- Blue-chip stocks are under pressure as the market swoons, but this represents an opportunity.
- Apple (AAPL): Has one of the best businesses and continues to navigate supply chain problems well.
- Alphabet (GOOGL, GOOG): Robust financials while the stock is trading at a nice discount from the highs.
- Procter & Gamble (PG): Durable consumer staples company with strong stock momentum.
- Johnson & Johnson (JNJ): Dependable medical company with diverse business and strong financials.
Is anyone worried about Google.com disappearing or YouTube becoming irrelevant? Not likely. Consumers will still continue to do their laundry and wash their dishes. They’ll still take Tylenol when they ache, use a Band-Aid when they’re cut and go to the hospital for a procedure.Blue-chip stocks are what every investor should be after. We are talking about proven business models for companies that have strong financials and a history of outperformance. Not only do blue-chip stocks tend to outperform on the upside, but they offer some comfort during the tough times.
Furthermore, even though some of these stocks are trading differently from one another, doesn’t mean that they don’t each bring something to the table.
I want to break down these four blue-chip stocks and touch on their merits. When the market is throwing a tantrum, these stocks are the ones that will stabilize it. When the market is in a bullish trend, these are some of the names that will help lead us higher.
At the end of the day, the stocks will ultimately hold up because of the strong underlying businesses.
|PG||Procter & Gamble||$158|
|JNJ||Johnson & Johnson||$178|
Blue-Chip Stocks to Buy: Apple (AAPL)
I have said it before and I’ll say it again: Apple (NASDAQ:AAPL) has one of the best business models in the market. It’s like the old razor/razor blade business model. Only instead of giving away the razor (iPhones, iPads, etc.) in hopes of generating razor sales (Services revenue), the company is reaping enormous profits on the razor. Then, making even juicer profits on the razor blade.
Apple’s Services business continues to grow at a double-digit clip, easily outpacing the company’s Products business (up 6.6% year-over-year). While that may not seem significant given the enormous revenue its Products generate, it is relevant when it comes to margins. Apple’s Services unit generates margins that are twice as high as its Products business (72.6% vs. 36.3%).
Combine that with robust financials, a monumental balance sheet and a huge stock buyback, and investors have a recipe for long-term wealth growth. There’s a reason that Apple is nearly half of Warren Buffett’s public stock portfolio and his firm — Berkshire Hathaway (NYSE:BRK-A, NYSE:BRK-B) — keeps buying more.
And don’t forget CEO Tim Cook’s supply chain mastery, even though it is still having an impact on Apple.
Alphabet (GOOGL, GOOG)
Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) has been out of favor, particularly vs. some of its larger mega-cap tech peers like Apple and Microsoft (NASDAQ:MSFT). However, that to me is an opportunity, not a red flag.
In the most recent quarter, the company reported solid results. However, the headline numbers disappointed investors at first. That’s as its equity holdings took a big hit — as did just above every company’s equity holdings — and these mark-to-market losses are required to be reported on its GAAP results. Second, the issues in Europe and the Russian invasion of Ukraine dinged sales in that region.
Not to worry, though. Alphabet still owns the world’s two most popular websites in the world — what I call Boardwalk and Park Place — with Google.com and YouTube.com. Second, its balance sheet remains robust, with $20.9 billion in cash and short-term investments.
Lastly, the company sees value in its own stock and just added a whopping $70 billion to its buyback plan.
Blue-Chip Stocks to Buy: Procter & Gamble (PG)
Many stocks and sectors have been out of favor this year. However, these next two stocks are part of the “flight to safety” trade we’ve been seeing as Procter & Gamble (NYSE:PG) stock has been steadily climbing all year.
Is the stock a “steal of a deal?” I wouldn’t say so. I mean, it trades at a higher valuation than Alphabet with less growth and less financial firepower. Despite this slower growth, though, one could argue its sales are safer.
As I touched on earlier, consumers will still do laundry, wipe up spills, buy diapers and tampons, shave, shower, wear deodorant, brush their teeth and clean their dishes. To some degree, P&G’s business is insulated from the fears of a recession and perhaps more importantly, from inflation.
After delivering an earnings and revenue beat in the most recent quarter, management also raised its full-year guidance. CEO Jon Moeller said, “These results enable us to raise our top-line growth outlook for the fiscal year and to maintain our EPS guidance range.”
Johnson & Johnson (JNJ)
Like P&G, many investors view Johnson & Johnson (NYSE:JNJ) as an insulated business. Analysts expect mid-single-digit earnings growth this year and next year, and at 17 times this year’s earnings estimates, I don’t find J&J all that expensive.
That’s particularly true with its 2.5% dividend yield and steady performance since the Covid outbreak more than two years ago. In the most recent quarter, management suspended its Covid vaccine forecast amid uncertainty. It also reduced its adjusted earnings outlook for the year.
Despite the news, the stock rallied to all-time highs after the report. What kind of stock rallies to all-time highs on a mixed quarter in this environment?
The answer is simple: strong stocks.
Johnson & Johnson thrives with three main businesses: Pharmaceutical, MedTech and Consumer Health. With each unit, one can see how J&J is protected from economic swoons. Not that it’s invincible by any means, but regardless of the economy, consumers still need Band-Aids, pharmacies and hospital visits.
On the date of publication, Bret Kenwell 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.