growth and robust cash flow transparency make these ideas attractive
The goal of generating healthy returns in a short period of time is generally achieved by investing in growth stocks. However, there are also occasions when blue-chip stocks can soar from undervalued levels. The benefit is that investors can have a low-beta portfolio that delivers returns that can potentially rival those of a high-beta portfolio. The focus of this column is on blue-chip stocks that are likely to double in value within the next 24 months.
It’s not uncommon for blue-chip stocks to trade at a valuation gap. This may be due to industry headwinds or temporary growth concerns. However, it’s always a good buying opportunity if the company has strong fundamentals and robust cash flow visibility. The comeback from oversold levels can be quick and rewarding for an investor.
I have focused on blue-chip stocks that are likely to benefit from upcoming rate cuts and are undervalued. With expansionary policy, these stock ideas can rise sharply within the next 12 to 24 months.
Barrick Gold (GOLD)
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While the price of gold was on an upward trend, Barrick Gold (NYSE:GOLD) shares have been trading sideways over the past 12 months. I expect a rally for this blue-chip gold miner as the precious metal remains on an uptrend. My view is underscored by the fact that GOLD stock is trading at an attractive P/E ratio of 14.3.
Given the possibility of multiple rate cuts, Citi believes gold is likely to trade at $3,000 per ounce over the next 6 to 18 months. If that target is met, Barrick Gold is positioned for healthy revenue and cash flow growth. In addition, robust dividend growth is likely for a stock that already has a 2.3% dividend yield.
It is worth noting that Barrick Gold has reported operating cash flow of $760 million for the first quarter of 2024. Given the likelihood of higher realized prices, the annual OCF potential is in the range of $4-5 billion. This gives Barrick high flexibility for aggressive exploration investments.
Valley (VALE)
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If I had to pick a stock for an industrial commodity, I would consider the following: valley (NYSE:VALLEY) from a valuation perspective. The blue-chip stock has seen a sharp downturn, but the sell-off is overdone and the company continues to deliver healthy numbers.
It is worth noting that macroeconomic challenges have affected sentiment for industrial commodities, but with interest rate cuts looming and the possibility of fiscal stimulus in many countries, I expect commodities to move higher.
For the second quarter of 2024, Vale reported a steady increase in iron ore production and sales. The raw materials giant also has projects underway to increase capacity by 50 million tons by 2026. At the same time, copper and nickel production diversifies the company’s asset portfolio.
Despite relatively low commodity prices, Vale reported adjusted EBITDA of $4 billion for the second quarter of 2024. If commodity trends pick up and production targets are met, Vale is likely to report EBITDA in excess of $20 billion. This would mean healthy operating and free cash flows for dividends as well as capital investments.
Target Corporation (TGT)
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Among the blue-chip stocks in retail Target company (NYSE:TGT) seems undervalued with a P/E ratio of 14.5. While Walmart (NYSE:WMT) shares are up 30% year to date, while TGT shares are down 5%.
However, I believe a strong turnaround is coming and the stock will rise sharply over the next 12 to 24 months. It’s worth noting that consumer spending is likely to increase with interest rate cuts on the horizon, which is one reason to be optimistic about Target.
In addition, the retailer has forecast better numbers for the coming quarters. For the first quarter of 2024, Target reported a comparable sales decline of 3.7%. For the full year, however, the company forecasts a 0-2% increase in comparable sales.
At the same time, operational efficiency is a key focus, which is likely to be reflected in an improvement in the EBITDA margin. The launch of new products for the company’s own brand should also contribute to an improvement in margins.
At the time of publication, Faisal Humayun did not hold (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s disclosure policies.
At the time of publication, the responsible editor had neither directly nor
indirectly) positions in the securities mentioned in this article.
