Many blue-chip stocks to buy right now tend to walk a very thin line between growth plays for a recovery and stable plays for what could become a choppy market in the short term.
On the growth front, it’s clear that the recovery is continuing in earnest this year; unemployment is now just 6.1%, and the stock market is up another 6% or so even after a 30% run in 2013.
Of course, there are concerns that the housing market has run out of gas and that the relatively high valuation for stocks is signaling at the very least a short-term correction in the market.
So if you’re in the market for blue-chip stocks this summer, you have to be careful not to just chase the big names with big long-term potential as the U.S. economy continues to mend.
You also have to protect yourself against any short-term risks.
If you’re looking for blue-chip stocks to buy, start with this list of seven crash-proof mega-caps with decent dividends and big potential in any stock market environment:
Crash-Proof Blue-Chip Stocks to Buy – Colgate-Palmolive (CL)
Colgate-Palmolive (CL) is one of InvestorPlace.com’s Dependable Dividend Stocks for any market. That’s because the consumer staples company has paid uninterrupted dividends since 1895 — across the Great Depression, two World Wars and most recently the financial crisis.
It’s not just the stability of Colgate’s dividend that makes the stock attractive, however. Back in 2004, CL stock paid 12 cents per quarter in dividends and now pays 36 cents a share — a threefold increase in the past decade.
The current yield on Colgate’s dividend is 2.1%, which admittedly is lower than many other dividend payers out there. But as a long-term holding, the stability and dividend growth of CL stock means your yield will rise over time.
Consider that in the last 10 years, Colgate-Palmolive stock is up about 115% to outperform the S&P 500’s 76%. And when you include the total return of the dividends paid, CL stock has actually returned about 200% in the past 10 years vs. just 115% for the S&P 500’s total return. That’s almost double the profits thanks to a strong history of dividends and dividend growth.
You can have confidence these dividends will continue, too. In both good times and bad, CL has reliable revenue thanks to its popular product lines that include Colgate oral care, Speed Stick deodorant, Science Diet pet food and Palmolive dish soap just to name a few.
Sure, Colgate-Palmolive isn’t the sexiest stock out there. But if you want stability and long-term dividend growth, you can’t do better.
Crash-Proof Blue-Chip Stocks to Buy – Exxon Mobil (XOM)
Exxon Mobil (XOM) is the quintessential megacap with a wide moat and stable operations. Just check out these facts:
- Exxon has a market capitalization of over $408 billion, making it America’s biggest energy company by far.
- XOM boasts annual operating cash flow north of $55 billion
- Exxon is sitting on roughly $74 billion in cash and investments
While energy prices can be volatile, I think we can all agree that the world’s appetite for oil isn’t going away for a long time.
And in the short term, crude oil prices have a nice tailwind and have risen to more than $100 a barrel compared with a low of $85 in mid-2013.
Sure, Exxon has underperformed in recent years — notably when a “risk-on” environment in 2013 lifted the market to 32% gains as XOM tacked on just 20%. But again, this is a crash-proof stock you want to own for stability and not for the breakout potential. (And, 20% in a year isn’t anything to sneeze at.)
With a strong balance sheet and a good, sustainable dividend of 2.7%, you can have faith in XOM over the long term and in any market environment.
Crash-Proof Blue-Chip Stocks to Buy – Amgen (AMGN)
Biotechnology stock Amgen (AMGN) is one of many healthcare stocks that I like as a long-term, low-risk investment. Aging baby boomers providing a near guarantee of growth for the sector across the next several years, as does the Affordable Care Act (aka Obamacare) that has added many more insured “customers” to the healthcare sector.
Since Amgen focuses on cancer, kidney disease and arthritis it will have no shortage of sales in the coming years regardless of the macro picture. As boomers age, AMGN will be there.
But it’s not just the recession-proof appeal that makes Amgen crash-proof. Many folks think that tech stocks are always the big cash hoarders, but at the end of June, Amgen reported an amazing $19 billion in cash and short-term investments. That’s more than enough to fund research to keep its drug pipeline going, snap up smaller biotech firms and keep humming along.
There’s also hope for continued dividend increases. Though the yield in Amgen is just 2%, the payout of $2.44 annually is just 28% of fiscal 2014 earnings — not just sustainable, but ripe for a bump higher.
With stable positioning as a healthcare stock serving older Americans and with upside potential to dividends, Amgen is a very safe bet.
Crash-Proof Blue-Chip Stocks to Buy – Teva Pharmaceuticals (TEVA)
Another healthcare stock that I like, but for very different reasons, is generic giant Teva Pharmaceuticals (TEVA).
The stock isn’t a household name like blue-chip drugmakers, and it isn’t a biotech darling like high-powered pharma stocks researching impressive new cures.
Teva is actually quite boring, really, as the world’s largest manufacturer of generic medications. After a big company has run its course with a patented medication, TEVA steps in and makes the same drug for cheaper and sells it for less to patients that need it.
The margins are thinner, but you can make up for this with scale — and with more than $20 billion in sales annually in all corners of the globe, Teva certainly has the scale.
Now, there’s no breakout potential in TEVA stock since drug research isn’t really its game. But for low risk investors, that’s a big plus — because unlike some other pharma stocks out there, patent expiration will never be an issue that weighs on its margins.
Teva continues to grow ambitiously through acquisitions. In its recent earnings call, the new CEO said he is “aware of the opportunities around us, including potential larger transactions.” Soon after that, rumors started swirling that Teva will buy out India drugmaker Cipla Ltd. for $6 billion.
Not only will the Cipla deal (if it happens) tighten Teva’s grip on generics, but it also will provide big growth in an emerging market where healthcare consumption is rising rapidly — even more so than in an aging U.S.
With a 2.3% dividend yield, TEVA stock isn’t the highest dividend payer out there. But with a dominant share of the global generics market and a will to stay bigger than everyone else, Teva is a great long-term play for low-risk investors.
Crash-Proof Blue-Chip Stocks to Buy – 3M (MMM)
3M (MMM) is a nice mix of stability and growth potential, and thus a good option if you want a low-risk play but don’t want to miss out on a continued recovery.
3M’s chemicals and polymers span all manner of businesses, including products from Post-It sticky notes to high tech data center solutions to medical devices that help monitor a patient’s heart rate. Also on the stability front, MMM stock has paid uninterrupted dividends since 1916 thanks to its scale and diversification — and that dividend is growing, too. In 2004, MMM stock paid 36 cents a share in quarterly dividends and now pays 85.5 cents — a 138% increase in distributions.
Furthermore, even after these brisk increases there’s enough cushion in 3M’s earnings to increase its dividends even more. Based on next year’s profit forecast, 3M is paying just 40% or so of earnings toward its dividend. No wonder MMM stock has been able to increase its dividend once a year for 57 years running, and currently yields 2.4%.
The chemicals space is dominated by a small group of players, including DuPont (DD) and Dow Chemical (DOW) at market caps of roughly $60 billion. But 3M is by far the largest of the trio at a valuation of about $95 billion, and is at no risk of going anywhere.
If and when the recovery gains momentum, all manner of chemicals and 3M products will be in higher demand and the company should ride a cyclical recovery in spending. That means investors have a great mix of stability and growth in this blue chip dividend stock.
Crash-Proof Blue-Chip Stocks to Buy – Intel (INTC)
Intel (INTC) is a very different company that 3M, but shares the same mix of stability and growth that I find attractive.
According to research firm IHS, Intel dominates the semiconductor market with a 14.8% share of chip revenue. And with $30 billion in cash and investments on the books, and more than $20 billion in annual operating cash flow, there’s a lot of stability built in to the balance sheet as well.
Sure, the mobile revolution is severely limiting the growth potential for Intel, and revenue has been stagnant since 2011. However, despite a continuation of top-line issues in the first quarter, there are signs that Intel is much better off than some naysayers believe. For one, Intel beat expectations in the first three months of the year, thanks in part to its data-center business and (surprise!) corporate PC sales.
I remain convinced that the poor performance of enterprise tech over the past few years will start to change as businesses begin to invest again. And if that trend proves true, we could see Intel continue to see growth in its data-center and PC businesses in the short term.
Long term, Intel continues to make progress on mobile chip sets and adapting its business to a new environment. Beyond the strategy, there’s the juicy dividend and a strong history of increases. Intel’s dividends have advanced 450% in the past 10 years, from 4 cents quarterly to 22.5 cents, but still are comfortably below half of projected earnings.
If you want to play a recovery in enterprise spending but enjoy the stability of an entrenched blue chip with a good dividend at the same time, then Intel is your best bet.
Crash-Proof Blue-Chip Stocks to Buy – Johnson & Johnson (JNJ)
Johnson & Johnson (JNJ) is an old favorite among defensive dividend stocks. It’s a healthcare play — but also a consumer staples play, thanks to popular brands including Band-Aid, Tylenol and Splenda.
Those two segments are the most bulletproof in all the market, and owning a leader in both staples and healthcare ensures a great foundation for your portfolio even in rough times. The healthcare angle makes JNJ stock pretty recession-proof, since medical expenses don’t go away even in tough times, and the company’s consumer-brand power gives it stability for the long run.
Many investors soured on Johnson & Johnson after the company struggled from 2010 to 2012 amid quality-control issues and big product recalls. However, since January 2013 the stock has outperformed the S&P 500 nicely with a roughly 50% gain vs. just 3440for the benchmark index in the same period. This includes an impressive gain of 15% this year despite only about 6% gains for the S&P.
And in the long term, J&J has a total return of about 140% including dividends over the past 10 years, thanks to distributions that have increased 145% from 28.5 cents per share quarterly in 2004 to 70 cents currently.
With a recent tailwind at its back and a long history of stability and income, JNJ is a great play for whatever comes your way in 2014 and beyond.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.