When looking to round out your portfolio with some of the most financially sound and stable companies, adding a couple of blue-chip stocks is a no-brainer. With many of these stocks providing reasonable dividends, consistent compoundable growth, and relatively low risk, the main issue with investing in these companies boils down to finding the right time to actually enter a position. With the recent bear market finally starting to show more signs of recovery, investors should get ready to start looking into these previously overvalued giants.
While many individuals have started to look for opportunities to capitalize on the recent market volatility by investing in smaller, growth-focused companies or other riskier prospects, we believe it’s always important to step back and reevaluate the amount of blue-chip exposure a portfolio is getting.
With no better time to start searching than the present, we believe this article will highlight several blue-chip companies worth looking into in the coming quarters.
Visa (V)
Visa (NYSE:V) engages in processing payments and connecting consumers with businesses to facilitate transactions. I’m sure many of you own a Visa credit card. Visa has been dominant for so long, making up one of the few duopolies in the entire market with Mastercard (NYSE:MA).
In the United States alone, Visa processes over 61% of all credit card transactions and is only expanding its presence globally.
Its stock price has been up a healthy 24% in the last year, with an average analyst 1-year price target of $241.78.
Over the past 5 years, Visa has been growing steadily with its EPS surging from $2.81 in 2017 to around $7 last year. This averages to a massive 20% per year growth rate. This is only expected to continue with EPS expected to hit around $8.60 for the fiscal year 2023. Even though its P/E of 24.75x might seem high, this is far below its 5-year average of 34.31x, indicating that it is trading at a discount compared to historical values. With the high EPS growth ahead and market dominance, I would be ready to scoop some shares up if prices were to slightly dip.
McDonald’s (MCD)
With over 13,000 locations in the United States and more than 38,000 worldwide, McDonald’s (NYSE:MCD) has established itself as a leader in the fast food industry. In the last year, MCD stock is up nearly 8% with 33 Yahoo Finance analysts predicting a price range between $277-$383, with an average analyst 1-year price target of $329.52.
With its strong brand image, low prices, and popular classics, consumers keep coming back. McDonald’s makes sure to continually innovate and deliver to consumer preferences with a huge variety of menus around the world. What’s more, it is planning to expand its massive presence even further with an expected 1,900 new locations to open this year.
Being so well established, McDonald’s is still seeing moderate levels of growth. Over the last 5 years, its EPS has grown from $6.43 to $8.39, a steady 5% average increase per year.
With a dividend yield of over 2% that has grown consistently over the last 20 years, there is an added benefit for investors looking for safe returns. However, McDonald’s P/E ratio is quite high at over 25x, far above the sector median of 12.71x, so look for shares to take a pullback before buying in.
Extra Space Storage (EXR)
Now, whereas you have likely heard of Visa and McDonald’s before, you may have never even heard of this blue-chip status-worthy company: Extra Space Storage (NYSE:EXR). Extra Space Storage is structured as a real estate investment trust (REIT), whose share price is sitting at a relatively attractive price point due to the recent REIT meltdown. While its stock price is currently down 11% YTD, 12 Yahoo Finance analysts are optimistic that this company will be able to achieve a 1-year price range between $128 -$185, with a mean target of $154.67.
Higher interest rates alongside negative sentiment on bank failures have created recent turbulence for many real estate stocks, as evidenced by REITs being down almost 30% since 2022. However, I am optimistic that REITs will be able to reclaim their former glory of outperforming every other stock sector in the years after a major drawdown.
Just taking a quick glance at its financials, we see it as an industry leader. It boasts a strong market position and diverse store portfolio. Its consistent growth in dividends and funds from operations is impressive, with a stable 5% dividend yield. On top of its consistent operating margins of around 45%-55%, alongside its manageable debt, EXR also maintains a relatively discounted P/E ratio of 20.89x, as opposed to its sector median of 27.35x.
With these historically large-returning REITs trading at such a discount, investors should absolutely be looking into EXR if they are seeking long-term growth and value in the self-storage space.
On the date of publication, Ian Hartana and Vayun Chugh 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.
