The 3 Best Blue-Chip Stocks Under $20 to Buy Now

Faisal Humayun

Wed, Nov 2, 2022, 7:01 PM 4 min read

Irrespective of an investor’s age or risk tolerance, a portfolio is incomplete without blue-chip stocks. These stable companies offer strong fundamentals and robust dividend yields. However, the high share price of many blue chips may act as a deterrent, particularly for small investors. The good news is that not all blue chips are high-priced. Today, I’m sharing the best blue-chip stocks under $20 to buy now.

Inflation, geopolitical tensions and weakening global growth have been major headwinds for stocks, resulting in a high degree of uncertainty. Yet, this has also translated into attractive valuations among many of the best stocks, including blue chips.

For the best blue-chip stocks under $20, my focus is on those that trade with a valuation gap, making them more likely to outperform over the next 12 to 24 months.

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

VALE	Vale	$12.77
F	Ford	$13.06
GOLD	Barrick Gold	$14.34

Vale (VALE)

the Vale logo displayed on a mobile phone with the company's webpage in the background

Source: rafapress / Shutterstock.com

At current valuations, Vale (NYSE:VALE) is among the best blue-chip stocks under $20 to consider. The Brazilian metals and mining firm trades at a forward price-earnings ratio of 4.9, which is below its five-year average of 6.4. Additionally, the stock offers an attractive dividend yield of 11.2%.

Vale is the second-largest producer of iron ore in the world. With iron ore prices near two-year lows, the company reported a year-over-year decline in net operating revenue and earnings per share for the third quarter. However, adjusted EPS of 98 cents was well ahead of the Zacks Consensus Estimate of 60 cents.

It’s worth noting that the company still managed to report adjusted EBITDA of $4 billion and free cash flow of $2.2 billion. The company paid out $3.1 billion in dividends for the quarter and repurchased $686 million of its shares. With strong free cash flow visibility, the company’s dividend is sustainable.

Another reason to like Vale is its focus on a portfolio that will support a low-carbon economy. This includes the production of nickel and copper, which are used in electric vehicle batteries and charging, as well as solar power systems.

VALE is down around 9% so far in 2022, outperforming the broader market by a wide margin. Shares look deeply undervalued, though, and have the potential to double from current levels in the next year.

Ford (F)

Ford logo badge on grill of car

Source: JuliusKielaitis / Shutterstock.com

Legacy automaker Ford (NYSE:F) is a stock investors should get excited about again as the company undergoes its transition to an electric vehicle powerhouse and the higher valuation that is likely to come with that designation. After declining 37% year to date, shares trade at a forward price-earnings ratio of 7.2. For comparison, Tesla (NASDAQ:TSLA) has a forward P/E of 42. Speaking of Tesla, Ford remains the No. 2 U.S. EV brand behind Tesla.

When reporting its third-quarter results, Ford said it is on track to produce 600,000 EVs by the end of 2023 and 2 million by 2026. Ford plans to add to its EV lineup in the coming year with the release of the Mustang Mach-E and the F-150 Lightning.

For the third quarter, revenue rose 10% year over year to $39.4 billion. However, Ford reported a net loss of $827 million, due in part to EV investments in China. These investments are likely to pay off down the road once deliveries in the region accelerate.

Finally, the company reported adjusted free cash flow of $3.6 billion in Q3 and ended the quarter with $32 billion in cash and equivalents, providing ample financial flexibility for aggressive investments in EVs.

Barrick Gold (GOLD)

How to Play Barrick Gold Stock Ahead of Today's Earnings

Source: Piotr Swat / Shutterstock.com

Precious metals have been negatively impacted by the strong U.S. dollar. I believe this presents a good opportunity to accumulate quality gold mining stocks like Barrick Gold (NYSE:GOLD). Shares look very attractive following a 36% correction over the past six months.

One reason I like Barrick Gold is its investment-grade balance sheet. At the end of the second quarter, the company reported cash and equivalents of $5.8 billion. Additionally, with net debt of just $636 million, the level of financial flexibility is high. Barrick also reported free cash flow of $562 million for the first half of 2022. Even with the slump in gold prices, the company’s balance sheet should be more than capable of supporting the dividend payout, which currently yields 5.3%.

As of 2021, Barrick had proven and probable gold reserves of 69 million ounces and replaced 150% of its depleted gold mineral reserves. Production is likely to remain stable in the coming years, thus continuing to give the company financial flexibility and making it one of the best blue-chip stocks under $20 to buy.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.