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7 Blue-Chip Sleeper Stocks to Buy Before Wall Street Wakes Up

  • While consumers brace for a looming recession, investors are looking to buy the best blue-chip sleeper stocks.
  • Apple (AAPL): Its high-margin service segment reached almost $20 billion, delivering a double-digit year-over-year increase in Q3 revenue.
  • Boeing (BA): Robust demand for air travel and resumption of 787 Dreamliner deliveries offer strong tailwinds for revenue growth.
  • Costco Wholesale (COST): Costco’s resilient business model makes it a defensive play as consumer budgets get tighter.
  • Goldman Sachs (GS): Its diverse revenue streams offer a solid defensive position in the current inflationary environment.
  • Mastercard (MA): The credit card provider reported significant top-line and bottom-line growth, thanks to its resilient business.
  • McDonald’s (MCD): The fast-food giant continues to deliver double-digit growth in comparable-store sales.
  • Merck (MRK): This dividend growth stock offers a safe haven from the market downturn with several years of solid growth ahead of it.
Blue-Chip Sleeper Stocks - 7 Blue-Chip Sleeper Stocks to Buy Before Wall Street Wakes Up

Source: Shutterstock

It may not occur to investors to look for blue-chip sleeper stocks, since they don’t often think of blue-chips as “sleepers.”

In tough times, seasoned investors seek comfort in the stability and safety that well-established robust companies can offer.

Blue-chip businesses generate consistent earnings thanks to their vast resources, resilient business models, and strong brands. In addition, such businesses boast impressive track records of delivering strong returns over the long term, including consistent and growing dividend payments.

In an environment where the benchmark S&P 500 index has lost a quarter of its value year to date, the market now offers a range of undervalued blue-chip stocks. Clearly, some of these businesses have been unfairly punished by the jittery market sentiment.

Put another way, the recent decline in valuations of some of the leading blue-chip stocks represents a compelling buying opportunity for patient, long-term investors. These stocks are primed to provide robust capital returns when market sentiment reverses.

With that said, here are seven blue-chip sleeper stocks poised to gain traction in the coming months.

AAPL Apple $151.33
BA Boeing $ 125.95
COST Costco Wholesale $477.39
GS Goldman Sachs $289.22
MA Mastercard  $285.55
MCD Mcdonald’s $237.54
MRK Merck $86.04

Apple (AAPL)

Apple (AAPL) logo brand and text sign on entrance facade store American multinational boutique corporation dealership shop
Source: sylv1rob1 / Shutterstock.com

52-week range: $129.04 – $182.94

With a market cap of $2.4 trillion, Apple (NASDAQ:AAPL) has built an iconic brand focused on mobile communication and media devices. Apple claimed a 15.6% share of the global smartphone market in the second quarter of 2022.

The tech giant reported Q3 results in late July, when revenue hit a record $83 billion, up 2% year over year. The iPhone segment has particularly seen considerable growth momentum boosted by 5G phone sales.

Meanwhile, Apple’s high-margin service segment, which includes the App Store, Apple Music and Apple TV+, saw a double-digit year-over-year increase in revenue, reaching almost $20 billion.

The company recently announced its plans to enter the “buy now, pay later” business which could provide lucrative returns as Apple Pay is already used by more than 500 million people worldwide.

AAPL stock has lost more than 17% year to date. However, given its growth prospects, the shares have a historically reasonable valuation at 23.8 times forward earnings and 6.4 times sales.

Wall Street’s 12-month median price forecast for Apple stands at $185. In the coming days, AAPL shares could dip below $150, offering a better entry point for long-term investors.

Boeing (BA)

image of a Boeing 737 max aircraft
Source: Marco Menezes / Shutterstock.com

52-week range: $113.02 – $233.94

Aerospace and defense giant Boeing (NYSE:BA) generates revenue primarily from manufacturing commercial aircraft. When the pandemic brought the travel industry to its knees, Boeing’s operations also suffered.

As a result, the aviation industry, which has been leading U.S. exports in the past decade, fell to the fourth spot. Therefore, given the economic importance of Boeing, Wall Street pays close attention to metrics from Boeing.

The aircraft maker announced Q2 results in late July. Its Q2 revenue declined 2% year over year to $16.7 billion. Yet, investors were particularly pleased that Boeing generated a positive operating cash flow during the quarter, remaining on track to also deliver positive free cash flow for fiscal 2022.

In early August, the Federal Aviation Administration (FAA) cleared Boeing to resume deliveries of the 787 Dreamliner. Meanwhile, the demand for air travel is recovering faster than previously anticipated. For instance, in July, Delta Airlines (NYSE:DAL) ordered 100 737 MAX jets, the largest request of its kind in over a decade.

So far in 2022, BA stock has fallen close to 40%. Despite a rebound in air travel, shares are still trading at a historically cheap valuation of 1.3 times sales.

Analysts’ 12-month median price forecast for Boeing stands at $200. Readers could regard a further decline toward the $120 level as a possible entry level.

Costco Wholesale (COST)

Short-Term Profit Taking May Take a Bite out of the Costco Stock Price
Source: Helen89 / Shutterstock.com

52-week range: $406.51 – $612.27

Costco Wholesale (NASDAQ:COST) is the fifth-largest retailer in the world, with around 840 membership warehouses. The company operates on a membership-only basis and allows customers to save money by purchasing goods in bulk. Close to a third of sales come from Costco’s private label.

The wholesale giant released Q4 and full-year results on Sept. 22. Costco’s financial results were strong, but revealed considerable cost pressures. In the fourth quarter, net sales increased by 15% year over year to $72.1 billion.

Meanwhile, comparable store sales surged more than 10% across the company, which indicates that Costco’s low prices are becoming increasingly attractive for customers in today’s inflationary environment.

The membership fees Costco charges clients account for a significant portion of its overall profit. As customers consistently renew their memberships, Costco can deliver consistent profitability, even during a market downturn.

COST stock has declined more than 15% since the beginning of the year. Shares are trading at 0.95 times sales.

Wall Street’s 12-month median price forecast for COST stock is $565. In the case of further market volatility in October, Costco shares could decline toward $460, giving an opportune entry point for retail investors.

Goldman Sachs (GS)

In this photo illustration the Goldman Sachs Group (GS) logo displayed on a smartphone screen and a stock market graph in the background
Source: rafapress / Shutterstock.com

52-week range: $277.84- $426.16

Goldman Sachs (NYSE:GS) is one of the most prominent investment banks worldwide. In terms of revenue, it ranks number two behind JPMorgan Chase (NYSE:JPM).

The financial services giant issued Q2 metrics in mid-July. Its revenue went down by 23%, while net earnings plunged 48% year over year.

The decline came primarily due to declines in investment banking activities. Macroeconomic headwinds also led to a significant decline in equity underwriting and acquisition activity. Yet, in Q2, global markets and the consumer and wealth management divisions generated higher revenues.

Meanwhile, the bank has been building its consumer banking business. Increasingly, consumers have access to savings and loan accounts and credit card lending services. It is also introducing products in Europe.

So far in 2022, GS stock has lost 26%, and the dividend yield currently stands at 3.3%. Shares are available at a bargain valuation of 7.6 times forward earnings and just 1 times book value.

Analysts’ 12-month median price forecast for GS stock stands at $376.50. We’d look to enter Goldman Sachs at around $290.

Mastercard (MA)

A close-up shot of Mastercard credit or debit cards.
Source: Alexander Yakimov / Shutterstock.com

52-week range: $290.24 – $399.92

Leading credit card provider Mastercard (NYSE:MA) operates a technology-focused payment network. Its credit card brands includes MasterCard, Maestro and Cirrus.

In the first half of 2022, card networks stateside generated over $67 billion in transaction. Of that amount, Visa (NYSE:V) enjoyed close to $45 billion in purchases, followed by Mastercard with around $18 billion.

The credit card giant has significantly benefited from the secular shift to digital payments. Its diversified business model insulates Mastercard from the cyclical volatility in various sectors and makes it resilient to rising inflation.

In late July, Mastercard reported solid Q2 financials. Net revenue grew 21% year over year to $5.5 billion despite the negative impact of discontinuing operations in Russia.

MA stock is trading at 52-week lows and has dropped nearly 23% year to date. However, given its quality and high growth prospects, MA stock is not expensive at 23.2 times forward earnings.

The 12-month median price forecast for Mastercard stock stands at $417. Investors who can weather the short-term volatility in the MA share price, are likely to benefit from the increase in revenues and net margins.

McDonald’s (MCD)

A McDonald's (MCD) burger box and fries rest on a flat surface.
Source: 8th.creator / Shutterstock.com

52-week range:$217.68 – $271.15 

Mcdonald’s (NYSE:MCD) is the largest fast-food company in the world, with roughly 40,000 stores. The company continues to grow its global footprint via partnerships with independent local business owners.

The fast food giant released Q2 financials in late July. Revenue fell 3% year over year to $5.72 billion due to currency exchange rate fluctuations. However, global comparable-store sales grew almost 10%, driven by strategic menu price increases and digital offerings.

Analysts mostly concur the decline in revenue reflects the bumpy recovery of its global business. Readers should note that international growth has been restrained by the lockdowns in China and the war in Ukraine.

Yet, management recently highlighted its success in the drive-thru and mobile ordering spaces. They could be key competitive advantages to further fuel digital sales growth.

So far in 2022, MCD stock has declined nearly 12%. The dividend aristocrat offers a 2.2% dividend yield at its current stock price. Shares are trading at 23.3 times trailing earnings and 7.8 times sales. Meanwhile, analysts’ 12-month median price forecast for MCD stock stands at $282.50. 

Merck (MRK)

Source: Shutterstock

52-week range: $71.50 – $95.72

Pharma giant Merck (NYSE:MRK) offers health care solutions through prescription medicines, vaccines, and biological therapies. Its portfolio of blockbuster therapies includes the cancer drug Keytruda, which generated over $17 billion in 2021.

Other drugs to note are the antiviral Covid-19 treatment Lagevrio, human papillomavirus vaccine Gardasil, and diabetes treatments Januvia and Janumet. In addition, Merck’s pipeline boasts more than 100 studies in late-stage clinical development.

The healthcare play announced Q2 financials in late July. Merck’s revenue grew 28% year over year to $14.6 billion, primarily driven by Keytruda. In 2022, Keytruda is expected to surpass $20 billion in sales. As a result, management anticipates full-year 2022 global sales growth between 18% and 20% year over year.

Meanwhile, the healthcare giant is looking to acquire Seagen, a growing cancer treatment company, for an estimated $37 billion. This acquisition could boost top-line growth for the pharma specialist.

MRK stock has appreciated 12% year to date, and supports s a 3.2% dividend yield. Shares have an attractive valuation at 11.6 times forward earnings and 3.9 times sales.

Wall Street’s 12-month median price forecast for Merck is $100. In the weeks ahead, a potential decline toward the $83 level would make MRK stock more attractive.

On the date of publication, Tezcan Gecgil, Ph.D., 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 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.


Article printed from InvestorPlace Media, https://investorplace.com/2022/09/7-blue-chip-sleeper-stocks-to-buy-before-wall-street-wakes-up/.

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