Several weeks ago, the world’s second-largest economy appeared on the verge of having a Lehman Brothers-type of economic fallout following the credit crisis at China Evergrande (OTCMKTS:EGRNF), the nation’s second-largest property developer by sales. The news sent jitters to virtually every investment market from blue-chip stocks to extremely speculative cryptocurrencies.
However, there’s also a case to be made that you can use this opportunity to enact one of the more common truisms in the market: be greedy when others are fearful, and fearful when others are greedy. In this case, while the Evergrande disaster could spell trouble for China-related investments, it could open doors for blue-chip stocks both here and in other parts of the world.
Particularly, American stalwarts are appealing because we’ve generally been the best house in the worst block for quite some time. True, our mature economy translates into a slow-and-steady environment, one that won’t dramatically appeal to those seeking robust growth year in and year out. At the same time, we’ve learned our lessons from the Great Recession, creating greater confidence in domestically honed blue-chip stocks.
At the same time, it’s also fair to point out that while the Evergrande credit crunch has the appearance of a Lehman Brothers of China event, many prominent analysts disagree. One of them is our own Louis Navellier, who reminded InvestorPlace readers that the “fact of the matter is Evergrande is too big to fail.” In other words, China’s government “is likely to intervene,” which sets up an intriguing scenario for stable blue-chip stocks to buy.
Perhaps the reputational damage to Chinese commercial paper still makes China-based public securities a difficult-to-swallow proposition, even for risk-tolerant investors. But for those who are seeking stability and yet want a bit of a discount, these blue-chip stocks can potentially provide a confident take.
- Walmart (NYSE:WMT)
- Best Buy (NYSE:BBY)
- Adobe (NASDAQ:ADBE)
- Sony (NYSE:SONY)
- Mastercard (NYSE:MA)
- Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B)
- Caterpillar (NYSE:CAT)
As a fair warning, blue-chip stocks are safe but they’re not failproof. Anytime you engage the capital markets, you’re taking a risk, including a total loss of your principal for standard long-side exposure and more for exotic financial vehicles. Further, I’d watch our own news carefully regarding the debt limit before getting too comfortable here in America.
Blue-Chip Stocks to Buy: Walmart (WMT)
Easily one of the biggest blue-chip stocks impacted by China’s commercial paper crisis, Walmart has unsurprisingly not handled the situation well so far. According to Americanmanufacturing.org, “estimates say that Chinese suppliers make up 70-80 percent of Walmart’s merchandise, leaving less than 20 percent for American-made products.”
If that wasn’t bad enough, the same source states that “Walmart China ‘firmly believes’ in local sourcing with over 95 percent of their merchandise coming from local sources.” If true, the irony is a painful one. Nevertheless, that is the natural trajectory of capitalism — moving production to the cheapest source possible while maintaining a modicum of quality.
Overall, if you’re willing to speculate a bit on blue-chip stocks, you might want to give the discount in WMT stock a closer look. While the Evergrande crisis features poor optics, it remains to be seen how that would affect production in China.
Best Buy (BBY)
Like Walmart, consumer electronics retailer Best Buy depends greatly on China to supply the various products that line its store shelves. Unlike the famous (and many times infamous) big-box retailer, Best Buy tried but ultimately failed to penetrate the Chinese market. One of the main reasons for the failure was that consumers there perceived the electronics specialist as too expensive.
Today, BBY stock faces another China-related headwind, this time related to supply. Plenty of demand exists for products that Best Buy would love to sell. Unfortunately, the novel coronavirus sparked a global economic upheaval. Among the lingering impacts of the health crisis is the semiconductor supply crunch, which has affected everything from automobile production to video game consoles. Naturally, this has BBY stakeholders worried.
However, as a recent CNBC article mentioned, the company “is launching Totaltech, an annual membership program, nationwide after testing it at select stores.” Among the key perks “will be access to hard-to-find holiday items, though it did not specify what items those will be.”
Given how difficult this holiday season will be to find in-demand (or perhaps not-so-much-in-demand) products, BBY might be a winner among blue-chip stocks because of the underlying creativity.
Blue-Chip Stocks to Buy: Adobe (ADBE)
One of the biggest winners among stable blue-chip stocks since the pandemic disrupted the global paradigm is Adobe. A software giant perhaps best known for its Photoshop program, Adobe represents an indispensable tool for people in the creative industry. Additionally, the company features several applications that professionals of any industry could use.
Obviously, a major catalyst for ADBE stock is Adobe Sign. Through its PDF reader/builder and e-signature platform, Adobe Sign has been a powerful enabler of the great migration to the home office last year. Even if a migration back to the cubicles occur, this program could have various businesses serve their clients who may still prefer contactless transactions.
A few weeks back, Adobe released its earnings results for the third quarter. Though a solid result overall, investors may have wanted more from the company given that ADBE recently commanded a record price tag. Furthermore, China-related concerns may have inspired stakeholders to hit the sell button.
However, this may have left an opportunity to buy shares more cheaply as Adobe still has other fundamental factors to advantage such as the burgeoning gig economy.
The inclusion of Sony might seem self-serving due to the fact that I own shares in the company. Also, the skills that I learned at the consumer tech giant have helped me perform my current gig — analyzing and discussing capital market opportunities for various investment-related publications.
Personal feelings aside, SONY certainly has been one of the beneficiaries among blue-chip stocks since the March 2020 doldrums. While the year-to-date (YTD) shares have been choppy (up 9%), on a trailing-year basis, SONY stock has gained 48%. And overall, much of the disappointment could be tied to the semiconductor crisis.
As you probably know, the Sony PlayStation gaming console has been the lighthouse for the company through thick and thin. No matter what storms the organization found itself in — and it’s been in a lot since Apple (NASDAQ:AAPL) first flexed its muscles — the PlayStation provided hope.
However, the semiconductor crisis forced even the mighty PS console to be frustratingly less-than-optimally effective. Fortunately, that could change due to a possible improvement in the supply of graphics cards that undergird Sony’s latest flagship PS5.
Blue-Chip Stocks to Buy: Mastercard (MA)
While Mastercard isn’t directly related to the Evergrande crisis, it certainly hasn’t presented a helpful picture for the investment community. Anytime you have an impact — especially a significant one — to the world’s second-largest economy, global consumer sentiment becomes a concern. Therefore, I can understand why MA shares have been choppy. On the other hand, Mastercard could be among the blue-chip stocks to rise from the troubles.
Primarily, the worrisome headlines over Evergrande has not only put a dent on the company’s reputation, they also cloud the stability of the broader Chinese economy. As well, questions loom about how the government there will handle this painful and deeply embarrassing situation. Therefore, international institutions may be incentivized to consider western institutions like Mastercard for their proven predictability and reliability.
Moreover, Barron’s contributor Jacob Sonenshine mentioned that Mastercard benefits from the broader transition to e-commerce. Additionally, programs such as the company’s buy-now-pay-later service will likely motivate greater consumption online. Additionally, a pickup in international travel for 2022 (once the Delta variant fades away) could see MA become one of the better blue-chip stocks to buy.
Berkshire Hathaway (BRK.A, BRK.B)
Berkshire Hathaway might be a controversial bet considering that a CNBC article earlier this year reported that the conglomerate holds an 8.2% stake in China’s BYD (OTCMKTS:BYDDF), an electric vehicle manufacturer. That means Berkshire owns more of this Chinese automaker than it does American icon General Motors (NYSE:GM). Naturally, that won’t sit well with some stateside.
Furthermore, longtime Buffett pal Charlie Munger, Berkshire’s vice chairman, has also been a China bull for several years. Recently, CNN reported that Munger is doubling down on his bet on Alibaba (NYSE:BABA), boosting his stake to the tune of nearly 83% in the third quarter. Also noteworthy is that Munger praised the Chinese government for cracking down on the company’s co-founder Jack Ma.
Bluntly, he stated that the “Communists did the right thing.” I suppose that’s one way of handling the Evergrande crisis: buy a bunch of Chinese blue-chip stocks under the thesis that they can’t stay deflated indefinitely.
But if you want to take a safer view, you might as well buy shares of BRK.B. With so many bets across the board — including in China — they can’t all be wrong.
Blue-Chip Stocks to Buy: Caterpillar (CAT)
Usually, Caterpillar would be one of the go-to blue-chip stocks to buy. Another American icon, Caterpillar is a wonderful brand to drop, especially if you’re running for office. Former President Donald Trump did so to great effect in 2016, even juxtaposing the fate of CAT stock to the very Japanese competitor Komatsu (OTCMKTS:KMTUY).
It didn’t matter so much that this talking point was straight out of the Ronald Reagan era. Instead, segments of the American electorate love to hear about foreign others stealing their jobs — even though, you know, somebody higher up had to betray said workers in the first place.
Today, there might genuinely be some trouble based on foreign elements. Indeed, construction-related blue-chip stocks tumbled on the Evergrande disclosure. For Caterpillar, a 2019 CNBC report indicated that the company “gets 59 percent of its sales from outside of the U.S. and nearly a quarter of its revenue from the Asia Pacific region.”
However, if you believe in Louis Navellier’s perspective that China will mitigate the damage, CAT might be an excellent contrarian opportunity among blue-chip stocks.
On the date of publication, Josh Enomoto held a LONG position in SONY. 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.