According to analysts, a good undervalued blue chip stock to buy

We recently published a list of 7 undervalued blue chip stocks you should buy now. In this article, we take a look at how Alphabet Inc. (NASDAQ:GOOG) compares to other undervalued blue-chip stocks.

Kristen Bitterly, head of global strategy at Citi, recently appeared on CNBC's Squawk Box to discuss the role inflation and employment trends have played in the Fed's recent decisions. Bitterly explained that while they had expected a 25 basis point rate cut due to some tough inflation data, particularly in the area of ​​owner-equivalent rent, she noted that the difference between a 25 or 50 basis point cut should not be over-analyzed. The key is the overall path of interest rates going forward, and as long as employment data remains stable, the Federal Reserve and the market are looking for a soft landing.

Bitterly spoke about cutting rates at a time when stock markets were at record highs and unemployment was low, acknowledging that the timing was unusual. Rate cuts usually occur during crises, but she suggested that the Federal Reserve may be trying to get ahead of a potential economic slowdown. She stressed that the Fed's primary focus is on employment and price stability, not necessarily on stock market highs. Now that inflation is somewhat under control, the focus has shifted to keeping unemployment at around 4%.

When asked about potential inflation risks, Bitterly pointed to ongoing infrastructure, CHIPS Act and IRA spending, which could indeed lead to inflationary pressures. While the Fed's projections that inflation could fall to 2.5% may be too optimistic, she pointed out that this is more likely to be disinflation than deflation.

With strong retail sales, Bitterly emphasized the strong economic picture, pointing to $6.5 trillion in money market funds, falling inflation and record profitability among U.S. companies. Despite concerns such as election volatility, she believes there is still plenty of capital willing to flow into the market, making for a positive outlook. Bitterly predicted that the S&P 500 would likely finish the year in positive territory, although October could be difficult due to election-related uncertainty. Historically, election years see a decline in October as investors take profits, but once the election results are clear, a rebound usually follows.

Looking ahead to next year, she expects a return to fundamentals, with 10 out of 11 sectors expected to grow earnings this year and potentially all sectors growing in 2025. She stressed that while tariffs and taxes are important factors, they are ultimately driven by policy rather than politics.

Our methodology

In this article, we looked for large- to super-cap stocks trading at a P/E ratio of less than 20. We identified 20 blue-chip stocks that met our criteria and then selected the stocks that were most popular among elite hedge funds in Q2 2024 and that analysts were optimistic about. The stocks are sorted in ascending order of their upside potential (as of September 24).

At Insider Monkey, we are obsessed with the stocks that hedge funds invest in. The reason is simple: Our research has shown that we can outperform the market by mimicking the top stock picks of the best hedge funds. Our quarterly newsletter's strategy selects 14 small-cap and large-cap stocks each quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (Further details can be found here).

A laptop and a phone open to Google services in an everyday environment.

Alphabet Inc. (NASDAQ:GOOG)

Upside potential for analysts: 25.41%

Expected P/E ratio as of September 24: 18.62

Number of hedge fund owners: 165

Ranked #1 on our list of 7 undervalued blue-chip stocks to buy now is Alphabet Inc. (NASDAQ:GOOG). Alphabet Inc.'s (NASDAQ:GOOG) second-quarter 2024 results were driven by robust growth from its Google Cloud segment, which grew 28%. Its core search business remains resilient despite macroeconomic headwinds. A key driver of Alphabet Inc.'s (NASDAQ:GOOG) future growth is its significant investments in AI, particularly through its Bard AI platform and improvements to its cloud computing capabilities. This positions Alphabet Inc. (NASDAQ:GOOG) as a frontrunner in the rapidly evolving AI sector, which is expected to disrupt various industries and create new revenue streams.

With a P/E ratio of 18.62 and a market cap of over $2 trillion, Alphabet Inc. (NASDAQ:GOOG)'s strong balance sheet provides the company with the flexibility to continue investing in innovation while navigating economic uncertainty. Its leadership position in digital advertising further strengthens its revenue generation capabilities and makes the company well-equipped to adapt to changing market dynamics.

Overall, the combination of strong financial performance, strategic investments in AI and leadership in digital services at Alphabet Inc. (NASDAQ: GOOG) provides an optimistic outlook and positions the company for long-term growth and value creation for investors.

Parnassus Growth Equity Fund stated the following about Alphabet Inc. (NASDAQ: GOOG) in its second quarter 2024 investor letter:

Total GOOG 1st place on our list of undervalued blue-chip stocks to buy now. While we recognize GOOG's potential as an investment, we believe AI stocks that stay under the radar promise higher returns and do so in a shorter time frame. If you're looking for an AI stock that's more promising than GOOG but trades at less than 5x earnings, read our report on the cheapest AI stock.

READ MORE: $30 trillion opportunity: The 15 best humanoid robot stocks to buy, according to Morgan Stanley And According to Jim Cramer, NVIDIA has “become a wasteland”.

Disclosure: None. This article was originally published on Insider Monkey.