Editor’s note: “5 Great Blue-Chip Stocks to Buy” was previously published in July 2019. It has since been updated to include the most relevant information available.
If you’re like me, the current bout of trade-induced volatility isn’t sitting too right. And while swings and bear markets are a part of investing, the kind of big plunges we’ve recently seen does make for some sleepless nights. Which is why the best stocks to buy could be America’s blue-chip stocks.
Blue-chip stocks don’t necessarily have a formal definition, but they are generally stable and well-established companies. Blue-chip stocks are typically household names with billions in revenues and steady rising profit profiles. Often, they share the wealth with their investors via rich dividend and buyback programs.
The best part is that investors can count on blue-chip stocks to help them get through periods of malaise and bear markets as they tend to be less volatile than let’s say, smaller growth stocks. To that end, with the markets starting to feel a bit shaky, blue-chip stocks could be the best way to position your portfolio in the upcoming months.
But which blue-chip stocks make sense to buy? Here are five that could help you get through the next few months and an upcoming bear market.
Cisco Systems (CSCO)
The technology sector is often seen as a growth element for a portfolio. However, the sector does feature plenty of blue-chip stocks that produce mountains of cash flows, steady dividends, and rising profits. Case in point, former dot-com darling Cisco Systems (NASDAQ:CSCO).
After building the internet and networking with its focus on switching gear and routers, CSCO made the smart pivot into services and reoccurring revenues. It basically created the model that many tech firms have copied.
And in doing that, Cisco has become a cash generation machine. Last quarter alone, the firm managed to produce more than $3.5 billion in free cash flows.
The best part is that CSCO continues to share that cash with investors. The firm recently raised its dividend by 6% and added another $15 billion to its authorized buyback program.
And yet, more could be in store for Cisco. The firm continues to add new capabilities to its services platform and recently unveiled new conversational A.I. to its interfaces. Adding in continued data center demand as well as the pending 5G upgrades and Cisco continues to look great.
For investors looking for a strong tech sector blue-chip stock, Cisco has to be your top pick.
The steadfastness of the healthcare sector makes it a prime place to find plenty of blue-chip stocks. And one of the best could be pharmaceutical giant Merck (NYSE:MRK).
For starters, MRK features a wide portfolio of current and former blockbuster drugs, vaccines and other therapies. This huge portfolio continues to drive profits and cash flows at the giant. But MRK isn’t resting on its laurels. A few years ago, Merck made the shift into newer biotech and advanced cancer-fighting medications. That has turned out to be the right move.
MRK’s Keytruda has quickly become the go-to medicine for a variety of lung cancers and sales going through the roof. Last quarter alone, the company reported more than $2.2 billion in Keytruda sales.
That double-digit growth has allowed Merck to up its total forecast and guidance for the entire year.
The growth of Keytruda could continue. Merck has begun several trials looking to use the drug in other indications. This could provide even more cash flowing Merck’s way. Considering the growth of its cancer portfolio and the rest of its steady drug options, Merck is looking like a great buy for the long haul.
In the end, MRK’s 2.5% yield and continued growth make it a powerful blue-chip stock for any investor.
American Express Company (AXP)
One of Warren Buffett’s favorite blue-chip stocks happens to be American Express (NYSE:AXP). And the Oracle of Omaha isn’t wrong to own it. The financial powerhouse has continued to thrive in the rising economy and has a lot to offer investors.
AXP is kind of a weird bird. Like its rivals, Visa (NYSE:V) and Mastercard (NYSE:MA) (two blue-chip stocks also worth owning), American Express operates a secured payment network and acts as a toll road when customers swipe their cards. Here, Amex scores a hefty fee.
The firm’s discount revenue rate was last quarter was 2.37%. Basically, for every $100 spent on its cards, $2.37 flowed back to AXP. All in all, last quarter, American Express pulled in more than $6.2 billion in revenue from these operations.
Secondly, unlike V and MA, American Express is an issuer of its cards. Because of this, it’s able to score hefty membership fees, interest and creates a leverage effect for its profits. Moreover, Amex’s entire M.O. is about rewards and its partners pay the credit issuer plenty of fees to get their products/offers onto AXP’s platform.
The best part is that AXP tends to focus on the higher end of the credit spectrum. This removes many of the uncertainty and issues with offering loans and reduces default rates.
All of this has made American Express a powerhouse in the financial sector.
Genuine Parts Company (GPC)
Sixty-three years. That’s an amazing streak for any firm to consistently raise its dividend. But for blue-chip stock Genuine Parts Company (NYSE:GPC), it’s just par for the course. The secret lies with the firm’s massive and irreplaceable moat.
There’s a good chance that you’ve never walked into one of GPC’s locations, but your mechanic has. Under the NAPA banner, the firm operates one of the largest networks of auto parts and industrial distribution locations in the nation.
Those 9,250 locations are located pretty much everywhere, and that’s key. Auto parts are generally a “need it now” sort of item and are pretty much immune from the whims of online sales.
Because of this huge network, GPC and NAPA are pretty much the only game in town when it comes to getting parts to body shops, mechanics and service centers. This has been beyond good for GPC’s bottom line over the years. In its 90-year history, sales have increased in 85 of those years.
This streak was continued last year as GPC recorded more than $18.7 billion in revenues. Analysts predict that revenues will jump by about 4% this year. Naturally, those sales have turned into profits and a long streak of dividend increase for investors.
This consistency has made GPC one of the best blue-chip stocks to own for the long haul.
When it comes to blue-chip stocks, Coca-Cola (NYSE:KO) could be the bluest. Its brand is worldwide and is enjoyed millions of times daily. This has allowed KO to pay a constantly rising dividend for the last 55 years and provide plenty of ballast to a portfolio in markets just like today.
Source: Chris Nielsen via Flickr
And there is still growth to be had.
Coke has moved into new beverage categories as tastes have changed. Sparkling water, juices, teas, and other healthy drinks are now on a menu at the firm.
And these items continue to grow, with revenues for these products now accounting for about half of KO’s total pie. Meanwhile, KO has improved margins via new packaging designs and sizes. Adding in some tech — such as its Arctic Coolers and Freestyle machines — and Coke seems to be winning the beverage wars.
The proof is in the pudding. Continued product mix development has resulted in a big 5% jump in revenues last quarter. Likewise, earnings saw a big surge and KO has managed to produce roughly $6.28 billion in free cash flow over the last 12 months.
Yes, KO is boring. But that’s what exactly what investors should be looking for in a blue-chip stock. Consistency, with a touch of growth. If that doesn’t describe Coca-Cola, then I don’t know what does.
Disclosure: At the time of writing, Aaron Levitt did not have a position in any stock mentioned.
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