Value Investing With Blue-Chip Stocks

Value investing isn't all about finding low-priced stocks. In the legendary words of Warren Buffett, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

With that proven strategy in mind, let's take a look at today's Dow Jones Industrial Average (DJINDICES: ^DJI  ) with an eye for wonderful prices among its 30 proven blue-chip businesses.

At the very least, using the Dow as our first filter ensures that we're looking at stocks that once passed the index's famously strict criteria for inclusion. Then it's up to the investor to sort the wheat from the chaff; not every Dow stock is a guaranteed winner.

Today, we'll look at two proven winners with shocking bargain-basement share prices.

The P/E champions: Oil stocks
Petroleum producers Chevron (NYSE: CVX  ) and ExxonMobil (NYSE: XOM  ) hold the crown as the downright cheapest stocks on the Dow. Chevron stock trades at just 8.8 times trailing earnings, and Exxon shares can be had for nine times earnings. Both stocks also rank among the five cheapest Dow tickers based on forward P/E ratios. If you believe in the humble earnings ratio as a barometer of stock values, oil stocks would be the easy pick.

Exxon and Chevron certainly trade at wonderful prices. How about their business acumen?

Chevron has grown its earnings by an average of 27% over the last decade, making it the second-fastest profit-booster on the Dow. That's a solid feather in Chevron's cap.

Exxon lags behind at a 15.8% annual earnings growth rate, but that's still the ninth-quickest gain among 30 top-shelf stocks -- hardly a shameful performance.

These stocks have also earned the respect of your fellow investor: Both Chevron and Exxon score a perfect five stars in our CAPS system.

And it's easy to see why these stocks are loved. The oil giants pay generous dividends supported by massive cash flows, and their share prices tend to crush the Dow in the long run.

CVX Chart

CVX data by YCharts.

Black gold is still the king of commodities. One quick look at Exxon and Chevron is enough to hammer that point home.

Each one of these stocks seems to marry the two halves of Buffett's ideal investment into one complete package of value-investing goodness. If you're looking for deep-value stocks with high-quality operations, you can hardly do better than these proven winners.

If you're on the lookout for high-yielding stocks, The Motley Fool has compiled a special free report outlining our nine top dependable dividend-paying stocks. It's called "Secure Your Future With 9 Rock-Solid Dividend Stocks," and you'll find one very familiar name in this report. You can access your copy today at no cost! Just click here.


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