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While investing in the new normal seemingly focused on meme trades and other high-risk ventures, targeting the companies of the Dow Jones is always relevant, particularly if they’re among the most undervalued Dow stocks to buy. Granted, this venerable list doesn’t bring much excitement. However, these stalwarts command well-established businesses, meaning they likely won’t steer you wrong.
Before we begin, though, we need to establish some ground rules. First, none of the most undervalued Dow stocks to buy would qualify as extremely so. Again, we’re talking about established businesses so you’ve got to extend me some rope.
Second, I ranked the names from most to least undervalued based on trailing 12-month (TTM) earnings. Specifically, the rankings align with the discount to earnings based on each company’s underlying industry. And for that, I’m indebted to Gurufocus.com’s all-in-one screener. So, with that out of the way, below are the most undervalued Dow stocks to buy in Feb. 2023.
Easily topping the list if you will of the most undervalued Dow stocks to buy, Verizon (NYSE:VZ) finally gave its embattled shareholders something to cheer about. In the trailing year, VZ stock gave up over 22% of its equity value. However, it’s trying to make a comeback effort this year, gaining nearly 4%.
Currently, the market prices VZ at 8.24 times trailing earnings. In contrast, the sector median value is 15.85 times. In terms of discount against earnings, Verizon ranks better than 79.42% of the competition. Notably, VZ also trades at a forward multiple of 8.87. This compares very favorably to the sector median of 15.47.
Another factor tipping its hat toward Verizon centers on analysts’ assessment. Right now, VZ carries a consensus moderate buy rating. Wall Street experts anticipate shares will hit $46.50, implying an upside potential of 11.54%. Therefore, it’s a very reasonable idea among the most undervalued Dow stocks to buy.
Dow Inc. (DOW)
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A multinational chemicals corporation, Dow Inc. (NYSE:DOW) manufactures plastics, chemicals, and agricultural products. Because of the various macroeconomic pressures and disruptions, DOW struggled throughout 2022. In the trailing year, shares tumbled about 2%. However, DOW is on a comeback trail, gaining 18% of equity value so far this year.
Presently, Gurufocus.com rates DOW as modestly undervalued based on its proprietary calculations for fair market value (FMV). Objectively, the market prices DOW at a trailing multiple of 9.65. In contrast, the sector median stands at 16.45. In terms of discount to earnings, Dow ranks better than 72.51% of its peers.
In addition, DOW trades hands at 0.76 times (trailing) sales. This compares to the industry median value of 1.31 times. Looking at its balance sheet and operational profile, Dow arguably facilitates a solid opportunity. Right now, Wall Street analysts rate DOW as a consensus hold. However, hedge fund sentiment for shares pings as very positive. Therefore, it’s a decent idea for the most undervalued Dow stocks to buy.
Goldman Sachs (GS)
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A world-renowned financial institution, Goldman Sachs (NYSE:GS) has regional headquarters throughout the globe. Given the ongoing debate about the Federal Reserve’s monetary policy, Goldman didn’t get off to an auspicious start last year. Though higher rates promote higher profitability on paper for financial firms, rising borrowing costs also hurt consumer demand.
However, this year, GS looks stronger, gaining almost 6% of equity value. At present, the market prices GS at a trailing multiple of 12.17. For comparison, the sector median stands at 16.39 times. Regarding the discount to earnings, Goldman ranks better than 64.29% of its industry.
In addition, GS trades at 10.16 times forward earnings, below the sector median value of 13.76 times. While it could use some work on its balance sheet, Goldman features solid revenue growth and above-average profitability.
Moreover, Wall Street analysts rate GS as a consensus moderate buy. Their average price target calls for shares to rise to $403.15. This implies an upside potential of over 10%, making GS one of the most undervalued Dow stocks to buy.
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A pharmaceutical giant, Merck (NYSE:MRK) develops and produces medicines, vaccines, biologic therapies, and animal health products. Given its extraordinary relevancies, Merck represented one of the best-performing securities of 2022. As evidence, in the trailing year, shares gained over 30% of equity value. Because of its massive performance, this year, MRK operated at a disadvantage, shedding nearly 4%.
Be that as it may, MRK still represents one of the most undervalued Dow stocks to buy. Currently, the market prices MRK at a trailing multiple of 17.8. In contrast, the sector median stands at 20.87. In terms of discount to earnings, Merck ranks better than 59.47% of its peers.
Overall, Merck presents an enticing fiscal profile. On its balance sheet, the company carries an Altman Z-Score of 4.58, indicating low bankruptcy risk. Operationally, it features double-digit book growth in the past three years. And it also enjoys a blockbuster net margin of 25.88%. Regarding Wall Street analysts’ assessment, MRK enjoys a consensus strong buy view. Also, their average price target implies an upside potential of over 13%. This makes MRK one of the undervalued Dow stocks to buy.
Recognized globally as a technology powerhouse, Intel (NASDAQ:INTC) commands serious industry cachet. However, in recent years, the company stumbled due to competitive pressures as well as some unforced internal errors. Fortunately, management seeks to put the troubled past behind it. Enticingly, Intel offers attractive propositions, such as the world’s fastest mobile processor.
Currently, INTC trades at a trailing multiple of 14.83. In contrast, the sector median stands at 17.44 times. Regarding discount to earnings, Intel ranks better than 56.66% of the semiconductor industry. Another notable attribute is the company’s price relative to book value. Right now, INTC trades at 1.19 times its book value. As a comparative discount, Intel ranks better than 78.32% of the competition.
In fairness, Wall Street analysts rate Intel as a consensus hold. As well, their average price target actually implies a downside to the tune of nearly 6%. However, INTC gained almost 9% in the year so far. For contrarians, it could still represent one of the most undervalued Dow stocks to buy.
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Headquartered in Thousand Oaks, California, Amgen (NASDAQ:AMGN) is one of the world’s largest independent biotech firms. Similar to Merck, Amgen enjoyed a positive performance in 2022. In the trailing year, AMGN gained nearly 8% of equity value. However, in the new year, it’s on a decidedly negative trend, shedding almost 6%.
Still, for those looking for a discount, Amgen technically represents one of the most undervalued Dow stocks to buy. Currently, the market prices AMGN at a trailing multiple of 20.35. For comparison, the sector median value is 20.87 (not much difference). Relative to discount to earnings, Amgen ranks better than 52.72% of its rivals.
Objectively speaking, Amgen could use some work on its balance sheet. For instance, its Altman Z-Score slipped into the distressed zone. Its three-year revenue growth rate stands at 8.3%, which is alright compared to the industry. Primarily, Amgen rates strongly in the bottom line. For instance, its net margin pings at nearly 26%. To be fair, Wall Street analysts rate AMGN as a consensus hold. Still, the underlying price target implies an upside of nearly 6% from here on out.
Cisco Systems (CSCO)
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Finally, communications technology conglomerate Cisco Systems (NASDAQ:CSCO) rounds out this list of the most undervalued Dow stocks to buy. On paper, it appears to be just that. In the trailing year, CSCO shares gave up over 13% of equity value. In the year so far, Cisco only gained a bit over 1%. It’s hardly riveting stuff here, which might appeal to contrarians.
However, on a fundamental basis, few would call Cisco a discount relative to its industry. Right now, the market prices CSCO at 17.53 times trailing earnings. For comparison, the sector median is 17.84 times. Regarding discount to earnings, Cisco ranks better than 50.45% of the competition. Again, it’s nothing to brag about. However, the other Dow stocks are actually overvalued.
To end this list on a positive note, Wall Street analysts rate CSCO as a consensus moderate buy. Moreover, their average price target of $54.70 implies an upside potential of nearly 13%.
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.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
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