Volatility in the markets has heightened in recent weeks. However, long-term investors should embrace it since it creates bargains. Whether the low on August 5 was the bottom remains to be seen. Still, with most individual stocks down over 10%, it’s time to screen for the best blue-chip stocks whose risk-reward setup has improved.
There are several reasons to remain optimistic about stocks despite the recent selloff. Evidence points to earnings holding up, especially for blue-chip stocks. As of August 2, FactSet reported that 78% of S&P 500 stocks had reported a positive EPS surprise. That’s a big boost since stock prices follow EPS over the long term.
The blue-chip stocks discussed below have reported impressive earnings and issued a rosy outlook. Moreover, they generate tremendous cash flow and provide solid returns to shareholders. After their recent pullbacks, these are the best blue-chip stocks to buy, considering their expectations of accelerating revenues over the next year.
Apple (AAPL)
After reporting declining revenue growth in five out of six quarters, Apple (NASDAQ:AAPL) turned the corner, delivering 5% revenue growth in Q3 fiscal year 2024. However, the strong report was overshadowed by news that Warren Buffet reduced his holdings in the technology giant by about 50%.
Still, there are several reasons to be optimistic about Apple. First, Q3 FY2024 results highlighted improving fundamentals across its iPhone, iPad and wearable products. The earnings also revealed that its services business is becoming a juggernaut. In the quarter, segment revenues hit a record of $24.2 billion, up 14% year-over-year.
Even better, the company issued upbeat guidance. Chief Financial Officer Luca Maestri noted that he expects Q4 FY2024 revenues to grow YOY like the June quarter. Moreover, Apple remains one of the best blue-chip stocks due to its robust balance sheet and share purchases. It ended the quarter with $153 billion in cash and returned $32 billion to shareholders.
In the future, the biggest catalyst for AAPL stock is the potential for a significant iPhone upgrade cycle due to Apple Intelligence. The rollout has already begun with developers, and management expects a substantial enhancement of application capabilities. With the upcoming upgrade cycle, it’s time to step in and buy Apple on this pullback.
Lam Research (LRCX)
Lam Research (NASDAQ:LRCX) is a leading etch and deposition equipment provider. Following an over 30% correction since July 10, you can buy one of the best blue-chip stocks at a bargain price. As of this writing, LRCX stock trades at 21 times forward earnings and yields 1%.
The company’s Q4 FY2024 results, released on July 31, highlighted the continued momentum across its business lines. Revenues increased from $3.2 billion in Q4 FY2023 to $3.87 billion, a 21% year-over-year and 2.1% sequential increase. Moreover, EPS also grew sequentially from $7.34 in Q3 2024 to $7.78, demonstrating the acceleration in earnings.
These impressive results lay the groundwork for more gains ahead. Management sees a positive environment for expanding wafer fab equipment spending in FY2025. CEO Timothy Archer noted that inferencing at the etch will accelerate content growth of low-power DRAM and NAND storage in smartphones and enterprise PCs. As a result, AI-enabled devices will spur demand for Lam’s equipment.
As the AI thesis plays out, Lam Research continues its shareholder returns, spending $382 million in buybacks and $261 million in dividends in Q4 FY2024. Additionally, the Board approved a $10 billion share repurchase authorization. These shareholder returns and the growth prospects from AI make LRCX stock one of the best blue-chip stocks.
Eaton (ETN)
Eaton (NYSE:ETN) has been one of the best blue-chip stocks to own in the industrial sector. Year-to-date, it’s up 15% compared to a 7% gain in the Industrial Select Sector SPDR Fund (NYSEARCA:XLI). After another beat and raise quarter, this stock has more upside.
Indeed, Eaton has been riding major megatrends such as electrification, digitalization, infrastructure spending and the energy transition. As a result, it has seen surging orders from end markets such as data centers, industrial, residential buildings and utilities. Management noted that 444 megaprojects with a cumulative value of $1.4 trillion have been announced in North America since January 2021.
As a result, Eaton is seeing tremendous growth aided by a 41% win rate in these projects. Therefore, it’s no surprise that Q2 2024 sales grew 8% YOY to $6.35 billion. Even better, segment margins increased by 210 basis points to a record 23.7%. As a result, adjusted EPS grew 24% YOY, surging to a quarterly record of $2.73.
In terms of outlook, management expects solid growth in several end markets. For instance, they predict strong double-digit growth in data centers, commercial aerospace and utilities. That’s why they raised guidance, updating FY2024 organic revenue growth to 8-9% and increasing adjusted EPS expectations to $10.65 – $10.75. With earnings expectations going higher, Eaton is a buy.
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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
