• These are the 6 undervalued stocks you should buy for the long term that have low price-to-earnings (P/E) multiples, pay good dividends, and also have share buyback programs.
• McDonald’s (MCD): McDonald’s trades with a 2.23% dividend yield, 25x forward earnings and should do well as a result.
• The Allstate Corporation (NYSE:ALL) — The insurer has a new $5 billion buyback program and yields 2.64%.
• HP Inc. (NYSE:HPQ) — The computer printer maker has a 2.7% yield as well as a hefty, consistent buyback program.
• Target (NYSE:TGT) — A fast-growing retailer with good cash flow — enough to pay a 1.61% yield and a 6.88% buyback yield.
• AbbVie (NYSE:ABBV) — A cheap pharmaceutical company with a 3.69% yield and consistent dividend growth.
• NRG Energy (NYSE: NRG) — A Houston-based integrated power company with a 3.38% yield and growing dividends.

These six undervalued stocks should be able to weather a major inflation and recession cycle. This is because their dividends and buyback programs are likely to survive. This gives these stocks very defensive characteristics.

For one, short-sellers are not really attracted to companies that have solid dividends. They have to pony up the dividends to investors if they take short positions in these stocks. Second, large buyback programs tend to stabilize demand for a stock when investor trading volumes wane in a recession.

In addition, the lower number of shares automatically increases the dividend per share paid out over time. It also increases earnings per share, thereby lowering the P/E multiples.

Let’s dive in and look at these six stocks.

Undervalued Stocks: McDonald’s Corp (MCD)

Market Value: $182 billion

McDonald’s Corp (NYSE:MCD) just released strong Q1 earnings on April 28. Its Q1 results on April 28, showed comparable sales rose 11.8% and 11% including the effects of store closings in Russia and Ukraine.

Everyone eats fast food, even if they won’t admit it. McDonald’s tends to hold up very well during recessions and economic slowdowns as a result. For example, its Q1 2022 free cash flow (FCF) was $1.732 billion vs. $1.77 billion a year ago, despite the closing of stores in Ukraine and Russia. McDonald’s expects to see $50 million per month in negative effects from the closings.

McDonald’s pays a very steady dividend and has a 2.23% dividend yield. It costs just $1.025 billion each quarter, well less than its $1.7 billion in FCF. As such, the company can expect that its dividend will be secure, even during a recession.

McDonald’s has raised its dividend annually over the last 13 years, according to Seeking Alpha. Moreover, McDonald’s just spent $1.5 billion on buybacks in Q1, 87% higher than in Q4.

Right now the stock trades on a forward P/E of about 25 times for this year and 23 times next year’s forecast earnings per share (EPS). This is on par with its average 24.8x forward P/E multiple over the past 5 years, according to Morningstar. This shows that MCD stock is one of the top undervalued stocks to own for the long term.

The Allstate Corp (ALL)

Market Value: $35.6billion

The Allstate Corp (NYSE:ALL) is a property and casualty insurer that recently announced a new $5 billion buyback program. ALL stock trades on a low P/E of 13.4x this year’s forecast EPS and 9.78x next year’s EPS expectations. This is taken from an average of 20 analysts surveyed by Refinitiv (Yahoo! Finance).

It also has a solid 2.64% dividend yield. This includes 12 consecutive years of dividend growth and 28 consecutive years of dividend payments, according to Seeking Alpha.

The fact is that people will keep paying their car, home, and other property insurance bills even during a recession. This is because they have to and it’s ingrained in American financial psychology to do so.

This makes Allstate one of the top undervalued stocks to buy for the long term, even with a recession or high inflation.

Undervalued Stocks: HP Inc. (HPQ)

Market Value: $40.06 billion

HP Inc (NYSE:HPQ) is a computer printer and device maker that has a decent 2.7% yield as well as a hefty, consistent buyback program. Its annual dividend is $1.00 per share and has enjoyed 11 years of consecutive dividend increases, as well as 32 years of continuous dividend payments.

Moreover, based on analysts’ estimates, HPQ stock trades for just 8.6 times the average of 16 analysts’ EPS estimate of $4.26 this year. It is slightly lower based on next year’s estimates.

HP has ample cash flow. From its Feb. 28, Jan. 31, quarterly results, HP made cash flow provided by operating activities of $1.7 billion and FCF of $1.4 billion. From this FCF HP paid $271 million on dividends and $1.5 billion on share repurchases.

Warren Buffett likes HP and recently took a large 11.4% stake in the company. HPQ stock is likely to be one of the top undervalued stocks to own for the long term.

Target Corp (TGT)

Market Value: $101.9 billion

Target Corp (NYSE:TGT) is a fast-growing retailer with good cash flow and pays a stable dividend with a 1.61% yield. The company will likely produce its next financial results for the quarter ending April 30 on June 1 or shortly thereafter. But so far, analysts surveyed by Refinitiv (Yahoo! Finance) forecast annual EPS of $14.58 for this year (ending January 2023). That puts TGT stock on a forward P/E of just 15.5 times earnings.

The fact is people will still buy groceries, clothes, and cheap items at fashionable discount stores like Target during a recession. We saw this happen during the Covid-19 lock-down period. Target performed greatly and had one of its best years. In 2021 its sales rose 13.2%. Comparable sales grew 12.7% in 2021, on top of 19.3% in 2020.

Last quarter the company produced almost $2 billion in FCF, representing 6.3% of its total sales. Going forward this allows Target to cover its $432 million quarterly dividend costs.

Moreover, the company has been aggressively buying back its stock, spending over $2.3 billion in the last quarter alone. Last year it bought back $7.36 billion worth of its stock. That represents 6.88% of its existing market cap and a higher portion of its average market cap during the year.

Undervalued Stocks: AbbVie Inc (ABBV)

Market Value: $269.2 billion

AbbVie Inc (NYSE:ABBV) is a profitable pharmaceutical company that has an attractive 3.69% dividend yield. It is known for its Humira drug, for rheumatoid arthritis and Crohn’s disease, and other drugs like RINVOQ for severe active rheumatoid arthritis.

ABBV stock trades on a cheap forward P/E of just 10.83x for this year and 13.4x next year’s earnings forecasts.  Last year its sales were up 22.7% and this year it is forecast to rise over 10%.

Last year AbbVie generated over $17 billion in FCF. It used that to pay out $9.26 billion in dividends. That leaves it plenty of room to pay higher dividends and buy back its shares.

It spent about $934 million in buybacks last year. This makes ABBV stock one of the more secure undervalued stocks to own for the long term and even during a recession. It

NRG Energy (NRG)

Market Value: $9.9 billion

NRG Energy (NYSE:NRG) is a Houston-based integrated power company with a 3.38% yield and growing dividends. It is one of the largest U.S. independent power producers. It has 7 million customers and generates 16 gigawatts of power generation capacity primarily in Texas.

NRG stock is attractive to value investors as it offers a 3.38% dividend yield and nine years of continuously paid dividends. Moreover, analysts forecast $3.35 in EPS this year and $4.14 next year. So, trading at $41.38 on May 10, NRG stock trades for 11.5 times earnings this year and just 9.667 times 2023 earnings estimates.

Moreover, the company has plenty of FCF to cover both its dividends and buyback programs. Last year it generated $493 million in cash flow from operations and paid out just $319 million in dividends plus $48 million in buybacks.

This makes this utility stock one of the safest undervalued stocks for the long term.

On the date of publication, Mark Hake 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.