Getting a little antsy about the markets? Well, with the craziness with the so-called Reddit stocks like GameStop (NYSE:GME) and AMC (NYSE:AMC), this is understandable. In other words, it could make sense to get more defensive. And this means looking at blue-chip stocks.
Even with the big run-up in the markets, there are still fairly good values available for investors. What’s more, there should be nice growth opportunities, such as when things normalize from the novel coronavirus pandemic. Oh, and blue-chip stocks often have juicy dividends.
So then which ones look good right now? Which are likely to be stable in any kind of market? Let’s take a look at seven:
- Microsoft (NASDAQ:MSFT)
- Johnson & Johnson (NYSE:JNJ)
- Walt Disney (NYSE:DIS)
- JPMorgan (NYSE:JPM)
- Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG)
- Amazon (NASDAQ:AMZN)
- McDonald’s (NYSE:MCD)
Blue-Chip Stocks: Microsoft (MSFT)
Six years ago, Microsoft was listless. The company was falling behind rivals like Alphabet and Apple (NASDAQ:AAPL).
But Microsoft brought in a new CEO, Satya Nadella, and he wasted little time in making critical decisions. To this end, he went all-in with cloud computing, which played to the company’s core strengths like its massive customer base, global infrastructure and strong engineering talent. There were also a variety of smart acquisitions, such as for LinkedIn and GitHub.
The result is that MSFT stock has been red hot – and the gains are likely to continue. The company is now the No. 2 player in cloud computing, only behind Amazon. In the latest quarter, the business posted a 23% jump in revenue to $14.6 billion. At the core of this was a 50% increase in the Azure hosting platform.
The margins have also increased nicely. Because of this, Microsoft has been able to boost the profits of its overall business. In the quarter, the operating income increased by 29% to $17.9 billion. There is roughly $130 billion in the bank.
Microsoft did get a boost from the Covid-19 pandemic as companies have had to scramble to use technologies like videoconferencing and collaboration tools for remote work. But even when things get normalized, there will be a continued need for digital transformation – and Microsoft will be in a great position to continue to benefit.
For example, the company recently announced the development of a new platform called Viva, which is a comprehensive suite of HR applications. Microsoft estimates the market potential at a whopping $300 billion.
Johnson & Johnson (JNJ)
Johnson & Johnson is been a pillar of stability. Keep in mind that the company got its start back in 1886,
As of today, Johnson & Johnson has a diverse platform that includes three core businesses, all of which have valuable brands and franchises. There is the extensive consumer products division that has Aveeno, Sudafed, Nicorette, Pepcid. Then there is the pharmaceutical segment. The drugs span categories like oncology, infectious diseases and immunology. And finally, there is the medical devices business. Just some of the areas include robotic surgery and eye health systems.
Of course, Johnson & Johnson has been developing its own vaccine for the Covid-19 pandemic. The clinicals have shown a 66% efficacy for the prevention of moderate and severe conditions. While this is not at the levels of alternatives from companies like Moderna (NASDAQ:MRNA) and Pfizer (NYSE:PFE), it is still impressive. It is also important to note that there is only one injection required and that the vaccine can be stored in an ordinary refrigeration device. The approval is likely to come in the next few weeks and the company has the capacity to produce 1 billion doses for this year.
In terms of JNJ stock, the valuation is at an attractive level of 17.5 times earnings and the dividend is 2.4%. Note that the company has increased the payout for 58 consecutive years.
Walt Disney (DIS)
When the Covid-19 virus emerged a year ago, the prospects for Walt Disney looked grim. DIS stock would get hid hard. The company had to close its theme parks and hotels. There were also massive layoffs.
But DIS stock would go on to a comeback, with the shares ultimately hitting all-time highs. This was mostly because of the huge success of the streaming platform, Disney+. As of the latest earnings report, the subscriber count hit 94.9 million. However, the growth is likely to continue at a robust pace. The company estimates that the total base will get to 230 million to 260 million by 2024.
Disney has major advantages, such as some of the most valuable film franchises, such as Star Wars, Marvel and Pixar. But the company is creating other unique premium content that is getting traction.
As seen with Netflix (NASDAQ:NFLX), the streaming business can mean lucrative recurring revenue streams. But Disney will also benefit from the synergy of its theme parts and cable channels, when these come back into operation.
Blue-Chip Stocks: JPMorgan (JPM)
When it comes to blue-chip stocks for the banking industry, JPMorgan is perhaps the best. It has a diverse business and massive scale, as it is one of the largest financial institutions in the world with nearly $3 trillion in assets under management.
Now there were lots of fears that the Covid-19 pandemic would lead to major loan losses for the company. Yet this has not transpired. The company has actually released some of its reserves. Then again, JPMorgan tends to cater to wealthier individuals and larger businesses.
In the latest quarter, JPMorgan posted its highest level of profit in its history. The earnings jumped by 42% to $12.14 billion, or $3.79 per share. The Street was looking only for $2.62 per share.
There was strength across all the businesses. However, it was the investment banking division that was the star, as the bull market has been particularly strong. In the quarter, the profits spiked by 82% to $5.35 billion.
In terms of JPM stock, the valuation is reasonable, with the forward price-to-earnings ratio at 13.5X. The dividend is also 2.6%.
Alphabet (GOOGL, GOOG)
One of the nagging fears with Alphabet was that there would be lower ad revenue because of the Covid-19 pandemic. But this hasn’t played out. The fact is that Alphabet has the scale that advertisers need.
And the latest quarter showed the underlying strength of the business. Revenue hit a record of $56.9 billion, up from $43.2 billion in the same period a year ago. The ad business – which accounted for $46.2 billion of the total – grew by an impressive 22%.
Another key to the growth story has been the cloud business. The company is starting to catch up against rivals like Amazon and Microsoft. In the quarter, the cloud segment reported revenue of $3.8 billion. For 2020, the company tripled the number of deals of at least $250 million.
The valuation of GOOGL stock is not necessarily cheap. Consider that the forward price-to-earnings ratio is 34X. Yet a premium is definitely warranted given the strong growth of the business.
The departure of Jeff Bezos as CEO had a neglible impact on AMZN stock. But this should not necessarily be a surprise. The company has a deep bench of executive talent. And besides, Amazon is running on all cylinders.
Something else: Bezos’ replacement is Anday Jassy, who is a proven leader. He built AWS from scratch and turned it into the world’s largest cloud platform. It has since become the biggest source of operating income for the mighty Amazon.
Now Bezos will still be engaged with the company and focus on strategic decisions as well as early-stage projects. This is certainly reassuring for Wall Street.
In the meantime, the long-term future still looks bright for the company. E-commerce remains a huge secular trend and Amazon has the advantage of massive scale. But the cloud business should grow for the long-haul and there will be opportunities in other categories, like healthcare.
So even though Amazon is an enormous business, the company still is growing like a startup. Last year, revenue jumped by 38% to $386.1 billion.
All in all, Amazon looks like one of the most solid blue-chip stocks on the market.
Blue-Chip Stocks: McDonald’s (MCD)
The Covid-19 pandemic has been a struggle for McDonald’s because of the dining restrictions. Yet the company has still been able to find growth, such as in the U.S. market. In the quarter, the same-store sales increased by 5.5% on a year-over-year basis. The prior quarter saw growth of 4.6%.
The company certainly has many big advantages. After all, the brand is incredibly powerful. The company also has a savvy marketing organization. And there continues to be innovation with the menu. For example, there is the launch of a fried-chicken sandwich (this will be for Feb 24). The category has been particularly strong lately, as seen with the traction with chains like Popeyes and Chick-fil-A.
Analysts are starting to get excited about the new offering from McDonald’s. Note that Citigroup’s (NYSE:C) Sergio Matsumoto has put out a forecast of 12% same-store sales for the first half of this year.
On the date of publication, Tom Taulli did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Tom Taulli (@ttaulli) is the author of various books on investing and technology, including Artificial Intelligence Basics, High-Profit IPO Strategies and All About Short Selling. He is also the author of courses on topics like the Python language and COBOL.