3 Cheap Blue-Chip Stocks to Buy Before They Bounce Back

The stock market had a tremendous start to 2023. It might leave investors wondering what cheap blue-chip stocks are left to buy at reasonable prices.

The good news is, however, that many stocks have gotten left behind in the current rally.

In fact, all three of these undervalued blue-chip stocks have fallen more than 20% over the past year. That makes them good defensive picks for investors that want to make some smart contrarian picks today by investing in these unloved value names.

Walgreens Boots Alliance (WBA)

In 2000, Walgreens Boots Alliance (NYSE:WBA) stock sold for $30 per share. Today, shares once again sell for around $30 per share. And more recently, the stock has taken heavy losses, with shares down more than 50% over the past five years. This makes it one of those cheap blue-chip stocks.

There are clear issues with the company. Management has made a series of missteps, such as overpaying for the Alliance Boots merger, or making its ill-fated partnership with failed testing start-up Theranos.

Adding to the uncertainty, Walgreens has seen traffic slip as pandemic-related demand goes away. People just aren’t stopping at pharmacies for vaccines or testing at nearly the same rate as they were in recent years.

The good news, though, is that pharmacies are still a vital brick and mortar service. There is a good deal of regulatory complexity in selling drugs over the internet, and many people prefer to see a pharmacist when filling an order. Walgreens stock has now fallen to just 7.3 times forward earnings, and sentiment should pick up once traffic normalizes.

Verizon Communications (VZ)

Leading telecom operator Verizon Communications (NYSE:VZ) is not having a great year. VZ stock is down 28% over the past year.

That’s part of broader weakness in the telecom market. Key rival AT&T (NYSE:T) has seen shares continue to sink following last year’s dividend cut and uncertainty around its capital allocation. The industry as a whole is facing significant competition and pricing pressure as wireless customer growth slows.

At some point, though, these concerns are fully baked into the cake. VZ stock is now going for just eight times forward earnings. The stock offers a most generous 7.0% dividend yield as well. And while the company’s investments in next-generation infrastructure such as 5G have taken longer to play out than expected, they will ultimately deliver a return in due time.

Verizon has a lot of debt, and investors are understandably nervous. But at the end of the day, telecom is a recession-resistant industry; people pay their phone and internet bills regardless of broader economic conditions. Especially if the economy softens, Verizon’s attractive valuation and high dividend yield should make the stock an outperformer.

Dollar General (DG)

Dollar General (NYSE:DG) is a large discount mass market retailer. As of May 2023, Dollar General has more than 19,000 stores across 47 U.S. states along with operating Mi Súper Dollar General stores in Mexico.

Dollar General is currently facing a bit of a slowdown. Many of the company’s stores are located in more rural areas which have seen a softening in consumer demand after a very strong 2022. In addition, the pending restart of student debt repayments after the COVID-19 pause is likely to further dampen some shoppers’ buying power.

That said, Dollar General is a classic defensive play. That’s because consumers tend to trade down during recessions; Dollar General should see store traffic hold up even if the economy weakens. With DG stock down 33% over the past 12 months, shares now go for just 17 times forward earnings.

On the date of publication, Ian Bezek held a long position in WBA and VZ stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.

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