Investors are advised to focus on blue-chip stocks so often that the advice is a cliche. However, the reason the advice is cliched is because it’s not often followed — and has to be repeated.
After all, investors often wind up chasing flashier stocks with bigger potential returns. Steady returns are the simplest, and safest, path to long-term upside, but require patience that investors don’t always have.
However, the advice is solid. And in this market, it’s more important than ever. Despite a global pandemic, we’ve seen names in tech — in particular — soar to potentially unsustainable valuations. Even market bulls have to admit that downside risk at the moment is substantial.
Overall, it’s an environment where blue-chip stocks should be of particular interest. One catch, however, is that the market is pricing many of those names accordingly. Microsoft (NASDAQ:MSFT), for instance, is one of the world’s best companies. But trading at more than 30-times forward earnings, valuation is a question mark.
There are blue-chips out there, however, that look to have upside going forward. These four names all have track records of success, the ability to thrive in any environment and valuations that leave room for gains going forward. And at a time of uncertainty, these blue-chip stocks should be on every investor’s watchlist:
- McDonald’s (NYSE:MCD)
- Johnson & Johnson (NYSE:JNJ)
- Intel (NASDAQ:INTC)
- Verizon Communications (NYSE:VZ)
So, with all of that in mind, let’s dive in.
Hot Blue-Chip Stocks: McDonald’s (MCD)
McDonald’s has taken a short-term hit from the novel coronavirus pandemic. Global same-restaurant sales fell more than 3% in the first quarter. That included a stunning 22% decline in March, according to the company’s first quarter conference call.
However, as our Matt McCall detailed last month, the numbers have steadily improved since. And with restaurants reopening worldwide, that improvement should continue going forward.
Additionally, despite strengthening performance of late, MCD stock still is down nearly 1.7% so far this year — and off 10.7% from February highs. That said, this decline seems like too much. McDonald’s remains one of the world’s great companies, and is the unquestioned leader in quick service. And there may even be a competitive benefit from the crisis.
Rival Burger King, a unit of Restaurant Brands International (NYSE:QSR), has been slower in its digital transformation — giving McDonald’s an edge in an environment with rising takeaway demand. The crisis has interrupted the efforts by Wendy’s (NASDAQ:WEN) to become a player in breakfast, where McDonald’s remains dominant.
Add in a 2.6% dividend yield, and the long-term case for MCD stock looks solid.
Johnson & Johnson (JNJ)
Johnson & Johnson stock seems to have it all. The portfolio is diversified: J&J has major businesses in pharmaceuticals, consumer products and medical devices. And at less than 19-times forward earnings, valuation is reasonable.
Collectively, the business should be defensive, as demand for most of its products is relatively uncorrelated to the macroeconomic environment. And with a 2.7% yield, JNJ stock’s dividend is a tick better than that of McDonald’s stock.
Yet, that combination hasn’t done all that much for JNJ stock of late. Shares have been stuck for several months now. And looking back further, over the last three years, JNJ stock has gained a total of just over 11% — lagging the market in the process.
Legal issues around opioids and the company’s talcum powder products have been one factor. However, J&J is putting those issues behind it. At this point, it seems like the stock should be ready to run — and being a lead vaccine candidate for COVID-19 could be a catalyst going forward.
Hot Blue-Chip Stocks: Intel (INTC)
Intel stock, too, has been left behind the market of late. Despite rallies in tech more broadly and semiconductor stocks in particular, INTC stock is just 2% higher year-to-date. This month, Nvidia (NASDAQ:NVDA) passed Intel in terms of market capitalization.
Overall, there are some worries here. Execution has not been on point, as Intel has seen multiple delays in rolling out new products. Intel’s datacenter business is also facing threats from not only Nvidia, but Advanced Micro Devices (NASDAQ:AMD) as well.
But even with that competition, Intel still is dominant in the market — and growing quickly. A nearly 13-times forward price-to-earnings multiple prices in basically zero profit growth going forward, which seems too conservative. INTC, too, offers a dividend yield over 2%.
Given valuations in tech right now, there aren’t a lot of attractive value plays. That said, though, Intel stock seems like one of those plays.
Verizon Communications (VZ)
Among value investors, in particular, Verizon’s rival AT&T (NYSE:T) seems to get most of the attention. A headline-grabbing dividend yield near 7% and that company’s long-held status as a “widows and orphans” stock attracts value seekers.
However, VZ stock might have a better case at this point. AT&T’s acquisitions of DIRECTV and Time Warner left it with a massive debt load. Both units are under pressure at the moment, as cord-cutting hits satellite subscriber numbers while lowering affiliate fees for Time Warner’s Turner networks.
Verizon, meanwhile, has outperformed AT&T in terms of mobile subscribers for years now. Its balance sheet is also in better shape. Moreover, 5G presents a catalyst, and the importance of cellular plans limits the company’s exposure to a recession. VZ stock is almost as cheap as T, and Verizon seems like a better business at this point. Therefore, VZ stock should be getting more attention.
After spending time at a retail brokerage, Vince Martin has covered the financial industry for close to a decade for InvestorPlace.com and other outlets. As of this writing, he has no positions in any securities mentioned.