Investing in blue-chip stocks such as Commonwealth Bank of Australia (ASX: CBA) or Woolworths Limited (ASX: WOW) can provide both a great income stream and modest capital gains over the long term. Unfortunately, they're expensive and the threat of falling share prices is very real.
As savvy investors we can still go about our business of finding great blue-chips with generous dividend yields, only at discounted prices, by focusing on out-of-favour companies. Here are five potentially undervalued S&P/ASX 200 (ASX: XJO) (INDEX: ^AXJO) stocks you could consider adding to your long-term portfolio.
1. Macquarie Group Ltd's (ASX: MQG) share price may have risen over 50% in the past year but the business still has plenty to offer. With a growing mortgage portfolio and rising earnings from Asia and North America, it is a solid long-term buy.
2. Australia's number one drinks bottler and distributor, Coca-Cola Amatil Ltd (ASX: CCL), is down but it's not out. Its Indonesian operations had recently met with unfavourable macroeconomic headwinds, whilst the SPC Ardmona tinned fruit business suffered intense competition. In the long term it's likely that its current price will prove undemanding.
3. ResMed Inc. (CHESS) (ASX: RMD) is a great Australian business which recently took a hit to its share price when it reported lesser than expected revenues. With rising demand for its products, now is a great time to buy and hold this stock for the very long term.
4. Australia's biggest independent gold miner, Newcrest Mining Limited (ASX: NCM), has a huge reserve life and low costs at a number of its operations. After a big gold price drop in 2013, savvy investors have been busy buying shares.
5. Insurance Australia Group Limited (ASX: IAG) trades on a forecast 6.1% fully franked dividend and P/E ratio of just 11 making it appealing to value investors. In coming years the dividend is expected to be maintained but, as is the nature with insurers, predicting the occurrence of excessive payouts is not easy.
The best buy of all
Buy and hold investing is a great way to grow your wealth over the long-term. With blue chips like those above you can also receive tax effective dividend yields while you wait for capital gains to accumulate.
