After a booming start to the year, the market hit turbulence in August. Rising rates and economic concerns about China have rocked the markets leading to oversold blue-chip stocks. Given the oversold conditions, there could be a rebound in the coming days.
Pundits argue that after a hot rally in the second quarter and July, the markets were due for a pause or a correction. But technical factors aren’t only the cause of the recent market swoon.
Yields rising to record highs and a weaker-than-expected Chinese economy are the other culprits. But there is a silver lining. There are now plenty of oversold blue-chip stocks to buy.
So, what blue-chip stocks to buy could rebound strongly? Given the seasonal trends, sticking with some of the strongest stocks is still advisable. Although the market is oversold, it doesn’t mean there won’t be any material weakness going forward.
August has been rough, but September has been historically the most volatile month of the year. Therefore, investors need to brace for more weakness ahead. These oversold blue-chip stocks provide value and can offer better downside protection than smaller peers.
Apple (AAPL)
Though Apple (NASDAQ:AAPL) is still up a lot year-to-date, the stock has declined steeply over the last two weeks.
The stock backed off after failing to break out above the $200 price level. Then, a disappointing earnings report catalyzed the drop to $174 from above $190.
Despite the latest declines, AAPL stock is one of the blue-chip stocks to buy. It is still one of the most profitable companies with a rock-solid balance sheet. Notably, no one doubts Apple’s quality and earnings power.
That’s why Warren Buffet considers it the best business in his portfolio and has it as Berkshire Hathaway’s largest holding.
Due to recent disappointments, investors have had a reason to sell Apple. After three quarters of negative revenue growth, they are losing patience. However, we are just about to enter a new cycle that could boost the stock.
Apple is expected to announce the iPhone 15 in September. This could be the catalyst for a refresh cycle that might buoy demand. According to Wedbush analyst Dan Ives 250 million Apple customers haven’t upgraded their iPhones in the last four years. The analyst expects the new iPhone to boost Apple revenues as consumers who haven’t refreshed their iPhone in four years do so.
Before the announcement, Apple will act as a safe haven. It is a profit-generating machine, with the growing services businesses driving margin improvement. Plus, heading into the announcement, AAPL stock tends to rally.
American Express (AXP)
The financial sector is declining as rates rise. Banks are facing rate pressures and negative sentiment from potential rating downgrades.
Given these headwinds, it is prudent to avoid banks until this uncertainty is resolved. Meanwhile, other oversold blue-chip stocks in the financial sector, like American Express (NYSE:AXP), are bargains to consider.
The market has unfairly punished this credit card company. Its earnings tell a different story. The company’s services are seeing unprecedented demand. Its business is executing impressively, powered by robust travel demand.
Furthermore, its high-end consumers are yet to feel the pinch of reduced savings, and their spending trends are very healthy.
Second quarter results underlined why American Express is one of the oversold blue-chip stocks to buy. It was the fifth consecutive quarter of record revenues. Card member spending increased by 8%, hitting an all-time high.
The impressive performance was driven by strong travel and entertainment spending across geographies and customer categories.
Net income increased 11% to $2.17 billion. Management reflected the optimism in the numbers reiterating the full-year 2023 guidance. They expect $11.00 to $11.40 in EPS, meaning the stock trades at a forward price-to-earnings of 15.
Looking ahead beyond this fiscal year, the stock is well positioned because of its focus on high-end consumers. The company is expanding internationally and targeting a younger audience for growth.
Honeywell International (HON)
This industrial conglomerate has been a laggard this year and is down -12% YTD as of this writing. In contrast, the Industrial Select Sector SPDR Fund is up 8%. This massive underperformance is why Honeywell International (NASDAQ:HON) is among the top blue-chip stocks to buy.
So, what is ailing the stock so much that it has become one of the oversold blue-chip stocks? The only strategic news the company has announced is the departure of the CEO.
However, he was replaced by a company veteran, Vimal Kapur who has been at the company for 34 years.
In terms of financial performance, the results have been okay. Second-quarter earnings were sluggish but exceeded company guidance.
Organic sales were up 3%, and the largest segment, aerospace, grew 16%. It was the ninth straight quarter of double-digit growth in the commercial aerospace segment.
Management also raised their FY2023 outlook increasing sales, margins and adjusted EPS guidance. Considering the guidance, Honeywell is one of the oversold blue-chip stocks to buy. Management expects organic sales growth to be 4% to 6%.
Regarding profits, adjusted EPS guidance is $9.05 to $9.25. At 21 times forward earnings, you are buying one of the best industrial companies. Strength in key markets such as commercial aerospace and process solutions will be a tailwind over the next few years.
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.
