Undervalued Large-Cap Stocks: Make Money in Them the Easy Way

Undervalued Large-Cap Stocks: Make Money in Them the Easy Way

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some undervalued large-cap stocks to your portfolio but don't have the time or expertise to hand-pick a few, the iShares S&P 500 Value Index ETF could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual-fund cousins. This ETF focusing on undervalued large-cap stocks sports an extremely low expense ratio -- i.e., an annual fee -- of 0.18%. It recently yielded 2.2%, too.

The undervalued large-cap stocks ETF has performed reasonably, but it's also young, with just a few years on the books. It underperformed the S&P 500 in 2008 and 2010, though it beat it substantially in 2007 and 2009. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why undervalued large-cap stocks?
Large companies can add some ballast to your collection. Many may not grow as briskly as their smaller counterparts, but having reached their current size, they likely have some strong assets and features. And some can also grow quite briskly. Meanwhile, focusing on seemingly undervalued large-cap stocks can add a greater margin of safety to your portfolio.

More than a handful of undervalued large-cap stocks had strong performances over the past year. United Technologies surged 36%. It just pleased shareholders with a 10% dividend hike, bringing its yield up to 2.3%. Per CEO Louis Chenevert, the hike "reflects confidence in our portfolio, our strategy and our leadership team to grow earnings over the long term." The company sports brands such as Otis, Sikorsky, and Pratt & Whitney, and it acquired Goodrich last year. It recently reported quarterly revenue up 16% over year-ago levels, with earnings per share rising more than 27%, handily topping estimates. Its Blackhawk helicopter production was disrupted by the government shutdown, as necessary inspectors were furloughed, but as the Pentagon brings back many workers, United Technologies won't have to execute a furlough of its own.

Cisco Systems jumped 24%. The stock got whacked in August when it posted fourth-quarter results featuring revenue up 6%, earnings below last year's levels, and plans to lay off about 5% of its workers, or about 4,000 people. Many still have faith in it, though, liking its recent purchase of network security specialist Sourcefire and the fact that it's sitting on more than $50 billion in cash and equivalents. Bulls also like its plans to restructure itself and integrate its various business lines, such as cloud computing, video communications, and mobile devices. Last week, it announced a deal with Facebook to offer wireless access via Facebook accounts. Cisco's stock yields 3% and looks appealing, with a forward P/E of 11.

Occidental Petroleum gained 16%. Its second quarter was rather flat, and some have been waiting for the company to break itself up. A leader in enhanced oil recovery (EOR), Occidental has been improving its performance on several measures lately, though, such as revenue and earnings growth. On the negative side, profit margins have shrunk while debt has grown. For patient investors, the stock offers a 2.7% yield. Bulls expect production growth from its mature oil assets, and see it as a promising investment in the Bakken field and also likely to lead in California-based oil production.

Other companies didn't do quite as well over the last year, but could see their fortunes change in the coming years. General Electric , for example, advanced just 8%, and recently yielded 3.2%. Sitting on more than $130 billion in cash and equivalents, GE has been focusing more on its industrial operations and less on its financial ones. It has been boosting its involvement in renewable energy and 3-D printing, too. The company recently won a $600 million contract to supply a natural gas project in Russia. With a forward P/E around 12.5, some see solid gains ahead.

The big picture
If you're interested in undervalued large-cap stocks, consider this ETF. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

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The article Undervalued Large-Cap Stocks: Make Money in Them the Easy Way originally appeared on Fool.com.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool recommends Cisco Systems and Facebook. It owns shares of Facebook and General Electric. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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