The stock market has been led higher by just a handful of names so far this year. Unfortunately, that means many stocks have performed poorly vs. the indices. On the plus side though, that means there are many names that still have plenty of upside. Specifically, we can look for the best blue-chip stocks for high returns.
Investors can look for high yield blue-chip stocks or they can look for blue-chip stocks with high potential. They can also look in between for a more balanced approach. Either way, it’s pretty surprising how many high-quality stocks are available for investors to choose from.
A blue-chip stock is easy to define. Put simply, investors are looking for a high-quality company that has a strong business and relatively consistent earnings and cash flow. Ideally, it will also pay a rising dividend and have a history of solid stock performance.
So let’s dig in and look for the best blue-chip stocks with high potential.
Johnson & Johnson (JNJ)
Johnson & Johnson (NYSE:JNJ) is a high-quality company and a name that investors almost always like to buy the dip in. It’s one of the best blue-chip stocks to buy over the long haul, even as it has appreciated a considerable amount.
Now though, the stock has stumbled. Shares are down more than 15% from the high, a level that was hit in April 2022. With that information, you can deduce a couple of notable points.
First, when the market was undergoing significant volatility, investors had sought, and found, safety in J&J as shares hit new all-time highs. Second, the stock is clearly out of favor now, as it was down almost 20% from those highs at its recent low.
So where does that leave us?
Investors now have the opportunity to pay under 15 times this year’s earnings, which are forecast to grow in the mid-single-digits. Alongside those quality earnings, J&J stock also pays a dividend yield of around 3%. That dividend has been raised for 61 consecutive years.
Between it all, the stock is a good buy-and-hold name to tuck away.
Disney (NYSE:DIS) investors only wish the stock paid a dividend yield like J&J, or was only down 15% from the all-time high. While life has felt tough for Johnson & Johnson shareholders, it’s been truly difficult for Disney bulls.
Even though the stock has rallied 6% amid a five-day win streak, shares are still down a whopping 55% from the all-time high. It’s been brutal.
The firm even brought back former CEO Bob Iger to run the ship and navigate a difficult turnaround. Sparring with Florida Governor Ron DeSantis doesn’t seem to be helping matters either.
Even worse, Disney stock is not exactly cheap. Although analysts do expect growth this year and next year, the stock trades at 23 times this year’s consensus earnings forecast. Further, investors worried about a recession sure aren’t jumping out of their seats to buy this name.
That all said, Disney is the king of entertainment. It dominates in everything from theme parks and cruises, to the studios and streaming. My personal take? When looking for blue-chip stocks with high potential, go with the high-quality names with strong brands
Last but not least, an interesting opportunity is popping up with PepsiCo (NYSE:PEP). This has been one of the top performing blue-chip stocks as of late.
PepsiCo made a nice push to all-time highs, hitting $196.88 on May 15. It was up about 9% on the year and up 17% from the 2023 low. However, shares have quickly shed their value since those highs.
Perhaps this one has further to sink, but don’t forget, PepsiCo absolutely dominates the grocery store. Everything from Pepsi to Gatorade to Tropicana is owned by the company, as is Sabra hummus, Stacy’s Snacks, Doritos, Lays and many others.
Analysts expect mid-single-digit revenue growth this year and next year, along with roughly 8% earnings growth in both years. That goes along with its near 3% dividend yield, which has not only been paid but has been raised in 51 consecutive years.
On the date of publication, Bret Kenwell held a long position in JNJ. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.