The bear market is firmly in place so long as the economy worsens. The incoming recession is a necessary headwind. Although the Federal Reserve would like to avoid that outcome, it will try to avoid a slowdown. The Fed is raising interest rates at an astonishing rate to squash inflation. Until inflation subsides, the central bank will continue its stock unfriendly policy.
Eventually, the market will shift from a downtrend and recession to flat growth. Companies that cut costs, protected profitability, and invested in the business will rebound. Blue-chip stocks to buy before the bull market returns must have strong quantitative stock scores. In addition, they need to operate a business that investors may easily understand.
Investors should build a list of stocks that would lead to a diversified portfolio. In the drug manufacturing space, Abbott Laboratories and J&J have strong earnings power.
Medtronic, a medical devices firm, is out of favor. When it works through its business problems, the stock, which pays a $2.72 per share dividend, will rebound.
In the tech sector, Salesforce, Seagate, and IBM all fell recently. Patient investors could wait for a quarter when those firms report improving results. When the economy recovers, these are seven blue-chip stocks to buy before the bull market returns:
|JNJ||Johnson & Johnson||$174.1|
|RY||Royal Bank of Canada||$97.31|
Abbott Laboratories (ABT)
News that Abbott Laboratories (NYSE:ABT) limited production of baby formula sent ABT stock lower in recent months. Fortunately, the astute investor ignored the noise.
In the second quarter, Abbott posted non-GAAP earnings per share of $1.43. Revenue rose by 10.1% year-over-year to $11.3 billion. Business is so strong that Abbott raised its full-year 2022 EPS guidance. It expects GAAP EPS of at least $3.50. The guidance includes Covid-19 testing-related sales of $6.1 billion. Abbott is a stalwart stock. Investors eager to accumulate a reliable stock may buy and hold shares today.
Chief Executive Officer Robert Ford said that the macro environment is still challenging. Inflation is significant, with the commodity super cycle in play. Despite recessionary risks from weaker housing, retail, and auto demand, healthcare is a resilient sector.
The government funds many healthcare initiatives. Abbott has a diversified business model to capture government spending. Specifically, if Covid-19 surges in the winter, demand for Abbott’s testing kit will rise.
IBM (NYSE:IBM) fell on July 19, 2022, after posting a free cash flow decline in the quarter. The firm posted revenue of $15.5 billion, up by 9.3% YOY. IBM’s impressive revenue growth for its size failed to interest investors. The tech giant continues to improve.
IBM’s CEO, Arvind Krishna, said that the company will grow its full-year revenue at the high end of its mid-single digit model. Chief Financial Officer James Kavanaugh acknowledged that its FCF for 2022 would be $10 billion. This is at the low end of its earlier forecast. The prediction is only $0.5 billion lower and is due mostly to the strong U.S. dollar. That hurt its revenue growth by six points.
Corporations continue to require infrastructure solutions and technology consulting. The weaker economy will force IBM customers to increase efficiencies. IBM’s cloud computing business accounted for $4.24 billion in sales, up by 19% YOY. Its software business contributed to $6.17 billion in revenue. And software sales accounted for $4.81 billion in revenue.
Johnson & Johnson (JNJ)
Johnson & Johnson (NYSE:JNJ) reported sales of $24 billion, up by 3% YOY. Net earnings and EPS fell compared to last year. The firm lowered its revenue guidance from $93.3 billion to $94.3 billion. It previously expected revenue of $94.8 billion to $95.8 billion. Analysts expected even more: $96.09 billion on average.
J&J’s lowered outlook is not significant. This hurt JNJ stock for now. As investors seek safety in dividend-paying stocks, J&J will rebound.
Investors worry over the risks of the government legislating drug pricing. This will have a detrimental effect on the industry’s ability to spend on research and development. Hopefully, governments realize the importance of the industry’s past investments of $120 billion in R&D in 2020. J&J spent $12 billion on its pharmaceutical business in 2021. Collectively, the pharmaceutical industry introduced 1,000 new medicines ever since 2000.
Investors may bet that J&J and other drug firms may raise prices to cover heavy R&D expenses. When that happens, JNJ stock will trend sharply higher.
Medtronic (NYSE:MDT) posted disappointing Q4/2022 results on May 26, 2022. The markets ignore that people need pacemakers and cardiovascular equipment.
Medtronic expects its revenue to grow by 4% to 5% in the fiscal year 2023. Its EPS will grow at a faster pace, potentially in the double-digit total. It will not have order issues that weighed on previous quarters. Furthermore, it will not have supply chain disruptions that hurt past results.
By the fiscal year 2024, it will have multiple business drivers. In addition, it is exiting the Left Ventricular Assist Device (LVAD) business. It left the market because it observed a higher frequency of neurological adverse events.
Medtronic has a robust pipeline. It invested steadily in R&D in the last few years. Together with a new operating model having 20 operating units, the firm may compete more effectively.
China may pressure Medtronic’s margins as volume-based purchasing orders increase. Beyond that in the first quarter, investors should expect better earnings.
Royal Bank of Canada (RY)
Royal Bank of Canada (NYSE:RY) reported net fund redemptions for June 2022. Investors redeemed CA $2.11 billion. Mutual fund assets under management fell by 5.7%. The volatile markets spooked RBC’s clients into selling. When the bank has fewer assets to manage, it earns less fee revenue. But when the markets eventually emerge into a bull market, investors will return.
Royal Bank still managed to increase its dividends by 11%. Investors who buy this blue chip bank giant should expect dividend hikes over the next decade. The firm returned $3.6 billion to its shareholders in the quarter through stock buybacks and dividends.
In the second quarter, RBC released provisions in Personal & Commercial Banking. It cut loss expectations from loans. Although loan conditions are worsening, the bank reported no new impaired loan formation. It factored in positive economic signals in strengthening its cash on hand. Still, the bank is mindful of the uncertainties ahead.
It is monitoring supply chain issues and inflationary pressures. In case conditions worsened, it held extra cash to cushion the downside scenario.
Investors should be mindful that Salesforce (NYSE:CRM) co-CEO Marc Benioff sold 302,000 shares on June 28, 2022. Insider selling is a potential warning flag. Still, the software has exceptional historical growth.
Salesforce customers are buying more enterprise solutions. Attrition numbers continue to fall. Customers need a multi-cloud solution that supports their business. For example, the company has Tableau, Demandware, and ExactTarget Marketing Cloud. More of Salesforce’s installed base is renewing licenses for those products. As a result, profit margins will expand.
Slack, which the company acquired, has multiple natural use cases. Users collaborate on Slack. This activity increased when hybrid work activities rose. In addition, Slack is a good standalone product. Customers who want to avoid signing up for Salesforce products may buy Slack products through a general agreement.
CFO Amy Weaver said that Slack is Salesforce’s biggest M&A. The unit is a positive contributor to the company’s operating margin guidance increase to 20.4%.
Seagate Technology (STX)
Seagate (NASDAQ:STX) tumbled when it posted Q4/2022 revenue of $2.63 billion. This is down 12.6% YOY. For Q1/2023, the storage supplier forecasts revenue of $2.5 billion. Analysts had a consensus estimate of $2.99 billion. The big downward revision is a result of a slowdown in the technology hardware sector.
Customers are slow in taking up the 20-terabyte storage product, especially in China. Demand is potentially weaker from the Covid-19 lockdown in the country.
End-user demand is weaker, consistent with a slowdown in PC sales in the second quarter. At the back end of this fiscal year, Seagate expects sales of 30 terabyte drives to rebound. This will lift STX stock as operating profits recover.
Seagate’s trajectory of recovery starts with working down the excess inventory. Its PC portfolio has too many legacy products. It will need to sell through older products first. Mass capacity demand will increase, as it always does. This will lead to higher gross margins for Seagate.
On the date of publication, Chris Lau 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.