The broad market is a step away from record highs. Yet as we approach another earnings season, markets face uncertainty as to how the trade wars will develop and whether tensions with Iran will keep heating up. Therefore today, I am going to discuss three blue chip stocks that are appropriate for long-term portfolios: CVS Health (NYSE:CVS), Coca-Cola (NYSE:KO) and Verizon Communications (NYSE:VZ). In the coming weeks, I’d be looking to buy the dips in any of the three stocks.
Having a long-term focus enables investors to patiently get through the weekly noise of the markets while they relax with the knowledge that their portfolio stocks have the quality to weather short-term adverse developments. These investors do not need to make constant plans for the payment of capital gains taxes as they do not have to worry about selling their shares in the short-run.
Finally, CVS, KO and VZ stocks pay stable and robust dividends. Income investors know that they can compound their returns through reinvesting dividends from high-yielding shares. Take a look at why these three stocks to buy are worth keeping an eye on.
CVS Health (CVS)
Notable tailwind catalysts: Diversified sources of revenue, earnings and cash flow; income boost from Aetna; respectable dividend yield of 3.17%
Expected price range until next earnings in early November: $57.5-$65
Year-to-date, CVS stock is down 3% and currently hovers around $63. On Aug. 7, when CVS stock reported Q2 earnings, the group posted big earnings beat. Management also increased its full-year guidance for adjusted EPS to between $6.89 and $7.00 from between $6.75 and $6.90.
Investors cheered the results, which had significant boost in revenue from recently-acquired health insurer Aetna, the third-largest U.S. health insurance company by membership and revenue. As a side note, in November 2018, around the time when CVS completed the purchase, CVS stock traded at about $80 per share.
CVS management has also highlighted that the group will continue to open up new pharmacy stores across the country. Its rivals Walgreens (NASDAQ:WBA) and Rite Aid (NYSE:RAD) have, however, said that they would be closing down pharmacy stores.
Since the release of the results, CVS stock is up about 15%. Therefore, in the short-term, there might be some profit taking in the this stock to buy.
Nonetheless, the company’s size and presence, as well as trusted brand, are likely to increase the group’s ability to grow revenue and earnings in future quarters, too. In two to three years, CVS shares may reach $80, the level where there were about a year ago.
Coca Cola (KO)
Notable tailwind catalysts: Stable business; diverse range of drinks; respectable dividend yield of 3%.
Expected price range until next earnings in mid-October: $50-$57.5
Coca-Cola is the world’s largest beverage company with 20 different brands that generate more than $31 billion dollars in annual revenues. Many investors have regarded KO stock as a reliable investment over the years.
Yet most of this decade, KO has had its share of challenges and seen declining revenues. There has been a drop in soda sales as the U.S. consumer moves towards healthier beverages like flavored water.
Despite the decline in soda sales, gross margins have remained stable at about 60%. Furthermore, many on Wall Street find KO stock’s brand portfolio diversified enough to keep the company a leader in the next decade.
KO also recently completed the acquisition of Costa Coffee, the biggest coffee chain in the U.K. Wall Street believes the purchase could lead to increased diversification away from soda and revenues, especially prompted by growth in the Chinese market, where Costa Coffee has almost 500 stores. Q2 earnings released in July showed that coffee sales are en route to becoming a viable growth engine.
Year-to-date, KO stock is up about 15% and trading around $54. Its trailing P/E ratio is about 33. Therefore there may be some profit-taking around the release of next earnings. Such a drop in Coca-Cola stock price would give long-term investors a viably entry point.
Notable tailwind catalysts: Large business; competitive moat; respectable dividend yield of 4.1%.
Expected price range until next earnings in late October: $55-$62.5
Verizon, the largest wireless carrier in the U.S., has a strong story. The company has a clean balance sheet with robust cash flows. Although the group is not a growth machine, its revenues are up and has a large and stable cash flow. Thus, it remains a long-term growth play on a fundamental basis.
Creating growth opportunities in a mature industry like telecommunication services requires proactive management. And that’s where one of Verizon stock’s strengths may lie. The upcoming 5G revolution should be a strong catalyst for the company’s share price in the long-run and management certainly regards the 5G rollout strategy as the top priority area.
Customers may also be taking notice as Verizon beat subscriber numbers in Q2 as it added a total of 245,000 phone subscribers during the quarter.
On Sep. 9, Verizon increased its dividend, making it the 13th consecutive year the board of directors has approved a quarterly dividend increase.
Year-to-date, VZ stock is up about 9%. Currently, it is hovering around $60. Until the next earnings announcement, I expect the shares to trade in a range and not make any new highs. Any upcoming profit taking in VZ stock price would also make the trailing P/E ratio, which stands at about 15, more attractive. VZ is one of the top stocks to buy.
As of this writing, Tezcan Gecgil holds KO covered calls (October 4 expiry).