Despite major indices appearing stretched, it’s readily apparent that investors are still eager to speculate. And naturally, it’s tempting to join in on the fun. But while I won’t actively discourage anyone from gambling, right now blue-chip stocks look far better than meme stocks, particularly those overlooked names.
Let’s start off with the basic reason why you should invest in the blue-chip sector: it’s the most reliable return on investment when it comes to equity in public companies. You’re getting ownership stake in some of the world’s biggest corporations, often levered to large-scale businesses that won’t become irrelevant anytime soon, if ever.
Plus, consider the readings from last Friday’s session heading into Father’s Day. The benchmark S&P 500 slipped 1.3% against the prior day, while the technology-centric Nasdaq lost almost 1%. To me, these trends are a warning sign to dial back the risk and consider blue-chip stocks.
I’m not the only one who thinks blue-chip stocks will outperform for the rest of the year. Speaking with InvestorPlace via email, University of Maryland Clinical Professor of Finance David Kass said:
“So far in 2021, blue-chip stocks have outperformed high-risk high-return investments. As of June 5, 2021, the Dow Jones Industrial Average, which consists of 30 large blue-chip companies, has increased by 13.6%, while the Nasdaq (made of more high-risk, high-return stocks) has risen by only 7.2%. The S&P 500, which is heavily weighted by the large blue chip stocks, is up by 12.6%. This relative relationship is likely to persist throughout the balance of the year.
Interest rates are likely to be stable or increase slightly in the second half of 2021. Any increase in interest rates should result in high-risk, high-return stocks further underperforming blue chip stocks since future cash flows of high risk companies will be discounted at a higher rate resulting in lower valuations relative to blue chip companies that have more reliable income streams over the near term.”
Another indicator that all might not turn out well for some of the popular speculative ideas is the initial jobless claims. Again, you don’t want to read too much into a single piece of data. Still, it underscores the difficulty of the post-pandemic recovery, which bolsters blue-chip stocks over riskier names.
Finally, let’s look at the one statistic that I’ve been harping about for months, stock trading on margin. In May, this metric broke another all-time record high, demonstrating that investors remained leveraged to the hilt. In my view, that poses the greatest risk to the meme trades.
With that in mind, here are 7 overlooked blue-chip stocks to buy for eagle-eyed investors:
- Mastercard (NYSE:MA)
- IBM (NYSE:IBM)
- Home Depot (NYSE:HD)
- Raytheon Technologies (NYSE:RTX)
- Altria Group (NYSE:MO)
- Progressive (NYSE:PGR)
- AbbVie (NYSE:ABBV)
Before we dive in, let’s remind ourselves that blue-chip stocks are still part of the capital markets. That means you can still lose all your money in them (and worse, if you engage in exotic derivative trades). However, if you want to put more money in equities now, you’d be better off with established names than speculative ones.
Overlooked Blue-Chip Stocks to Buy: Mastercard (MA)
When the dust finally settles, 2020 will go down as the year of the coronavirus. But 2021 will be known as the year of cryptocurrencies.
It’s not just about the most popular virtual currencies that dominated headlines. Rather, the smallest of altcoins (or alternative cryptos) garnered much mainstream attention, thanks in no small part to enthusiastic coordinated trading on social media forums.
Why bother with investing in institutions like Mastercard when they’re part of the mainstream problem and by deduction, centralized? In crypto circles, centralization is considered a dirty word. But in the long run, conservative investors are better served banking on MA stock.
That’s rich coming from someone who bought a house with crypto, I know. Look, I never said that you shouldn’t invest in crypto. Rather, you’ve got to be careful and know when to get in and more importantly, when to call it quits.
Also, the fundamentals don’t lie — at least they don’t right now. Just by sheer transaction volume, credit cards overwhelm what the crypto industry can muster. Plus, centralization has its benefits. If you have a problem with your Mastercard, a company representative is only a phone call away.
Speaking of cryptocurrencies, everyone by now knows what makes them possible, an architecture known as the blockchain. Of course, listening to what the average layperson believes is the definition of blockchain can be an exercise in patience.
Thanks to the sector’s incredible marketing acumen, so many people have been brainwashed into believing that the blockchain is the answer to humanity’s ills. World hunger? Blockchain. Cancer? Blockchain. Your boss is a Richard (even though he may have been born with a different name)? Decentralize that jerk with blockchain!
Frankly, I’m tired of the hype train which is why I’m appreciative of IBM. When the legacy technology firm says that it’s exploring the many use cases of the blockchain, I believe it. This isn’t about speculating on stupid memes about dogs but rather finding effective utility from decentralized platforms while offering the comfort of centralization.
As with Mastercard, if something goes wrong with IBM’s blockchain architecture, you can always give the company a call. I think people underestimate the importance of human support.
Which of course is ironic to say about IBM stock. The underlying company also supports myriad other initiatives, including artificial intelligence. Nevertheless, the hype of tech firms hasn’t truly bolstered “Big Blue” until recently. This is one of the best blue-chip stocks to keep an eye on.
Home Depot (HD)
One of the most alarming developments during the trailing year is the dramatic rise of housing. While you won’t find home sellers complaining too much about it — what with people bidding well beyond asking prices — it’s a nightmare for buyers. Add in skyrocketing lumber prices and the situation for Home Depot, one of my favorite blue-chip stocks, became complicated.
On one hand, the housing boom definitely benefitted HD stock. As buyers went crazy for homes, the incentive to renovate likewise short north. You might as well maximize your profits during this once-in-a-lifetime opportunity.
But on the other hand, as surging lumber prices stretched credulity, some must have reasoned that prices would correct. And it seems that’s exactly what’s happening. As the Wall Street Journal reported, lumber hoarders have become sellers, which has demand implications across the board.
To me, that’s not necessarily conducive to blue-chip stocks levered to the home construction and renovation sectors. Sure enough, HD stock has corrected significantly from its highs. Still, this might be a good opportunity to buy HD stock on discount because the housing market may be slowing toward a more normal and sustainable dynamic.
Raytheon Technologies (RTX)
If former President Trump won the 2020 election — and by this, I’m referring to the reality of the situation as opposed to the alternate reality some fringe elements still believe in — blue-chip stocks levered to the defense industry would be a no-brainer.
As you know, Trump is tough on our adversaries. He’s even tougher on our allies and even some Americans that were formerly part of his administration. With that kind of chest-thumping bravado, you knew that parking money in American defense and-security-related blue-chip stocks was a great move. But how would that pan out under a Biden White House?
If you listen to opposition media outlets, the answer is not so well. Biden is weak, incompetent and other pejoratives that I can’t repeat here. So Raytheon Technologies and RTX stock mightn’t seem like an ideal investment idea. But you might just be surprised.
For one thing, President Biden has great respect for the military, particularly because members of his family served. Second, Biden has equally frustrated Republicans and Democrats. He does his own thing, whatever that may be. One thing I do know is that he wants to reverse the image that the U.S. was too conciliatory to our rivals, mainly Russia.
Theoretically, that should support RTX stock, along with other defense plays.
Altria Group (MO)
I might get some flack for including Altria Group on this list of overlooked blue-chip stocks to consider for three reasons. First, it’s a big tobacco firm; hardly a feel-good investment. Second, I own some shares, which may not put me in the greatest light. Third, MO stock is stuck in multiple controversies, one of the biggest being the vaping debate.
Before the pandemic, vaping was one of the hot-button issues. Now, I can’t even remember when the last time was that InvestorPlace asked me to write about the sector. Obviously, with the coronavirus pandemic, people had bigger problems to worry about. But now that the crisis is beginning to fade thankfully, vaping advocates are making noise.
Unfortunately for them, I’m not sure if they’re going to get far. For one thing, the Food and Drug Administration will continue to regulate vaporizer products to the chagrin of vaping advocates. Second, the vaping industry took some big hits, with major question marks about vaping distribution clouding the market.
Cynically, the troubles over vaping theoretically support MO shares and other blue-chip stocks related to big tobacco. It stinks but it is what it is.
Pretty much everyone knows that blue-chip stocks tied to the insurance industry are incredibly boring. But with speculation now rampant in the equities sector, you might want to give Progressive a look.
No, you aren’t getting rich with PGR stock, I can almost assure you of that. But you might slowly build wealth in one of the most relevant industries ever.
As I recently wrote for Benzinga, the history of the insurance market goes back to the dawn of civilization. Even back in those dark ages where people somehow lived without internet, merchants knew that global supply chains could never be trusted 100%. Therefore, early insurance contracts helped mitigate the risk of financial catastrophe.
Today, the various insurance products we have access to are much more sophisticated but the underlying concept is the same: protection against the unknown. Having suffered through a once-in-a-century pandemic, I think consumers are much more attuned to such risks.
Specifically for PGR stock, worker bees are increasingly hitting the road. Anecdotally, it seems some of us have forgotten how to drive. More critically, Harvard University notes that the pandemic has apparently made Americans extremely angry.
The roads are simply not as safe as they used to be, meaning all the more reason for people to buy car insurance. And if people are driving more recklessly, you can bet that insurance companies will raise their rates accordingly.
During the initial impact of the novel coronavirus, many investors feared the worst and dumped out of their holdings. Indeed, very few stocks avoided red ink during the February and March doldrums of last year.
While there were probably others, the only name I clearly remember is Teladoc Health (NYSE:TDOC). Even then, it wasn’t exactly a straight shot up to the moon. Other biotech blue-chip stocks performed well once we got used to the initial shock, though the underlying businesses had relevance to the Covid-19 crisis.
While AbbVie provided support in the form of research and development and philanthropic financial aid, it wasn’t a direct contributor to the Covid treatment and vaccine race. So, it was easy for investors to overlook ABBV stock.
Moving forward, I don’t think it’s a good idea to continue ignoring AbbVie and that’s mainly because of its Allergan acquisition. That deal gave AbbVie rights to Botox, the neurotoxic protein that helps people look younger. While opinions on the issue differ, the bottom line is that post-Covid, people care about how they look. Likely, this will boost Botox revenue, which will be very good for ABBV stock.
On the date of publication, Josh Enomoto held a LONG position in MO. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.