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The recent stock-market unpleasantness offers a useful reminder that the highest fliers often take the biggest tumbles when conditions turn inhospitable. A related lesson is that one secret to success when buying stocks is that you should avoid overpaying -- and knowing how much is too much is an art in itself. But we're confident we've unearthed five terrific blue chips that even a miserly buyer would agree are priced right and could be perfectly at home in your portfolio.
Furnishing homes
A seller of everything from bedspreads to espresso makers, Bed Bath & Beyond (BBBY) still has plenty of room to expand. Its earnings rise each year, and it recently reported strong sales gains at existing stores. Yet BB&B has gone from being an expensive stock to being marked down like last year's towels. The ratio of its price-earnings multiple to its earnings growth rate, known as the PEG ratio, is little more than 1. That's well below its historical average.
There are no concerns about the attractiveness of the stores' style or the company's ability to hold down costs and maintain profit margins. The housing slowdown is not an issue: Home furnishings always need to be updated and replaced. Even if you won't be buying a new place for a while (and even if you never do), you'll still need bath and kitchen stuff.
Cardinal sins
Questionable acquisitions, ill-advised challenges to entrenched competitors, accounting issues that got it in hot water with regulators -- Cardinal Health (CAH) has seen its share of problems in this decade. But now the man who built Cardinal from scratch to annual sales of $80 billion 30 years later has stepped down. Other senior executives have also departed. Now, under Kerry Clark, a former Procter & Gamble manager who took over as Cardinal's chief executive in 2006, the distributor of drugs and other health-care products is regaining its focus.
Evidence of a new-and-improved Cardinal abounds. The company recently shed its pharmaceutical technologies and services business, a patchwork of units, for $3 billion. Cardinal pledges to spend the proceeds on buying back its own stock -- more than 10% of its market value at today's $72 price. The company also raised dividends 50% last year. Clark says that Cardinal will concentrate on logistics and hospital safety, leaving drug development and manufacturing alone. The sharper focus bodes well for Cardinal because health-related companies that excel in one specialty rather than spreading themselves too thin are generally more successful.
New chemistry
Chemical manufacturers require huge investments, and their commodity-like products sell for prices that have trouble keeping up with the rising cost of natural gas and other hydrocarbons. So Wall Street tends to ignore these companies and assign low values to their stocks.
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