Since betting on the individual companies of the Standard and Poor’s 500 offers a solid chance for long-term profitability, it stands to reason that going for undervalued S&P 500 stocks could potentially net you robust returns. In a way, it’s like having your cake and eating it too.
For as long as I can remember, sports fans have long wondered what would happen if the weakest team in the NFL went head-to-head with the strongest team in college football. Chances are, the pro team should run circles around the college team because we’re dealing with professionals. And that’s somewhat analogous to the idea of undervalued S&P 500 stocks.
If we’re dealing with a framework of 10 to 20 years, betting on established large-capitalization giants that are going through a rough time still arguably present better odds than gambling on some penny stock on a hot streak. Even if the upstart enterprise pulled some impressive quarters together, it still must overcome credibility concerns.
On the other hand, the large cap simply needs to get its head on straight. With that, below are enticing undervalued S&P 500 stocks to consider.
LyondellBasell (LYB)
Specialty chemicals giant LyondellBasell (NYSE:LYB) isn’t exactly in a great place right now. Recently, the company’s profit and revenue fell in the fourth quarter of 2023. That stemmed from soft global demand in the petrochemical markets and lower gasoline crack spreads. Subsequently, LyondellBasell also missed the consensus target for earnings per share, though it beat on revenue.
Nevertheless, the positive aspect is that LYB represents one of the undervalued S&P 500 stocks. Presently, shares trade at only 9.82X forward earnings, below the industry median print of 15.7X. Also, while acknowledging the recent revenue fallout, over the past three years, it enjoys a 16.1% sales growth rate. Nevertheless, LYB trades at a discount to revenue of 0.73X.
However, with the U.S. economy booming, it’s quite possible that other countries could follow suit. And that would imply more resource consumption and therefore greater demand for specialty chemicals. Not surprisingly, analysts view LYB as a consensus moderate buy with a $103.67 average price target.
CVS Health (CVS)
As one of the most recognizable names in the broader pharmaceutical space, CVS Health (NYSE:CVS) is a relevant enterprise. However, most investors don’t see it that way. For example, it suffered a lackluster performance in 2023, largely due to fears of rising competition in the retail pharmacy space. Still, even with the encroachment, CVS presents an intriguing market idea.
For one thing, Fortune Business Insights notes that the U.S. pharmacy market size reached a valuation of about $534.21 billion in 2020. By 2028, this segment could be worth $861.67 billion. If so, this would represent a compound annual growth rate (CAGR) of 6.3%. There should be plenty of room for key competitors to grow, especially with the aging baby boomer population.
And speaking of which, CVS enjoys a massive footprint, allowing for better service for boomers. Since this demographic is usually big on tradition, CVS may win out on brand trust.
Lastly, CVS trades for only 8.6X forward earnings, below the underlying sector’s median print of 13.35X. With a strong buy assessment from analysts, CVS is one of the undervalued S&P 500 stocks to consider.
General Motors (GM)
An iconic automotive manufacturing firm, General Motors (NYSE:GM) has had a difficult year in 2023. Perhaps most notably, GM along with other domestic rivals suffered from the United Auto Workers (UAW) strike. However, with that headwind largely out of the way, GM stock has been steadily rising higher since early November. It’s possible that the company can continue on its upward trek.
For one thing, General Motors offers a credible pivot to electric vehicles. Sure, the field is crowded. However, with the industry’s low-hanging fruit plucked, it’s all about selling EVs to average-income customers. Frankly, GM can scale production to meet this forward demand profile. As well, it enjoys a vast dealership network and brand trust – relatively speaking.
Second, it’s not abandoning its motorhead heritage, as its eighth-generation Corvette demonstrates. So, I think it’s an exciting brand which is on a credible discount. Shares trade at 5.05X forward earnings, well below the sector median 10.87X. And analysts anticipate shares hitting $48.29, making GM one of the undervalued S&P 500 stocks to buy.
On the date of publication, Josh Enomoto 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.
