SPECIAL REPORT The Top 7 Stocks for 2024

3 Blue-Chip Stocks That Will Outperform the Index in 2024

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  • These are the blue-chip stocks to buy for robust total returns next year.
  • Lockheed Martin (LMT): Strong order backlog provides cash flow visibility and revenue growth likely to accelerate.
  • Newmont Corporation (NEM): Bullish on gold and Newmont will deliver value with quality assets and an investment-grade balance sheet.
  • Chevron Corporation (CVX): Trading at a valuation gap with strong operating cash flow visibility that will be boosted further with the recent acquisition.
blue-chip stocks - 3 Blue-Chip Stocks That Will Outperform the Index in 2024

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A simple rule to investing is to buy the index if you cannot beat the index. In my view, beating the index is not a big task. However, it’s a matter of disciplined investing and patience. One strategy to beat the index is to consider a mix of growth and blue-chip stocks for the portfolio. Generally, a good selection of growth stocks can be a portfolio catalyst.

However, even if investors are significantly overweight on blue-chip stocks, it’s possible to beat the index by a good margin. The important point is to wait for a correction in the best blue-chip stocks and consider exposure at a valuation gap. Quality stocks are unlikely to trade at a valuation gap for an extended period. Therefore, whenever the opportunity comes, it must be grabbed with both hands.

This column discusses three blue-chip stocks likely to outperform the index in 2024.

Lockheed Martin (LMT)

Close top view of a Lockheed Martin (LMT) F-35C Lightning II with afterburner on
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Despite positive business developments and industry tailwinds, Lockheed Martin (NYSE:LMT) stock has declined by 5% year-to-date. This blue-chip stock is likely to trend higher next year as growth accelerates. Besides trading at an attractive forward price-earnings ratio of 16.7, LMT stock offers a dividend yield of 2.78%.

Last year, global defense spending reached an all-time high of $2.24 trillion. With geopolitical tensions this year, spending will continue to accelerate. Lockheed is positioned to benefit from U.S. government orders. Further, the company is also looking to expand international collaborations to boost its order book.

As of Q3 2023, Lockheed reported an order backlog of $156 billion. The backlog provides clear revenue and cash flow visibility. For the year, the company has guided for a free cash flow of $6.2 billion. As FCF accelerates in the coming years, dividend growth will likely be healthy. With these consideration factors, LMT stock is poised for a breakout.

Newmont Corporation (NEM)

Newmont logo on a mobile phone screen
Source: Piotr Swat/Shutterstock

Gold continues to trade at around $2,000 an ounce, and I believe the precious metal will trade at new highs next year. Geopolitical tensions and potential rate cuts support an upside in gold after an extended period of consolidation. Gold mining stocks are a good proxy for investing in gold, and Newmont Corporation (NYSE:NEM) is among the best blue-chip stocks to buy.

Newmont has some of the top-tier gold assets with an attractive all-in-sustaining-cost. To put things into perspective, the company reported adjusted EBITDA of $2.8 billion for the first nine months of 2023. This would imply an annualized EBITDA potential of $3.7 to $3.7 billion.

Further, if gold trades at $2,200 or $2,300 an ounce next year, the EBITDA can potentially be more than $5 billion. Newmont is, therefore, positioned to deliver robust cash flows supporting aggressive investments and dividend growth. I must mention that Newmont has an investment-grade balance sheet that provides flexibility for acquisition-driven growth. The recent acquisition of Newcrest Mining (OTCMKTS:NCMGF) will support production upside.

Chevron Corporation (CVX)

a Chevron (CVX) gas station
Source: Trong Nguyen / Shutterstock.com

Chevron Corporation (NYSE:CVX) stock has corrected by 15% for the year. The stock trades at a valuation gap and offers a dividend yield of 4%. I believe that a strong reversal rally is due next year.

To put things into perspective, 24 analysts offering 12-month price forecasts for CVX stock have a median price target of $180. This would imply an upside potential of 21.98% from current levels. Assuming a scenario where crude trends are higher, the price target is likely to be revised on the upside.

There are reasons to be bullish on oil, including geopolitical tensions, production cuts and possible rate cuts next year. Chevron, with an investment-grade balance sheet and low break-even assets, will be positioned to deliver robust cash flows.

Recently, the company announced the acquisition of Hess Corporation (NYSE: HES). This will boost production and cash flow outlook. Chevron expects to invest $19 to $22 billion annually once the acquisition is completed. This will ensure steady production upside and value creation.

On the date of publication, Faisal Humayun 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.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.


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