3 Undervalued Blue-Chip Stocks Offering Long-Term Value in a High-Valuation Market

In a market where speculative fervor has driven many growth stocks to stratospheric valuations, value investors are increasingly turning to fundamentally strong, undervalued blue-chip stocks. Chubb (CB), Citigroup (C), and PayPal (PYPL) stand out as compelling candidates, offering attractive price-to-earnings (P/E) ratios, robust free cash flow, and strategic overhauls that position them for long-term outperformance. These companies, though trading at discounts to peers, are poised to deliver defensive income and capital appreciation in a market increasingly dominated by overvaluation.

Chubb: A Defensive Insurance Play with Strong Capital Returns

Chubb, a global leader in property and casualty insurance, has demonstrated resilience in 2025, with core operating income surging 29% year-over-year to $3 billion and earnings per share (EPS) rising 31% to $7.49 according to Q3 results. Its current P/E ratio of 12.1x is below the broader insurance industry average of 13.2x, while analysts suggest a "Fair Ratio" of 13.5x, indicating a potential 11% undervaluation.

The company's free cash flow (FCF) of $4.5 billion in Q3 2025 underscores its financial strength, with $1.6 billion returned to shareholders via dividends and buybacks according to Q3 financials. Chubb's strategic focus on digital and AI-driven underwriting and claims processing further enhances its competitive edge, enabling cost efficiencies and faster growth. With a core operating return on tangible equity (ROTE) of 24.5% and a target of double-digit EPS growth, Chubb offers a compelling mix of income and long-term value.

PayPal: A Fintech Powerhouse at a Bargain Price

PayPal's P/E ratio of 11.64x is a stark discount to both the fintech industry average of 13.56x and the peer group average of 59.45x. This undervaluation is supported by its strong FCF of $2.3 billion in Q3 2025 and a projected $6 billion in adjusted FCF for the year. The company raised its full-year EPS guidance to $5.35–$5.39, reflecting confidence in its ability to capitalize on digital commerce trends.

Strategically, PayPal is doubling down on Venmo's growth, with debit card volume surging 65% and revenue expected to exceed $2 billion soon. Its Buy Now, Pay Later (BNPL) segment is also gaining traction, with projected 2025 volume of $40 billion. While agentic commerce initiatives face integration delays, PayPal's focus on optimizing branded checkout experiences positions it to capture a larger share of the evolving e-commerce landscape. For income-focused investors, PayPal's low P/E and high FCF yield make it a standout in a sector where valuations have historically been inflated.

Citigroup: A Bank on the Cusp of a Restructuring-Driven Rebound

Citigroup's P/E ratio of 14.51x may appear elevated compared to its 12-month average of 13.81x, but it remains significantly above the industry average of 11.15x, suggesting the market is pricing in future growth. Analysts estimate its intrinsic value at $129.68 per share, a 22.7% premium to its current price, highlighting a compelling margin of safety.

While Citigroup's free cash flow has been negative in recent years, its Q3 2025 adjusted EPS of $2.24 beat forecasts by 28%, and revenue rose 9% year-over-year to $22.09 billion. The bank's strategic overhaul, including the integration of U.S. Retail Banking into its Wealth division and the elevation of U.S. Consumer Cards as a standalone business, reflects a shift toward digital innovation and customer-centricity. Leadership changes, such as Mark Mason's transition to an advisory role and Gonzalo Luchetti's appointment as CFO, signal a renewed focus on capital allocation and operational efficiency. With a target return on tangible common equity (ROTCE) of 10–11% by 2026, Citigroup is laying the groundwork for a sustainable rebound.

The Case for a $1,000 Investment

In a high-valuation market, these three stocks offer a rare combination of defensive cash flows, strategic clarity, and undervaluation. A $1,000 investment split equally among Chubb, PayPal, and Citigroup would yield exposure to:
- Chubb's capital-efficient insurance model and AI-driven growth.
- PayPal's fintech dominance and low P/E discount.
- Citigroup's restructuring-driven turnaround and improving ROTCE.

Each company's metrics-whether Chubb's 12.1x P/E, PayPal's $6 billion FCF projection, or Citigroup's 22.7% undervaluation-underscore their potential to outperform in a market increasingly dominated by speculative bets. For income-focused investors, these blue-chips provide a stable foundation while offering the upside of long-term value creation.