Investors fearful of a stock market correction currently playing out for October should accumulate blue-chip stocks. The market downturn is long overdue. October may have seasonal weakness, thanks to epic crashes like the one in 1929. In 1987, the crash occurred over several days in late October, too. Yet two incidences of crashes are not enough to predict another one will come.
Should inflation spook markets, investors still need to stay in the market. Stocks are the best hedge against inflation, while cash will lose value as its buying power weakens. Readers have many ways to minimize the risks of holding stocks that fall worse than the market average. This includes buying stocks that do not trade at excessive valuations. Price-to-earnings (P/E) ratios are one way to measure value. As shown below, a quality score that uses P/E as one of the metrics will work, too.
Buy stocks that pay a dividend. The company will return regular income in good times and in bad. Plus they must generate free cash flow every quarter to cover the dividend.
I’ve picked seven blue-chip stocks for readers to consider buying to shield their portfolios from a market downturn. They are:
- AbbVie (NYSE:ABBV)
- Consolidated Edison (NYSE:ED)
- Coca-Cola (NYSE:KO)
- PepsiCo (NASDAQ:PEP)
- Procter & Gamble (NYSE:PG)
- Raytheon Technologies (NYSE:RTX)
- Unilever (NYSE:UL)
All but Unilever score well on growth. Unilever has a very strong quality score because of its strong gross margins and falling debt/equity in the last few years.
Soft drink suppliers Coca-Cola and PepsiCo have similar quality scores, while Pepsi comes out ahead on growth.
Blue-Chip Stocks to Buy: AbbVie (ABBV)
AbbVie pulled back sharply in September on heavy volume. The drug manufacturer has multiple tailwinds that will reward blue-chip investors.
On Oct. 7, Health Canada approved the use of Rinvoq (upadacitinib) for treating patients suffering from atopic dermatitis. Monotherapy is far more effective than topical steroid-based drugs. Patients may take the drug orally once a day. The JAK inhibitor will improve a patient’s quality of life by controlling chronic inflammatory skin disease.
AbbVie’s Skyrizi data in psoriatic arthritis is another positive development. Patients showed improved signs and symptoms of the disease, with efficacy maintained through one year. Growing Skyrizi revenue will offset a drop in Humira sales when the latter loses exclusivity. Biosimilar manufacturers may sell Humira in early 2023. Even after the loss of exclusivity, AbbVie’s successful legal wins will ensure sustained profit margins for Humira sales.
On Sept. 28 the Food and Drug Administration approved atogepant, AbbVie’s drug for preventative treatment of migraines. Migraines affect one billion people worldwide, so this drug is a potential blockbuster for AbbVie.
A dozen analysts offer coverage on ABBV stock. The average price target is $128, according to data collected by TipRanks.
Consolidated Edison (ED)
Consolidated Edison, or ConEd, is a world-class electricity supplier. It has 3.5 million customers. It is eight times more reliable than the national average, as Chief Executive Officer Timothy Cawley mentioned in an energy conference.
ConEd sees transmission investments will cost $1 billion over the next five years. This will position the grid to take in solar and wind for renewable energy.
ED stock is underperforming because investors worry about things like New York regulation. Markets fail to recognize their efforts in the clean energy business. As investors assign a higher value to its robust pipeline and 2,700 megawatts in clean energy operations today, the stock will climb from current levels.
ConEd has 3,000 megawatts of mostly solar and some storage in the pipeline. Strong governmental support from the U.S. for clean energy initiatives will attract investors to ED stock.
In the second quarter, Consolidated Edison posted revenue of $2.97 billion, up 9.2% from last year. When the stock slipped post-earnings, it created a good entry point for investors seeking a stable blue-chip stock.
Blue-Chip Stocks to Buy: Coca-Cola (KO)
Coca-Cola has two growth catalysts ahead. Its new global platform launch announced on Sept. 29 will re-energize the brand. Chief Marketing Officer Manolo Arroyo said, “the Real Magic philosophy is rooted in the belief that dichotomies can make the world a more interesting place.” As customers connect the company’s product taste to “real magic,” expect sales to grow.
European markets are a positive catalyst for KO stock. After posting strong Q2 results, its digital ecosystem transformation will accelerate its growth. In Europe, its e-commerce grew retail value faster than 50% across major markets. Latin America and the Middle East & Africa also added to the strong soft drink sales growth.
Coca-Cola is an attractive holding. It has initiatives in hard seltzers, the Monster product line, and coffee. Last month, selling pressure sent KO stock below the 50-day moving average. Investors took advantage of the temporary correction to accumulate shares at a better price.
Analysts have an average price target of ~$62 on Coca-Cola stock, according to data collected by TipRanks.
PepsiCo is the other drinks maker that investors should buy. CFO Hugh Johnston earlier this month told CNBC, “we’ll probably see a little bit more pricing increases in the first quarter of next year as we deal with the fact that input costs are just higher.”
Not all consumer discretionary firms may pass higher input prices to customers. Pepsi may do so because customers do not have a substitute.
Pepsi’s CEO, Ramon Laguarta, said that beverage and food categories are healthy. Snack sales are outpacing food and beverage globally. As the world economy recovers, expect Pepsi’s momentum to continue to rise.
In 2022, core earnings a share, and revenue will continue growing. Pepsi has plenty of momentum that will lift top-line results. It managed its supply chain well. Expect PEP stock to climb to new highs as it delivers another solid result next year. Prudent research and development spending will pay off, too. Pepsi has a strong pipeline. It is seeing its innovation from around the world paying off in the long term.
Investors should accumulate PEP stock, regardless of the share price.
Blue-Chip Stocks to Buy: Procter & Gamble (PG)
P&G posted another year of strong results in Q4 and for the fiscal 2021 year. EPS was $5.50, up 11% Y/Y. The firm benefited from a positive mix, increased pricing, and a higher operating margin.
CEO David Taylor said in the press release that it expected continued top-line and bottom-line growth in fiscal 2022. Since P&G has a strong cash flow, a dividend hike and a stock buyback would increase shareholder returns.
P&G’s focus is on the U.S. and China, its two biggest markets. Investors may worry about the increasing financial turmoil in China. The company is widening its opportunities to accelerate growth. It identified 10 categories having a growth story. It will focus on those 10 markets to grow the business.
Listening to the customer is paying off. For example, it reads reviews and ratings in the skincare and haircare segment. By showing before and after photos in those markets, sales conversion increased by over 20%.
Japan and Western Europe could fare better. Investors may expect the company to improve sales in those regions.
Raytheon Technologies (RTX)
Some investors are wary of holding companies involved in the military. But Raytheon offers as much defense for countries that will maintain peace. When the stock market wants companies that win billion-dollar contracts, Raytheon is the stock to hold.
In August, the company won a 4960 million indefinite-delivery/indefinite-quantity (IDIQ) contract. Later that month, it acquired FlightAware. FlightAware is a digital aviation company. It provides functions like flight tracking solutions and predictive technology. Dave Nieuwsma, Collins Aerospace’s head of Avionics, said that “FlightAware’s flight tracking and data platform, the largest in the world, has the potential to deliver new capabilities and innovations across our entire business.”
Raytheon will expand its product offering as it embraces AI and predictive analytics with FlightAware.
RTX stock is not without risks. Pratt & Whitney depends on passenger airline traffic rebounding. Assuming the delta variant of Covid does not hurt travel, Pratt will recover. When this happens, the unit’s revenue will improve. CEO Greg Hayes also worried about higher input costs. He said, “with the raw materials, copper, aluminum, steel, nickel, all of the other precious metal prices going up, we’re going to see a little bit of pressure in the coming years.”
Blue-Chip Stocks to Buy: Unilever (UL)
Unilever shares skidded lower in the last few months after posting quarterly results. Higher commodity costs hurt its bottom line.
In Q2, CEO Alan Jope said that the team is confident it will deliver sales growth this year. Its multi-year target is a 3%-5% growth rate. The CEO acknowledged tougher second-half comparables. The stock’s decline will give investors a discount that prices in the upcoming risks. The discount gives investors a chance to get a top-rated blue-chip stock on sale.
Unilever’s e-commerce business showed promise. It grew by 50% and now accounts for 11% of total sales. Instead of buying inflated e-commerce firms that lose money, UL stock gives investors a strong underlying business and an online business that markets are overlooking.
Unilever’s iconoclastic Ben & Jerry’s said it would end sales of its ice cream in the occupied Palestinian territory. The mixing of politics with investing is clouding Unilever’s prospects. As the news subsides, the company must manage commodity costs. Its margins cannot fall as it passes the higher costs to customers.
On the date of publication, Chris Lau 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.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.