The best blue-chip stocks for 2020.
When investors think of blue-chip stocks, they imagine tried-and-true, large companies with entrenched businesses. They picture robust cash flows, healthy financials and stocks they can own and still sleep well at night regardless of short-term gyrations. Generally, blue chips also sacrifice some growth potential for greater predictability or dividend income. The following stocks, taken together, fit that more conservative mindset — but they should still benefit if markets edge higher. The early part of 2020 has also tested their ability to weather hard times. So far, U.S. News’ 10 best blue-chip stocks to buy for 2020 have mostly lived up to their billing.
Berkshire Hathaway (ticker: BRK.B, BRK.A)
The term “unicorn” has been liberally deployed to describe startups with valuations of more than $1 billion. Diversified holding company Berkshire Hathaway is a true unicorn, with no peer. Warren Buffett became a household name by using his uncanny financial savvy to build an insurance empire; Berkshire owns Geico and Gen Re. Famously patient and cash-rich, Berkshire’s M.O. is to secure sweetheart deals from businesses in need of instant liquidity or market confidence. Berkshire sold all its airline stocks at a loss in 2020, but the company’s stock portfolio still sits at more than $246 billion, and it has more than $146 billion to deploy opportunistically. An even more bullish sign? Buffett bought back a record $5.1 billion in Berkshire stock last quarter.
BRK.B year-to-date return (YTD): -6.41%
S&P 500 YTD return: 4.41%
AbbVie (ABBV)
Drugmaker AbbVie, the company behind the world’s best-selling drug, Humira, is also among the best blue-chip stocks to buy for 2020. Offering a 4.9% dividend, it has investors covered on the income front. ABBV is using cheap money to gobble up Allergan, the face behind Botox, in a bid to diversify and expand. Trading at under eight times forward earnings, ABBV appears meaningfully undervalued right now. Also named as one of U.S. News’ 10 best stocks to buy for 2020 (blue-chip or otherwise), AbbVie offers compelling exposure to the health care sector, which tends to outperform in recessions. The company has several partnerships, including one with Amgen (AMGN) and Takeda Pharmaceutical (TAK) aimed at developing a drug to treat or prevent the virus.
ABBV YTD return: 11.33%
S&P 500 YTD return: 4.41%
Alibaba Group Holding (BABA)
Switching gears, Chinese e-commerce behemoth Alibaba may not qualify as an archetypal blue-chip stock, but at half a trillion dollars and growing, it has earned significant global respect and long-term staying power. As the largest company in the world’s hottest major market — even after 2020’s pandemic — Alibaba arguably enjoys better long-term growth prospects than Amazon.com (AMZN) and trades for 30 times earnings. Its cloud business, though just 11% of the company, grew 58% last quarter, nearly triple the core commerce growth of 19%. BABA has weathered rising U.S.-China tensions and the curveball of the pandemic beautifully and is one of this list’s best performers to date. Alibaba’s affiliate, Ant Financial, one of the premier fintech companies in the world, is also planning an initial public offering this year at a valuation that could approach $200 billion.
BABA YTD return: 19.62%
S&P 500 YTD return: 4.41%
Johnson & Johnson (JNJ)
Johnson & Johnson is a “set it and forget it” stock from your grandparents’ era, and it’s still making the moves required to be one of the best blue-chip stocks to buy for 2020. The allure of JNJ is its predictability robustness. A health care and consumer staples play wrapped into one, it’s no coincidence that JNJ has survived more than 25 recessions since its 1887 inception. A diversified portfolio of products includes fast-growers like immunotherapy drug Stelara, multiple myeloma treatment Darzalex and oncology mainstay Imbruvica. While unlikely to offer blockbuster growth, its 2.7% dividend and status as a cash cow make it an evergreen favorite. JNJ is working on a vaccine candidate and has already begun human trials. It has vowed to produce 1 billion doses in 2021 if it’s successful.
JNJ YTD return: 2.81%
S&P 500 YTD return: 4.41%
Facebook (FB)
Any company with 2.7 billion users has staying power. Facebook, despite its public relations issues, still makes the list as one of the best blue-chip stocks to buy today. Regular growth is hard to come by cheaply on Wall Street, but even conservative investors should consider cheap growth stocks when available. FB stock isn’t for everyone — shares trade for 32 times earnings with no dividend. But analysts expect compound earnings growth over the next five year, and with Facebook’s services behaviorally ingrained as a part of day-to-day life for billions of people, the business is very well insulated. Along with subsidiaries Instagram and WhatsApp, Facebook can be seen as a bet on two eternal human traits: ego and the desire to connect.
FB YTD return: 27.3%
S&P 500 YTD return: 4.41%
British American Tobacco (BTI)
The highest-yielding pick of the 10 blue-chip stocks to buy for 2020, British American Tobacco will catch the eye of income investors with its almost 8% dividend. A high yield itself doesn’t justify buying any stock, but BTI seems conservatively priced beneath 10 times earnings — or about 25% below its five-year average price-earnings ratio of 13, offering nice downside protection for shares of the nearly $80 billion tobacco giant. Taking the long view, 2020 seems an ideal time to buy BTI while it’s unpopular. First, it was vaping’s competitive threat and then came further pressure from 2020’s bear market, which means shares are off by more than 50% from their 2017 highs. BTI’s brands include Camel, Pall Mall, Kool, Lucky Strike and Dunhill, among others.
BTI YTD return: -17.18%
S&P 500 YTD return: 4.41%
McDonald’s Corp. (MCD)
The past isn’t always prologue, but it tends to make for more auspicious investing decisions. The rearview mirror shows that McDonald’s weathered the Great Recession like a champ. In 2008, when General Electric (GE) was on the verge of slashing its dividend, McDonald’s was increasing its payout, an annual ritual it has successfully maintained for 43 years. That year, shares outperformed the S&P 500 by 46 percentage points. The fast-food giant’s 2.4% yield isn’t setting any records, but the fact that it’s unflinchingly sustainable de-risks MCD greatly. Even during the pandemic, shares have managed to hold up well as its drive-thru business and high-quality, financially sound franchisees give shares some resiliency. Though 2020 will be a down year for the top- and bottom-line, analysts expect MCD to bounce back quickly and surpass its 2019 numbers in 2021.
MCD YTD return: 5.84%
S&P 500 YTD return: 4.41%
Duke Energy Corp. (DUK)
Duke Energy, one of the largest utilities in the country, entered 2020 as one of the most reasonably valued major utility stocks. Clearly, as a defensive play, utilities like DUK are famous for weathering bear markets and recessions well — barriers to entry are extremely high, electricity and gas are software-proof and widespread demand for its services is guaranteed for decades to come. Duke provides electricity for 7.7 million customers and natural gas for 1.6 million in the Southeast and Midwest. Its 4.6% dividend is soundly financed. While certainly not a potential blockbuster, the income and predictability that DUK offers are invaluable; Duke Energy’s underperformance to date is symptomatic of a lagging utilities sector that has been outshone by tech and consumer discretionary.
DUK YTD return: -6.26%
S&P 500 YTD return: 4.41%
Dollar General Corp. (DG)
Discount retailer Dollar General is another recession-tested stock, with a sound business that fares well in uncertain waters and offers acceptable growth in more normal environments. DG had a blowout fiscal first quarter (ending on May 1), in which revenue and earnings topped analyst expectations and the retailer posted rarely seen same-store sales growth of 21.7%. Combined with an expansion plan that saw the company open 975 new stores in 2019, prospects look rosy for the underlying business. The pandemic has made DG an essential part of everyday Americans’ survival, and its 2020 performance highlights just how safe and entrenched it is as a business. An increased focus on higher-margin, private-label brands should also be a long-term earnings driver.
DG YTD return: 26.48%
S&P 500 YTD return: 4.41%
Novartis (NVS)
Rounding out the list is Novartis, a $200 billion pharma company that pays a respectable, sustainable 3.8% dividend yield. CEO Vasant “Vas” Narasimhan, who assumed the top spot at the Swiss drugmaker in early 2018, has already proven to be a wheeler-dealer. Since he took the reins, NVS has acquired gene therapy company AveXis, spun off ophthalmology unit Alcon and agreed to buy The Medicines Company for $9.7 billion, which has developed a potentially groundbreaking drug for cholesterol and cardiovascular disease. Nestled in the defensive health care sector at a convenient time, and trading at 13 times forward earnings, upside from Narasimhan’s dealing may not be too far off. Hits to ophthalmology and dermatology businesses in the depths of the pandemic should be merely short-term setbacks.
NVS YTD return: -6.56%
S&P 500 YTD return: 4.41%
The best blue-chip stocks to buy for 2020:
— Berkshire Hathaway (BRK.B, BRK.A)
— AbbVie (ABBV)
— Alibaba Group Holding (BABA)
— Johnson & Johnson (JNJ)
— Facebook (FB)
— British American Tobacco (BTI)
— McDonald’s Corp. (MCD)
— Duke Energy Corp. (DUK)
— Dollar General Corp. (DG)
— Novartis (NVS)
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10 of the Best Blue-Chip Stocks to Buy for 2020 originally appeared on usnews.com
Update 08/13/20: This story was published at an earlier date and has been updated with new information.
