Here is why Kroger Co (NYSE:KR) and Southwest Airlines Co (NYSE:LUV) are two of my winning blue-chip stocks.
We have officially entered the second quarter of 2015, and some things are becoming clearer.
First, this isn’t going to be a breakout year for the U.S. economy or any other economy on the planet. We still have yet to hit escape velocity from the great sucking sound of the Great Recession, and we’re doing better than the rest of the world’s economies.
Second, it looks like the Federal Reserve will raise rates at some point, but it still doesn’t stop the U.S. from being the market of last resort and the currency of last resort. That’s why the markets are on a record bull run, and Treasuries are at premium prices.
Third, oil is going to be a lot cheaper than it was last year. How this all plays out remains to be seen since much of the U.S. production was hedged out at what are now near-break-even prices. As these contracts expire, we’ll get a better sense what will happen to U.S. exploration and production.
So, what do these three revelations mean?
Expect volatility to continue. Coming off of the world of central bank controlled economies and easy money has never been done before. Remember, when the markets collapsed in 2008, the way the major nations decided to save the system was to step in and print money.
As regions succumbed after the initial blow, they did the same thing, and now there are dozens of nations running quantitative easing policies. The U.S. will actually be bucking the trend when it eventually raises rates this year.
Again, this is uncharted territory, and the markets hate uncertainty — that spells volatility.
Blue-Chip Food
That’s why it’s nice to have a solid base of blue-chip stocks that can ride through the volatility without the drama you see in many growth stocks.
Kroger is a perfect example.
There’s a lot of talk now about the big food and retail chains raising wages for their workers. Most recently, McDonald’s Corporation (NYSE:MCD) said its boosting it minimum wages for tens of thousands of MCD workers.
Where these working class and poor earners spend this extra cash will see the next rise in earnings; and there’s a very good chance KR is prepared to take advantage. Few grocery store businesses have better margins.
I’ve held KR since August 2013, and it’s returned a very healthy 99% over that time.
KR is one of the nation’s largest retail grocery chains and also owns 1,200 gas stations, 800 convenience stores, over 300 jewelry stores and 37 food-processing facilities.
A few weeks ago, Kroger trounced Q4 earnings expectations. Net earnings jumped 22.7% compared to the year ago quarter. Over the same period, total sales climbed 9%, ahead of the consensus estimate, and excluding fuel sales, total sales jumped 14.2% over last year.
Since Kroger only operates in the U.S., KR isn’t effected by the stronger dollar. With an upsurge in frugal consumers and investors looking for solid, stable growth, KR is going to keep its winning trend alive.
Blue-Chip Flight
As for Southwest Airlines, it’s a winner for the next iteration of U.S. spenders — small business travelers and families looking to get away without breaking the bank.
LUV stock has been on a tear for quite a while — we’ve held it since May 2013, and it’s up nearly 225% over that period.
The good news keeps coming: In February, sales were up 6% compared to February 2014. Low fuel costs will certainly help the bottom line and expand margins. Add that to increased passenger and cargo loads, and you have a very bullish picture.
Southwest Airlines is beginning to retire older planes and get newer – and larger – ones, which is helping grow margins (more passengers per plane means more money). LUV has also entered more markets. So, LUV serves a much larger potential audience than it used to.
Southwest Airlines’ acquisition of AirTran Holdings, Inc. has opened up international markets it hasn’t served before. Again, travel to Mexico and Central America should be very strong, especially for a well branded, discount airline like LUV. For Americans looking for close-by luxury, LUV will also serve the Caribbean, which has a variety of holiday packages for every budget.
All this promises great opportunities in 2015 for Southwest Airlines and a lot more headroom for LUV stock. What’s more, since it doesn’t yet have overseas operations, the strong dollar doesn’t really bother Southwest Airlines’ earnings, it’s all upside.
Louis Navellier is the editor of Blue Chip Growth.
