Cheap large-cap stocks are in for a boost sooner than you may have thought.
With recent economic data raising hopes of a “soft landing,” stocks have been trending higher in recent weeks. Yet while the current market perception may be that “the worst is over,” some analysts are arguing that it’s premature to say that a recovery has kicked off, or is imminent.
There are plenty of large-cap names that have performed well during the recent rally and are likely to perform well. The reasons for this are twofold. First, being “cheap,” or undervalued, stocks, these particular plays are less at risk of multiple compression, in the event of further sharp interest rate hikes from the Federal Reserve.
Second, many cheap large-cap stocks are either resistant to a continued downturn and/or are benefiting from secular growth trends. Consider adding them to your portfolio.
From early 2021 to early 2022, Ford (NYSE:F) shares were on a tear. During this timeframe, this “old school” automotive stock more than doubled in price, as the market became confident in its efforts to transform into primarily a maker of electric vehicles (or EVs).
Flash forward to now, and F stock has delivered a mixed performance. Shares have fallen around 39% so far this year, due to recession fears, as well as the cooling down in enthusiasm for EV plays.
However, even as Ford is contending with multiple headwinds at present, as its electrification efforts continue, the automaker’s long-term prospects remain very promising.
Shares are cheap at current levels, trading at 6.7 times earnings. With its EV catalyst still intact, this stock could continue to slowly (but steadily) continue its comeback. This makes F stock (which earns a B rating in Portfolio Grader) a great long-term buy.
Freeport-McMoRan (NYSE:FCX) is another of the cheap large-cap stocks beginning to recover. The copper miner’s shares have whipsawed throughout the year, in line with copper prices.
Boosted higher by the commodities rally sparked by Russia’s Ukraine invasion, FCX stock has until recently been knocked lower by concerns about falling demand, due to China’s economic slowdown.
However, following the company’s recent strong earnings report, the near-term forecast may not be as bleak as the market currently believes. As CEO Richard Adkerson argued on the post-earnings conference call, Freeport-McMoRan has “no problem selling copper.”
Demand for the metal keeps rising. The EV megatrend could continue to help counter the impact of a possible global recession. This may enable FCX stock (earning a B in Portfolio Grader), reasonably priced at 14 times earnings, to continue making a partial recovery in the near-term, and possibly hit new highs over a longer timeframe.
Kinder Morgan (KMI)
Shares in Kinder Morgan (NYSE:KMI), one of the largest oil and gas pipeline companies, continue to bounce back, after nearly re-testing lows during the September stock market sell-off.
While overall a mixed earnings report, Kinder Morgan did report double-digit earnings and distributable cash flow growth.
This points to continued dividend growth for high-yielding KMI stock (forward yield of 6.25%). Over the past five years, KMI’s dividend has grown by an average of 17.1% annually. These payouts provide investors with steady returns, and the growth of such payouts opens the door for continued price appreciation.
Trading at a reasonable earnings multiple of 15.3, KMI could continue to climb, in tandem with earnings/dividend growth. That makes this midstream energy play (which earns a B rating in Portfolio Grader) a great opportunity. Shares could continue to recover in the near-term and generate strong returns over a long timeframe.
Grocery store operator Kroger (NYSE:KR) has successfully stayed one step ahead of inflation thus far. This, plus its reputation as a recession-resistant “safe stock,” has helped keep its shares in the green throughout 2022.
More recently, a new uncertainty about KR stock (B-rated in Portfolio Grader) has emerged. That would be news of the company’s plans to merge with competitor Albertsons Companies (NYSE:ACI).
Yet while possible antitrust-related objections result in the deal failing to secure regulatory approval, this combination could be one that pays off handsomely for investors.
Albertsons also sports a lower earnings multiple (6.9 times earnings) than Kroger (11.5 times earnings). This deal could be very accretive to earnings, even before cost savings are taken into account.
In 2022, “boring stocks” have been beautiful, and MetLife (NYSE:MET) is no exception. Shares in the mammoth life insurance and financial services firm are up around 15.7% year to date.
Even with this moderate price appreciation, MET stock (which earns a B in Portfolio Grader) remains cheap. MET’s current price-to-earnings ratio is only 10.1. This may not be out of the ordinary for insurers, yet this valuation may be too low, given the prospect of much higher earnings in 2023.
As seen in recent financial results, MetLife is experiencing premium and fee growth, but has been temporarily affected by the sharp rise in interest rates.
Yet as the impact of rising rates turns from a negative (one-time investment and derivative losses) to a positive (higher yield from its investment portfolio), the insurer’s earnings are expected to grow by around 15.75% next year.
Marathon Oil (MRO)
Like most oil and gas exploration and production (or E&P) stocks, Marathon Oil (NYSE:MRO) has knocked it out of the park performance-wise over the past year.
In the last twelve months, Marathon shares have surged to the tune of 83.3%.
Yet while another similarly-sized jump may not be in the cards over the next twelve months, Undervalued MRO stock (trading at a low P/E ratio of 6.5) could nonetheless continue to deliver above-average returns to investors. With crude oil prices expected to remain high, this E&P company’s earnings will stay high as well.
Management plans to return most of these earnings back to shareholders. Mainly, through the repurchase of shares. The company has also raised its quarterly dividend by one cent per share, or 12.5%. These return-of-capital efforts could keep MRO stock (A-rated in Portfolio Grader) moving in the right direction.
Occidental Petroleum (OXY)
Occidental Petroleum (NYSE:OXY) is another E&P stock that’s both cheap (trading for 7 times earnings) and top-rated (A rating) in Portfolio Grader, but unlike Marathon Oil, this oil company has other catalysts.
As I discussed recently, the accumulation of additional shares in the company by Warren Buffett’s Berkshire Hathaway (NYSE:BRK.A,NYSE:BRK.B) has been another driver for OXY stock this year. With regulatory approval to raise Berkshire’s stake to up to 50%, subsequent purchases could help shares inch higher.
Alongside this catalyst, Oxy has a longer-term clean energy catalyst as well, with its big bet on carbon capture. With this emerging technology getting a major boost from the Inflation Reduction Act, the company is well-positioned to turn carbon capture into a profitable sideline business.
All of this points to further gains ahead for A-rated OXY stock.
On the date of publication, Louis Navellier had a long position in F, KMI, KR, MRO and OXY. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article.
InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.