Blue-chip stocks are shares of established, financially robust and profitable businesses. Many of them have brands, products, or services that set them apart from the competition and typically make them leaders in their industries. A large number of blue-chip stocks also have stable dividends — a fact that appeals to passive-income seekers.
For this piece, I’ve picked seven blue-chip names that are looking better than ever. Our chosen businesses for today are all members of the Dow Jones Industrial Average, which is up 12% year-to-date (YTD). With its 30 companies, the DJIA is regarded as a benchmark index for blue-chip stocks.
History buffs might know that Charles Dow computed the first Dow Jones Industrial Average Index in the final years of the 19th century. His main objective was to construct an index that could capture and measure developments and changes in market sentiment.
Since then, the DJIA has changed numerous times. However, investors worldwide still regard it as one of the most important barometers of Wall Street. For this list, our DJIA companies include:
- Chevron (NYSE:CVX)
- Coca-Cola (NYSE:KO)
- Honeywell International (NASDAQ:HON)
- 3M (NYSE:MMM)
- Microsoft (NASDAQ:MSFT)
- Travelers Companies (NYSE:TRV)
- Visa (NYSE:V)
Given some recent increases in shares prices, many of these stocks are near their all-time-highs. As a result, valuation measures such as price-to-earnings (P/E) and price-to-sales (P/S) ratios may look overstretched.
However, we’re currently witnessing a healthy debate on the Street about whether many stocks have run ahead of themselves in the market euphoria of the pandemic. For companies that have no tangible revenues or even prospects of profits, the answer is quite easy. But potential investors should note that current valuation multiples do not always give a clear indication of a stock’s intrinsic value, especially when it comes to blue-chip and high-growth names.
Therefore, you should do further due diligence on these stocks and add them to your watchlist. Analyzing a company’s income statement, balance sheet and cash flow statement is an important step in becoming a lifelong investor. So, without further ado, let’s dive in and take a closer look at these seven blue-chip stocks to buy.
Blue-Chip Stocks to Buy: Chevron (CVX)
52-week range: $65.16 – $113.11
YTD price change: Up about 28.5%
Dividend yield: 4.84%
Chevron is one of the world’s leading integrated energy companies. This oil giant operates through two business segments: Upstream — or extracting and selling oil — and Downstream, or refining. It produces crude oil and natural gas and also manufactures transportation fuels, lubricants, petrochemicals and additives.
On Apr. 30, Chevron released first-quarter metrics. Sales and other operating revenues were $31 billion, up 4.6% year-over-year (YOY). Non-GAAP total adjusted earnings were $1.7 billion, down 29.4% YOY. Non-GAAP total adjusted earnings per share (EPS) was 90 cents, showing a decline of over 31%. Finally, free cash flow excluding working capital came in at $3.4 billion. On the results, CEO Mike Wirth stated the following:
“Earnings strengthened primarily due to higher oil prices as the economy recovers […] We realized cost efficiencies from last year’s restructuring and the integration of Noble Energy […] We took action to advance a lower-carbon future by announcing plans with partners to develop carbon negative bioenergy and commercially viable, large-scale businesses in hydrogen.”
Of course, an oil company’s fortunes are mostly tied to the price of oil. In general, upstream operations benefit from an increase in the price of crude. However, downstream sees shrinking margins when oil prices go up. Chevron’s Q1 results reflected this fact, as the price of Brent crude has now reached over $69 today.
Throughout the pandemic, though, Chevron’s management has focused on strengthening the balance sheet and increasing the company’s cash position. It has been spending less on exploration and putting less emphasis on expanding operations.
In May, the CVX share price set a new 52-week high. Now, this pick of the blue-chip stocks has forward P/E and P/S ratios of 21.02 and 1.54. A potential decline toward the $100 level would improve the margin of safety here. When it comes to energy stocks, though, these shares are one of the top choices out there.
52-week range: $43.51 – $55.50
YTD price change: Down about 1%
Dividend yield: 3.07%
Atlanta-based Coca-Cola needs little introduction. The company has some 700,000 employees worldwide and sports a portfolio of popular brands including Coca-Cola, Sprite, Fanta and other soft drinks.
Coca-Cola announced Q1 earnings on Apr. 19. Net revenues grew 5% YOY to $9 billion. Non-GAAP net income was $2.4 billion, up 8.4% (Page 17). Non-GAAP diluted EPS grew 8% to 55 cents. Non-GAAP free cash flow amounted $1.4 billion, up $1.2 billion from the prior year. CEO James Quincey noted the following about the results:
“We remain focused on emerging stronger and executing against our growth accelerators during the recovery phase. We are pleased with the progress we are making […] We are encouraged by improvements in our business, especially in markets where vaccine availability is increasing and economies are opening up, and we remain confident in our full year guidance.”
For full year 2021, management expects to deliver comparable EPS (non-GAAP) percentage growth of high single digits to low double digits. In 2021, the number had been $1.95 (Page 6).
Over the past year, KO stock returned about 25.2% and hit an all-time high in recent days. Currently, its forward P/E and P/S ratios are 25.08 and 6.4, respectively. For this pick of the blue-chip stocks, a potential decline below $50 would improve the risk-return profile of the shares.
Blue-Chip Stocks to Buy: Honeywell International (HON)
52-week range: $131.94 – $232.65
YTD price change: Up about 4.7%
Dividend yield: 3.29%
Honeywell International is a diversified technology and manufacturing group with a history that goes back to 1906. The company operates through four segments: Home and Building Technologies; Performance Materials and Technologies; Safety and Productivity Solutions; and Aerospace.
As a cyclical business, some of Honeywell’s parts came under significant pressure in the last year, especially during the early days of the pandemic. For instance, the demand slump is still affecting the aerospace segment. However, the U.S. is still one of Honeywell’s most important customers. Increased demand from the federal government has offset some of its other losses.
This industrial giant announced Q1 numbers on Apr. 23. Sales totaled $8.5 billion, down just 2% YOY. Moreover, net income of $1.45 billion meant a decline of 9.8% YOY. Adjusted EPS also declined 13% YOY to $1.92. Finally, free cash flow was $757 million, decreasing 5.4%. CEO Darius Adamczyk commented the following on the results:
“Honeywell delivered a strong start to 2021 with first-quarter results that exceeded our expectations […] As we look to the rest of 2021 and beyond, we are well positioned for the recovery to come. Our new offerings in growing markets like life sciences are gaining traction and the industries that were hardest hit by the pandemic are expected to improve throughout the year.”
Like other names on this list of blue-chip stocks, HON stock reached an all-time high in May. Currently, its forward P/E and P/S ratios are 28.33 and 4.52, respectively. A potential decline toward the $210 would offer better value for buy-and-hold investors. As we get more clarity regarding business conditions in the days ahead, though, the share price could easily start another leg up.
52-week range: $144.60 – $208.95
YTD price change: Up about 16.3%
Dividend yield: 2.89%
Multinational conglomerate 3M operates through four business groups: Safety and Industrial, Transportation and Electronics, Health Care and finally Consumer. It also has a huge pipeline of products. Plus, the pandemic has provided tailwinds to several parts of its business. For example, its personal protective equipment (PPE) products are used nationwide. As a result, the company finished 2020 coming with strong sales and cash flow.
3M released Q1 metrics on Apr. 27. Sales grew 9.6% YOY to $8.9 billion. Non-GAAP net income was $ 1.62 billion, up 24% YOY. Similarly, non-GAAP diluted EPS came in at $2.77, showing an increase of 23% YOY. Adjusted free cash flow was $1.4 billion, up 49% YOY. CEO Mike Roman noted the following on the results:
“Our four industry-leading businesses are delivering strong results, while we accelerate 3M’s digital transformation and sustainability efforts with significant new goals to improve air and water quality.”
According to the management’s full-year 2021 guidance, earnings are expected to be in the range of $9.20 to $9.70 per share. Likewise, full-year total sales growth is expected to be in the range of 5% to 8%.
On May 5, MMM stock reached a multi-year high of $208.95. This pick of the blue-chip stocks also has forward P/E and P/S ratios of 20.86 and 3.41, respectively. Given the recent run-up in price, short-term profit-taking is likely. Investors would find better value around $190 to $195. However, passive income seekers should be interested to know that MMM is also a solid dividend growth stock.
Blue-Chip Stocks to Buy: Microsoft (MSFT)
52-week range: $176.60 – $263.19
YTD price change: Up about 10.4%
Dividend yield: 0.91%
Next up on this list of blue-chip stocks is Microsoft, which announced Q3 fiscal 2021 metrics in late April. For the quarter, revenue increased 19% YOY to $41.7 billion and non-GAAP net income came at $14.8 billion, meaning an increase of 38% YOY. Non-GAAP diluted EPS was also $1.95, or up 39% YOY. Cash and equivalents totaled $13.7 billion. Finally, investors were also pleased to hear that management is expecting another strong quarter in Q4.
Currently, MSFT’s Intelligent Cloud segment is this company’s fastest-growing business unit; its revenue went up by 23%. On these results, CFO Amy Hood note that, “The Microsoft Cloud, with its end-to-end solutions, continues to provide compelling value to our customers generating $17.7 billion in commercial cloud revenue, up 33% year over year.”
MSFT stock hit an all-time high of $263.19 on Apr. 27. Since then, the shares have come under pressure. Right now, the stock has P/E and P/S ratios of 31.55 and 11.11, pointing to a rich valuation by historical standards.
As such, buy-and-hold investors could see a further decline toward $240 level as a better entry point here. That said, the Street loves Microsoft’s strong balance sheet and wide moat. With a market capitalization of $1.85 trillion, the shares will not likely stay depressed for long.
Travelers Companies (TRV)
52-week range: $92.93 – $162.71
YTD price change: Up about 12.4%
Dividend yield: 2.20%
An insurance giant, TRV stock represents a stake in one of the largest commercial property casualty insurance sellers and personal insurance writers. In recent quarters, catastrophe losses have been high for the group. On the other hand, though — due to the effects of the pandemic — other areas had fewer claims, especially within the personal insurance segment (such as in auto insurance).
Like other companies on this list of blue-chip stocks, Travelers released Q1 results back in late April. For the quarter, total revenue grew 5% YOY to $8.3 billion. Diluted EPS was also $2.87, an increase of 23% YOY. Finally, cash at the end of Q1 was $633 million. On the results, CEO Alan Schnitzer remarked the following:
“The strength of our underwriting and investment expertise enabled us to deliver strong profitability, notwithstanding the severe winter weather. As a result, we are off to a terrific start to the year. We are particularly pleased with the strong underlying fundamentals in all three of our business segments.”
Today, TRV stock is up 74.3% in the past 12 months and even hit a record high in recent days. The current forward P/E and P/S ratios for this blue chip are 14.49 and 1.33, respectively. Trading for around $157 today, interested investors could eye the $150 level for a potential entry point. This company should continue to create shareholder value in the coming quarters, too.
Blue-Chip Stocks to Buy: Visa (V)
52-week range: $179.23 – $237.50
YTD price change: Up about 4.3%
Dividend yield: 0.57%
Last up on this list of blue-chip stocks to buy is Visa, one of the leading names in credit cards and payments.
As we all know, Covid-19 meant increased digital commerce. As a result, shares of V stock got significant attention. That said, although many people relied on their credit cards to make electronic payments, the company’s business also experienced significant disruption. For example, decreased travel has posed a major challenge for Visa over the past year.
This company released Q3 metrics on Apr. 27. Net revenue declined 2% to $5.7 billion. Non-GAAP net income also came in at $3 billion, down 2%, while non-GAAP EPS was down 1% to $1.38. Finally, cash and investment securities were $18.7 billion as of Mar. 31, 2021.
Additionally, payments volume and processed transactions were both 16% higher than the prior-year period. However, “cross-border volumes excluding intra-Europe” were 25% lower. We should note that, as part of its business model, Visa charges more on cross-border volumes such as in travel. On the overall results, CEO Alfred Kelly had the following to say:
“This quarter, we saw a return to positive growth for credit and card present transactions and debit and eCommerce growth stayed at very healthy levels. Cross-border travel is the slowest sector to return, but there are some green shoots that offer real indication of people looking to see the world.”
V stock hit a record high on Apr. 29. Currently, its forward P/E and P/S ratios are 40.33 and 20.53, respectively. On a final note, though, the company returned $2.4 billion in “capital to shareholders in the form of share repurchases and dividends” in its last quarter.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Tezcan Gecgil, Ph.D., 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.