Investors can buy and hold these 401(k) stocks for the long haul.
The stock market has produced some major gains since the March bottom. However, many of the best-performing stocks during the rebound were also some of worst-performing stocks during the downturn. Riding the wave of bullish momentum is great for short-term stock traders. But some long-term investors are looking for stocks they can buy for their 401(k) and hold forever without losing sleep. These investors are willing to sacrifice some potential upside for reliability, stability and security. Here are eight of Morningstar’s top blue-chip stocks to buy and hold that have low uncertainty ratings and dividend yields of at least 3%.
Pfizer (ticker: PFE)
Pfizer has gotten a lot of attention lately because of its coronavirus vaccine candidate, but the pharmaceutical firm is also one of the largest and most diversified drug companies in the world. Analyst Damien Conover says Pfizer has both an impressive pipeline of drug candidates and a large portfolio of patent-protected drugs on the market. Given its massive $210 billion market cap, Pfizer has scale advantages over almost all competitors and a tremendous amount of resources to devote to research and development, Conover says. Pfizer also pays a 3.9% dividend. Morningstar has a “buy” rating and $42.5 fair value estimate for PFE stock.
Coca-Cola Co. (KO)
Coca-Cola has struggled in 2020, and analyst Nicholas Johnson says the global soda market is a relatively mature space. However, Coca-Cola has growth avenues in water and energy drinks, and it can still rely on cash flow from its legacy soda business. Coca-Cola has tremendous cost advantages over competitors, and Johnson says it has room to grow volumes in emerging markets. Coca-Cola is facing near-term headwinds from the pandemic, but Johnson says the stock has meaningful long-term upside based on its current valuation. Morningstar has a “buy” rating and $54 fair value estimate for KO stock.
Philip Morris International (PM)
Philip Morris International is the world’s largest publicly traded tobacco company. All of Philip Morris’ business is outside of the U.S., differentiating it from other tobacco stocks. Analyst Philip Gorham says the company is aggressively shifting its focus from cigarettes to long-term growth opportunities such as combustibles, heated tobacco products and vape devices. Gorham says Philip Morris has a sizable first-mover advantage in heated tobacco. Philip Morris pays a 6% dividend, and Gorham says management seems committed to the dividend despite a temporarily elevated payout ratio. Morningstar has a “buy” rating and $98 fair value estimate for PM stock.
AT&T is the largest U.S. telecommunications company and has more than 170 million customers. It is also the parent company of Time Warner. Its HBO subsidiary reportedly added 4.1 million streaming subscribers and migrated 23 million HBO accounts to its new HBO Max streaming service following its May launch. Analyst Michael Hodel says AT&T’s Time Warner buyout wasn’t an ideal allocation of capital. But wireless and media businesses for AT&T are solid, it pays a 6.9% dividend, and its valuation is attractive, according to Hodel. Morningstar has a “buy” rating and $37 fair value estimate for T stock.
Bristol-Myers Squibb Co. (BMY)
Bristol-Myers Squibb is a pharmaceutical company with a large portfolio of drugs on the market and a robust number of drug candidates. Conover says the company’s recent acquisition of Celgene gives it a strong position in the blood cancer treatment market. In addition, he says Bristol’s cardiovascular partnership with Pfizer helps reduce risks and lowers development costs for the company. Conover is bullish on Bristol’s potential for blockbuster cancer immunotherapy compounds following its Medarex buyout. Finally, leading drug Revlimid doesn’t face generic competition until 2022. Bristol-Myers also pays a 3% dividend. Morningstar has a “buy” rating and $68 fair value estimate for BMY stock.
Gilead Sciences (GILD)
Gilead Sciences is a biopharmaceutical company that develops treatments for conditions such as HIV/AIDS, hepatitis C and liver disease. Analyst Karen Andersen says Gilead’s HIV and hepatitis C portfolio has high-margin businesses, given that they don’t require large marketing or manufacturing budgets. The company’s next-generation HIV drugs, including Genvoya and Biktarvy, have improved safety profiles and are helping to increase Gilead’s market share. Gilead’s remdesivir coronavirus treatment could be a huge near-term catalyst, and Andersen is projecting $2 billion in remdesivir sales in 2020. Morningstar has a “buy” rating and $85 fair value estimate for GILD stock.
CVS Health Corp. (CVS)
Following its merger with Aetna, CVS Health is one of the largest health care companies in the U.S. Analyst Julie Utterback says CVS’ vertical integration, from retail pharmacy to health insurer to pharmacy benefit manager, could help curb health care costs and generate long-term earnings growth. Following the success of its MinuteClinic concept, CVS is looking to launch HealthHub offerings in more than 1,500 locations by the end of 2021. HealthHubs will feature care concierges, nurse practitioners and dietitians and could tap into the preventive care market. Morningstar has a “buy” rating and $92 fair value estimate for CVS stock.
Kellogg Co. (K)
Kellogg produces cereals and snacks such as cookies, crackers and toaster pastries. In recent years, Kellogg has made efforts to diversify away from its core cereal business, which now accounts for just 40% of sales. The stay-at-home environment has created booming demand for cereal and snacks. Analyst Erin Lash says about half of Kellogg’s 8% increase in organic sales in the first quarter was because of the pandemic. Lash says 2020 growth will likely moderate, but Kellogg should still generate low-single-digit growth annually over the next decade. Morningstar has a “buy” rating and $78 fair value estimate for K stock.
Stocks for your 401(k):
— Pfizer (PFE)
— Coca-Cola Co. (KO)
— Philip Morris International (PM)
— AT&T (T)
— Bristol-Myers Squibb Co. (BMY)
— Gilead Sciences (GILD)
— CVS Health Corp. (CVS)
— Kellogg Co. (K)
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