Let’s first define the dip. The S&P 500 is currently down 17.83% year-to-date. And it was down nearly 24% just over a month ago. That represents a significant dip and constitutes a bear market by some definitions. And while that overall dip has sheared massive amounts of money from the market capitalizations of companies across the board, there is still opportunity. In this case, we’ll focus on the inherent opportunity in so-called blue-chip stocks.
So, what defines blue-chip stocks? Let’s start by establishing that there is no technical definition of blue-chip stocks. The definition is part subjective measures and part objective measures. Typically though, blue-chip stocks are valuable, stable, well-established businesses with household names. They tend to have large market capitalizations, a track record of growth and usually pay dividends. So, let’s look at what makes these companies so special.
Here are seven blue-chip stocks to buy on the dip:
|HD||The Home Depot||$293.94|
|KR||The Kroger Co.||$45.65|
Blue-Chip Stocks: Home Depot (HD)
Simply looking at Home Depot (NYSE:HD) stock’s price chart tells a good story. It began 2022 trading above $400. The housing market looked incredibly strong with high prices, low-interest rates, and a strong overall outlook for HD shares.
But it soon became apparent that something would have to give as inflation had already begun to spiral months prior. An official rate increase wouldn’t come until Mar. 16, but the markets were already pricing them in. That triggered a selloff in HD stock as higher interest meant rising mortgage rates, and with them, less demand for Home Depot’s products.
But that sell-off was likely overdone. HD shares went from $400 to $270. The consensus target price sits near $350. Home Depot’s 10-year average price-to-earnings (P/E) ratio of 22.3 is a good target. Right now HD shares carry a 18.98 P/E ratio, indicating overselling. That’s a good reason to buy.
The narrative currently swirling around Apple (NASDAQ:AAPL) stock centers on trimmed target prices and a potential earnings miss. That will keep prices volatile throughout 2022. But, unless you’re a trader, there’s little reason to try and pin those down with any accuracy.
Instead, buy Apple for its long-term potential, its position as one of the most important global businesses and its dividend.
From the perspective of long-term potential, simply understand that Apple is highly likely to cross the $400 billion annual sales threshold in 2023. It remains arguably the most important global business, as well. There’s a reason that it constitutes more than 40% of Warren Buffett’s portfolio. Also consider that Apple is strategically growing its dividend. While it remains relatively small, it has a five-year growth rate of 9.5%.
Blue-Chip Stocks: Comcast (CMCSA)
Comcast (NASDAQ:CMCSA) stock has a beta of 0.99. That means it moves in near lockstep with the broader market. So, it is no surprise that it is down in line with the S&P 500 this year.
But there’s a reasonable argument to be made that Comcast is oversold based on the fact that it has provided earnings beats in each of the past four quarters. The stock’s P/E ratio is well below its 10-year average, which suggests it will rebound with the broader market. Further, its P/E ratio is more attractive than an average telecommunications stock.
And like most blue-chip stocks, Comcast pays a dividend. The dividend happens to be yielding close to 10-year highs because share prices have dropped. Taken altogether, CMCSA stock looks like a good bargain right now.
McDonald’s (NYSE:MCD) stock simply makes a lot of sense. The blue-chip fast-food giant ticks many of the boxes investors are seeking in the current economy. MCD stock has a five-year beta of 0.55. It has performed much better than the broader stock market. In fact, it’s barely down at all this year, having moved from $268 to $253.
So, the idea that McDonald’s performs well in any economy has held true in 2022. And if we look back over the past decade, we see that returns have been strong. MCD stock has averaged a 13.89% return over the past 10 years. That means an investment would have more than tripled over the same period. That’s a great example of why many investors ardently support blue-chip stocks.
Additionally, McDonald’s includes a dividend that only increases those returns if reinvested.
Blue-Chip Stocks: Nike (NKE)
Jefferies (NYSE:JEF) analyst Randal Konik likes Nike (NYSE:NKE) over other athletic leisure plays, or athleisure, as he calls it. He cites rising demand for fitness apparel catalyzed by the fact that 40% of people gained weight during the pandemic. He also believes Nike is in a prime position to benefit due to the rise in casual workplace attire. While he lowered both ratings and prices on its competitors Lululemon (NASDAQ:LULU) and Under Armour (NYSE:UA), he maintained both for Nike.
Despite Nike’s massive scale and presence, the company doesn’t look to be slowing. In fact, top-line growth is expected to rise more than 10% next year. Its dividend yields a bit over 1%, so it all adds up to a really solid investment without a particularly long time horizon.
Kroger (NYSE:KR) is the biggest grocery store chain in the U.S. Given that groceries remain in demand in every economy, KR stock looks like a reasonable pick. To give readers an idea of its scale, the chain reported $137.9 billion of sales in 2021. It also operates more than 2,700 stores across its brands including Kroger, Harris Teeter, and Smith’s.
The reason I like Kroger other than its scale and business is primarily because of its dividend. The company recently raised its dividend from 84 cents to $1.04 in June. That’s part of a larger trend to continually grow its dividend while seeking 8% to 11% shareholder returns.
Combine all those factors and it’s easy to see why Kroger is a well-respected blue-chip stock worth investing in.
Blue-Chip Stocks: AbbVie (ABBV)
Pharmaceutical stocks, including AbbVie (NYSE:ABBV), are noted for their ability to weather economic downturns. Thus far, ABBV shares have proven that notion to be correct in 2022. In fact, ABBV stock is actually up on the year.
That said, ABBV still has roughly $15 higher to climb in order to reach its target price. In addition, AbbVie gives its equity investors a dividend yielding 3.74% at current prices.
Investors have to judge how they feel about the notion that AbbVie expects revenues to decrease overall in 2023. While that is the expectation, earnings per share figures are expected to continue to rise. If AbbVie can adjust its portfolio of drugs in a way that compliments its declining cash cows, it’ll jump massively. As it stands now, it still looks strong if that doesn’t happen.
On the date of publication, Alex Sirois 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.