Seasoned investors love blue chip stocks, which they regard as stable dividend-payers with wide moats and tangible assets. Such businesses usually have histories going back decades, as well as dependable revenues and profits. Some researchers regard blue-chips to be like bond-like stocks. Therefore, today’s article introduces seven blue chip stocks with gains and pedigree.
Inspired by the game of poker, where the blue chips on the table have the highest value, shares of some companies are called blue chip stocks. When it comes to long-term investment decisions, many retail investors perceive the familiar names of such blue chip companies to be safer and more appropriate for their portfolios. In the U.S., members of the Dow-30 are typically accepted as blue-chip stocks.
The Securities and Exchange Commission (SEC) urges on portfolio diversification and states, “By picking the right group of investments, you may be able to limit your losses and reduce the fluctuations of investment returns without sacrificing too much potential gain.”
Blue-chip stocks can help you diversify a long-term portfolio. While a part of your portfolio could be in other types of stocks, such as growth companies that tend to have higher risks coupled with more volatility in price. With that background, here are seven options you may want to research further for investing in blue chip stocks in 2021.
- 3M (NYSE:MMM)
- Apple (NASDAQ:AAPL)
- Coca-Cola (NYSE:KO)
- Intel (NASDAQ:INTC)
- iShares Russell 1000 Value ETF (NYSEARCA:IWD)
- Procter & Gamble (NYSE:PG)
- Vanguard Dividend Appreciation Index Fund ETF Shares (NYSEARCA:VIG)
Blue Chip Stocks: 3M (MMM)
52-Week range: $114.04 – $187.27
Dividend yield: 3.28%
Saint Paul, Minnesota-based 3M provides more than 60,000 products used in homes, businesses, schools, hospitals and other industries. Many of us would instantly recognize several of the brands, such as Ace, Futuro, Nexcare, Post-it, and Scotch-Brite. The company operates in four business groups including safety & industrial, transportation and electronics, healthcare, and consumer.
Q4 results released on Jan. 26, 2021 showed sales of $8.6 billion, up 5.8% year-over-year (YoY). Net income was $1,4 billion, an increase of 43.3% YoY. Adjusted EPS was $2.38, up 22.1%. Adjusted free cash flow came at $2.1 billion, up 16%.
Its health care and home improvement products have seen sales improve in recent months. However, sales of office products are still sluggish.
CEO Mike Roman cited, “Throughout 2020 we distributed two billion respirators globally and supported the development and manufacturing of vaccines and therapeutics to help the world respond to COVID-19… Moving forward we will continue to prioritize investments in growth, productivity and sustainability as we build on our progress and deliver strong results in 2021.”
MMM stock’s forward P/E and P/S ratios are 19.55x and 3.24x, respectively. A potential decline toward the $170-level would improve the margin of safety for long-term investors in the shares of this industrial conglomerate.
Apple (AAPL)
52-Week range: $53.15 – $145.09
Dividend yield: 0.60%
Consumer electronics and tech giant Apple is the largest U.S. company with a market cap of $2.3 billion. It is also one of the most profitable.
The company released FY21 Q1 metrics on Jan. 27, 2021. Revenue came at $111.4 billion, up 21% YoY. Investors were delighted with the highest revenue figure ever.
Net income came at $28.8 billion, an increase of 29%. Q1 earnings per diluted share was $1.68, and increased 35% YoY. Cash and equivalents were $36 billion, down 5%.
CFO Luca Maestri said, “Our December quarter business performance was fueled by double-digit growth in each product category, which drove all-time revenue records in each of our geographic segments and an all-time high for our installed base of active devices. These results helped us generate record operating cash flow of $38.8 billion. We also returned over $30 billion to shareholders during the quarter.”
AAPL stock is up over 71% in the past 12 months and hit a record high of $145.09 in late January. Its forward P/E and P/S ratios stand at 37.3x and 8.08x, pointing to an expensive valuation level.
Those investors who pay attention to technical charts should note that the long-term technical message is a “buy,” while short-term oscillators are at overbought levels. A momentum stock like Apple can stay overbought for long periods of time. Yet some selling pressure in the coming weeks could offer a better entry point into the darling of Wall Street.
Coca-Cola (KO)
52-week range: $36.27 – $60.13
Dividend yield: 3.29%
Atlanta, Georgia-based Coca-Cola has more than 700,000 employees worldwide. It has some of the most important successful non-alcoholic brands including Coca-Cola, Sprite, Fanta and other soft drinks.
According to financial results released late October, Q3 net revenues declined 9% to $8.7 billion and organic revenues (non-GAAP) declined 6%. Non-GAAP net income was $2.4 billion, down 9.8% YoY. Non-GAAP EPS was $0.55, declined 2% YoY. Free cash flow was $5.5 billion, also down 17%.
CEO James Quincey stated “We are accelerating our transformation that was already underway, shaping our company to recover faster than the broader economic recovery. While many challenges still lie ahead, our progress in the quarter gives me confidence we are on the right path.”
KO stock’s forward P/E and P/S ratios are 25.87x and 6.41x, respectively. Due to global closures of restaurants and entertainment venues, the company had a difficult year in 2020.
It is possible that the pandemic could continue to affect the business deeper into the new year. However, I believe the current price reflects that likelihood. Eventually, as economies open up, KO shares will do better. I believe the stock offers value below $50.
Intel (INTC)
52-week range: $43.61 – $68.09
Dividend yield: 2.39%
Intel is the largest chipmaker globally, with products ranging from personal computing to data centers. It delivers computer, networking, data storage, and communications platforms. The company is currently the market-leading provider of central processing units (CPUs) for laptops, desktops, and servers.
The company released Q4 results on Jan. 21. Q4 revenue was $20 billion, down 1% YoY. Non-GAAP net income was $6.2 billion, down 6% YoY. It delivered earnings per share of $1.52 on a non-GAAP basis, down 10% YoY. In 2020, the company generated a record $35.4 billion cash from operations and $21.1 billion of free cash flow during the quarter.
CEO Bob Swan cited, “We significantly exceeded our expectations for the quarter, capping off our fifth consecutive record year. Demand for the computing performance Intel delivers remains very strong and our focus on growth opportunities is paying off. Intel is in a strong strategic and financial position as we make this leadership transition and take Intel to the next level.”
INTC stock’s forward P/E and P/S ratios stand at 11.98x and 3.16x. The shares have underperformed both the semiconductors sector and the broader U.S. equity market over the past years. Yet, since the start of 2021, the shares are up about 18%. Wall Street cheered the quarterly results and the fact that management guided above analyst expectations as well as raised the dividend.
There might soon be some short-term profit-taking in the shares. A decline of about 5% from the current levels would improve the margin of safety for long-term buyers of shares.
iShares Russell 1000 Value ETF (IWD)
52-week range: $84.11 – $142.69
Dividend yield: 2.05%
Expense ratio: 0.19%
Our next choice is an exchange-traded fund (ETF), namely the iShares Russell 1000 Value ETF. The fund tracks the Russell 1000 Value Index, and provides exposure to large- and mid-cap U.S. companies that are thought to be undervalued by the market relative to comparable companies.
Buying an index that represents a large segment of the market could appeal to a large number of retail investors. The fund started trading in May 2000 and currently has 850 holdings. Total net assets of the fund are around $43 billion. As far as sector allocations are concerned, financials leads the ETF with 19.52%, followed by health care (13.63%), and Industrials (13.11%).
The top ten names, with approximately equal weights, make up around 16% of net assets. Warren Buffett’s conglomerate holding company Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B), financial giant JPMorgan Chase (NYSE:JPM) and healthcare products leader Johnson & Johnson (NYSE:JNJ) head the roster.
After seeing the 52-week high on January 14, IWD price has come under pressure in recent days. The fund is a stable dividend payer with blue chip stocks and can be considered by long-term investors.
Procter & Gamble (PG)
52-week range: $94.34 – $146.92
Dividend yield: 2.45%
Cincinnati, Ohio-based Procter & Gamble is one of the leading consumer goods manufacturers. Its brands are all around us and include Ariel, Crest, Febreze, Gillette, Head & Shoulders, Olay, Pampers, Pantene, and Vicks. The P&G community operates in approximately 70 countries worldwide.
On Jan. 20, PG announced fiscal year 2021 Q2 results. Net sales of $19.7 billion showed an increase of 8% YoY. Net earnings were $3.8 billion, up by 4% YoY. Diluted net EPS was $1.47, increasing 4% YoY. Free cash flow as of Dec. 31, 2020 was $4.9 billion.
CEO David Taylor cited, “We remain focused on executing our strategies of superiority, productivity, constructive disruption and improving P&G’s organization and culture. These strategies enabled us to build strong business momentum before the COVID crisis, accelerated our progress in calendar year 2020 and remain the right strategies to deliver balanced growth and value creation over the long term.”
Forward P/E and P/S ratios are 24.41x and 4.58x, respectively. PG came out of 2020 with strong financials. Buy-and-hold investors could consider investing around $120. The Street likes management’s optimistic outlook for the coming months.
Vanguard Dividend Appreciation Index Fund ETF Shares (VIG)
52-week range: $87.71 – $143.04
Dividend yield: 1.67%
Expense ratio: 0.06%
The Vanguard Dividend Appreciation Index Fund ETF Shares tracks the NASDAQ US Dividend Achievers Select Index and follows a passively managed, full-replication approach. The fund provides exposure to the performance of stocks of companies with a record of growing their dividends year over year.
VIG started trading in April 2006 and has a net asset total of $64.5 billion. Looking at equity sector diversification, we see consumer discretionary with 22.80%, followed by industrials (20.80%), health care (14.90%), and technology (12.50%).
The fund currently holds 212 stocks and the top ten holdings are about a third of net assets. Leading holdings include technology pioneer Microsoft (NASDAQ:MSFT), the world’s largest retailer Walmart (NYSE:WMT) and Procter & Gamble.
Dividend grower companies are regarded as safe havens in volatile times. VIG will likely help you protect your rainy day funds. Its companies have increased the annual dividends for at least ten consecutive years.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
