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5 Most Undervalued Stocks in the S&P 500

By Ryan Fuhrmann

NEW YORK (TheStreet) -- Wal-Mart (WMT), Abbott Labs (ABT), Kimberly-Clark (KMB), Coca-Cola (KO) and Eli Lilly (LLY) are five companies in the S&P 500 with the best dividend growth and earnings prospects.

Dividend-paying stocks are appealing because they have a track record of beating the broader stock market. Focusing on the most undervalued names of the S&P's so-called dividend aristocrats means investing in the most undervalued companies.

>>Also: 21 S&P 500 Stocks Up More Than 40%

The companies mentioned here also offer downside protection, given their products can be considered recession-resistant. For those particularly inclined to high dividend payments, Kimberly-Clark and Eli Lilly stand out from the rest.



Wal-Mart (WMT)

Business: World's Largest Retailer

Current P/E ratio: 13.9

Current dividend yield: 2.3%

Walmart
I recently concluded that Wal-Mart is the one blue-chip that every investor should own, which stems from the fact that it is one of the safest investments out there (Read The One Blue-Chip Stock Every Investor Should Own). First, it is using its impressive profit generation in the United States to fund overseas growth. This strategy has allowed sales to grow at least +10% annually during the past decade.


Sales should grow in the high single digits going forward, but cost containment and other productivity enhancements should push profits up in the double digits each year going forward. Wal-Mart is also an ideal pick for investors worried about a double-dip recession or a failure of the global economy to recover fully from the credit crisis. Given its additional focus on dividends and ability to boost the payout over time, this stock pick is hard to argue against.



Abbott Labs (ABT)

Business: Pharmaceuticals

Current P/E ratio: 15.5

Current Dividend Yield: 3.3%



Abbott is a healthcare bellwether and has a globally diversified business across a number of different product categories. In addition to pharmaceutical sales, it sells medical devices and consumer products, such as Similac baby formula. Abbot's sights are also set overseas, and it recently announced a deal that will make it one of the largest healthcare firms in India. A low P/E, high and rising dividend yield, and double-digit growth prospects over the long haul make this an undervalued stock at current prices.



Kimberly-Clark(KMB)

Business: Consumer Goods

Current P/E ratio: 14.0

Current Dividend Yield: 4.1%



Kimberly-Clark used to qualify as a stodgy consumer goods firm, but has become religious on controlling costs. In the past three years, it has been able to leverage modest sales growth of under 4% per year into double-digit earnings increases that have averaged nearly 12% annually. A 4.1% dividend yield also makes it one of the most generous payers out of all the dividend aristocrats. Dividend stability and improved profit growth mean Kimberly-Clark also stands out as one of the most undervalued names in the S&P 500.

Stock quotes in this article: WMT, KMB, LLY 

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