Undervalued Large-Cap Stocks

Some of these undervalued large-cap stocks yield more than 3%. Interested?

Mar 24, 2014 at 9:19AM

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some undervalued large-cap stocks to your portfolio but don't have the time or expertise to hand-pick a few, the SPDR S&P 500 Value ETF (NYSEMKT:SPYV) could save you a lot of trouble. Instead of trying to figure out which stocks will perform best, you can use this ETF to invest in many of them simultaneously, as it offers S&P 500 components exhibiting value characteristics.

The basics
ETFs often offer lower expense ratios than their mutual fund cousins. This ETF, focused on undervalued large-cap stocks, sports a relatively low expense ratio -- an annual fee -- of 0.2%. It recently yielded about 2%, too.

This ETF has slightly lagged the full S&P 500 over the past decade, suggesting that it might be better used as a hunting ground for individual stocks than as an investment itself.

Why undervalued large-cap stocks?
Large companies can add some ballast -- and dividends -- to your portfolio. Many may not grow as briskly as their smaller counterparts, but having reached their current size they likely have some strong assets and features. And some can grow quite briskly. Meanwhile, focusing on seemingly undervalued large-cap stocks can add a greater margin of safety to your portfolio.

More than a handful of undervalued large-cap stocks had strong performances over the past year. Intel (NASDAQ:INTC), for example, surged 20%, and it offers a hefty dividend yield of 3.6%. Bulls see a lot of potential for the chipmaker in the burgeoning "Internet of Things," which can make good use of Intel's data centers, and it could also serve the health care industry well. Bulls also see value in Intel's dominant market position and significant payout. The company has been in a bit of a slump, posting underwhelming earnings and trying to boost its presence in the smartphone and tablet markets. Bears are wary of sluggish growth.

Caterpillar (NYSE:CAT) jumped 11% over the past year and yields 2.5%. The world's largest maker of construction and mining equipment has struggled in recent years. It has recently shown signs of recovery, but now weakness in China threatens its performance. Bulls are hopeful about the company's plan to strengthen its important dealer network, and see Caterpillar's fortunes improving if mining and infrastructure work pick up. On the downside is a U.S. Senate investigation into whether Caterpillar improperly avoided taxes by shifting billions of dollars of profits to low-tax countries.

General Electric (NYSE:GE) gained 9% and yields 3.5%. It has been transforming itself lately via an increased focus on energy, with oil and gas now its fourth-largest revenue generator. Part of General Electric's transformation involves spinning off its sizable retail finance business. GE's fourth quarter featured revenue up 3% from the year-ago quarter, earnings per share up 20%, and its order backlog growing by 8% to a record $244 billion. Bears might balk at its considerable debt, but bulls see that debt as manageable and like that GE enjoys sales of higher-margin services and supplies on top of lower-margin equipment sales. The company's CEO buying millions of dollars' worth of shares is appealing, too.

Other undervalued large-cap stock didn't do quite so well over the last year but could see their fortunes change in the coming years. Cisco Systems (NASDAQ:CSCO), for example, advanced just 5% but offers a 3.5% dividend yield. It has been executing massive stock buybacks as well, but that has left some seeing these expenses as unsustainable. Meanwhile, gross margin has been shrinking, while cash flow has not been growing very briskly. Still, bulls see it as undervalued and like its growth in data centers and security. Cisco Systems is also dealing with an investigation of its practices in Russia at the request of the SEC.

The big picture
If you're interested in adding some undervalued large-cap stocks to your portfolio, consider doing so via an ETF. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

9 More Generous Dividend-Payers
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Selena Maranjian owns shares of General Electric Company and Intel. The Motley Fool recommends Cisco Systems and Intel. The Motley Fool owns shares of General Electric Company and Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

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KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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