After five consecutive months of gains in the S&P 500 and Nasdaq Composite, the market might be due for a pullback. One way to protect portfolio gains is to hide in defensive stocks as we enter a seasonally weak period. Strong buy blue-chip stocks can provide the defense your portfolio needs.
From the October 2022 lows, market indices are up a lot. The S&P 500 is up 28%, while the Nasdaq Composite is up 38%. The performance is consistent with the Presidential Election Cycle. Also, the artificial intelligence buzz has played a role in adding fuel to the rally. But now we’re entering a challenging period.
First, we are now in the weaker part of the Presidential Election Cycle. Furthermore, August and September are seasonally weak months. Secondly, there is a probability of a recession in 2024. After the prolonged tightening cycle, the Federal Reserve’s actions might finally slow the economy.
As is the market’s nature, it’s obvious that soon the market will have a correction. Top blue chips that offer defensive qualities or value will reduce your portfolio’s volatility. Load up on these blue-chip stocks now to protect your portfolio against the upcoming market turbulence.
Medtronic (MDT)
After underperformance due to lower volumes during the pandemic, Medtronic (NYSE:MDT) is turning the corner. The recovery over the past year has been slow due to supply chain issues and rising costs. However, these issues are getting resolved, making Medtronic one of the strong buy blue-chip stocks in the space.
After the recent stock price consolidation, it’s time to buy one of the top blue-chip stocks. On May 25, the company delivered stellar fourth quarter and fiscal year 2023 results. Organic revenue growth came in at 5.6% ahead of consensus. However, non-GAAP diluted EPS increased only 3%, highlighting continued cost pressures due to inflation.
For FY2024, the management guided for revenue growth between 4.0% and 4.5%. The company is seeing procedure recovery in its core markets. Additionally, the company is taking measures to reduce costs. Morgan Stanley upgraded it to “overweight,” arguing that the appointment of former Walmart executive Greg Smith as the company’s chief of operations would help tackle supply chain issues.
Considering FY2024 earnings guidance, MDT stock is among the strong buy blue-chip stocks to purchase. Management expects fiscal year 2024 non-GAAP EPS between $5.00 to $5.10. Thus, as of this writing, it trades at 17 times forward earnings.
Furthermore, for dividend-seeking investors, Medtronic also pays a healthy dividend. It yields 3.14% and has grown its dividend for nine consecutive years. Finally, analysts are also bullish on MDT stock. According to TipRanks, they expect about 13% upside to the average price target of $97.80.
PayPal (PYPL)
This fintech leader has been in the penalty box for a while. After spectacular growth in 2020 and 2021 due to the rise in e-commerce, revenue growth has decelerated significantly. Once a Wall Street favorite, PayPal (NASDAQ:PYPL) is one of the strong buy blue-chip stocks, having fallen from over $300 to $70.
Operational missteps in 2022 set the stage for an over 80% decline. First, in February 2022, the firm lowered its revenue growth projections below analyst estimates. Making matters worse, they dropped their target of reaching 700 million users by 2025.
After a poor 2022 showing and an abysmal first half, PayPal deserves a second look. First, it has fully transitioned the eBay business, and it is no longer a revenue drag.
Secondly, it’s still a leading digital wallet globally, with over 400 million users and over 35 million merchants. And although user growth has slowed, it’s focusing on its 190 million monthly active users. They have a higher return on investment averaging 70 to 90 transactions annually versus single digits for other active accounts.
Thirdly, the firm has significantly invested in its technology stack to improve the user experience and checkout functionality. These product enhancements will drive volume growth on the platform and improve profits.
With e-commerce set to accelerate, PayPal is one of the best-in-class fintech stocks to buy. According to Q4 fiscal year 2022 results, the company generated $5.1 billion in free cash flow in 2022. Therefore, it trades at 16 times last year’s FCF. It’s even cheaper based on the next twelve-month earnings at a 13 price-to-earnings ratio.
Lastly, activist pressure from renowned Elliot Management will yield operational improvements to drive the stock higher. Thus, it’s one of the best bargain strong buy blue-chip stocks to play a rebound.
McDonald’s (MCD)
In the consumer staples sector, McDonald’s (NYSE:MCD) has earned its place as one of the best strong buy blue-chip stocks. Over the past two years, the company has delivered impressive earnings results.
The trend continued in the latest quarter results released on July 27. In the quarter, global comparable sales rose 11.7%. All segments recorded double-digit growth. U.S. sales increased by 10.3%, whereas internationally operated and developmental licensed markets grew by 11.9% and 14.0%, respectively.
The robust growth reflects the strength of the McDonald’s brand. According to Interbrand, it’s the eleventh-best global brand. In addition, its industry-leading innovation in menu and delivery is also driving growth. And that sales growth is flowing directly to the bottom line. For instance, revenues grew 14% in the latest quarter, whereas earnings per diluted share increased 97%.
Investors looking to load up on blue-chip stocks should be considering McDonald’s. Economists and market strategists are becoming cautious about markets and predicting a recession might occur in 2024. If the economy weakens, McDonald’s is a defensive stock that might hold up well.
Lastly, as consumer budgets get squeezed, it will benefit from the trade-down. Management highlighted this on the earnings call. “If you look at incomes under $100,000, we’re actually doing quite well there, which suggests that we’re getting some benefit from trade down,” stated CEO Chris Kempczinski.
On the date of publication, Charles Munyi did not hold (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.
