Despite a surging market, two blue-chip stalwarts stand out for their compelling mix of value, resilience, and overlooked potential.
Both stocks trade below fair value with double-digit upside and business tailwinds that could propel them further.
With the surging past the historic 50,000 milestone, investors are increasingly seeking stability in an overextended market.
Source: Investing.com
Two Dow components, Verizon Communications (NYSE:) and Merck & Company (NYSE:), stand out as compelling picks amid the current backdrop. Both have delivered solid year-to-date gains but trade at discounts to their intrinsic value based on forward earnings and cash flow projections, making them timely buys for value-oriented investors.
1. Verizon
Current Price: $47.39
Market Cap: $199.8 Billion
Verizon, a leading U.S. telecommunications provider, has shown resilience amid recent market volatility. VZ stock trades around $47 per share, with a market capitalization of approximately $200 billion.
Year-to-date, VZ has returned about 18%, outperforming the Dow’s 4.4% gain over the same period.
Source: Investing.com
VZ appears undervalued by several metrics. Its trailing P/E ratio sits at 11.7, while the forward P/E is an even more attractive 9.1. The InvestingPro Fair Value model rates it as moderately undervalued with a $56.31 price target, implying about 19% upside potential.
Source: InvestingPro
This undervaluation stems from past concerns over debt and competition, but recent execution under new CEO Dan Schulman signals a turnaround, making it worth owning for long-term total returns.
Analysts maintain a neutral to sector perform consensus, with price targets reaching as high as $71, supported by its robust 6% dividend yield – well above that of the average Dow component.
A $25 billion share buyback program further enhance shareholder returns.
2. Merck
Current Price: $117.15
Market Cap: $290.8 Billion
Merck, a global pharmaceutical leader, has also performed well, with shares around $117 and a market cap of about $291 billion. While the stock has performed respectably, it hasn’t matched the parabolic gains of certain GLP‑1‑linked names, leaving its valuation more grounded.
Source: Investing.com
Despite hitting a 52-week high, MRK trades at just 16x trailing earnings, which is below the pharmaceutical industry average of 20.7 and its peers at 19. InvestingPro Fair Value models indicate undervaluation of 18.7%, with a price target of $139.02 per share.
Source: InvestingPro
The market frets over Keytruda’s looming patent cliff, but analysts point to a robust drug pipeline, a recent $10 billion acquisition, and a dividend track record (56 years and counting) as powerful offsets. The Dow stalwart’s 2.9% dividend yield further adds appeal.
Bottom Line
As the Dow hits a psychological milestone like 50,000, portfolio construction becomes just as important as stock picking. For investors looking to balance exposure to high‑growth winners with more defensive, reasonably priced blue chips, Verizon and Merck are two Dow components that deserve a closer look.
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Disclosure: This is not financial advice. Always conduct your own research.
At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR® S&P 500 ETF, and the Invesco QQQ Trust ETF. I am also long on the Technology Select Sector SPDR ETF. I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies’ financials.
The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.
Follow Jesse Cohen on X/Twitter @JesseCohenInv for more stock market analysis and insight.
