These are the top blue-chip stocks for 2021.
All investors have different specific needs and risk profiles, but generally speaking, there are millions of people with similar investment objectives at any given time. Enter blue-chip stocks: Typically large-cap, established, stable businesses that might not be setting growth records but are financially sound. Blue-chip stocks are favorites of low-risk investors — individuals who may want to participate in some stock market gains, but not risk the farm to do so. These companies often pay dividends, too. While volatility in the stock market is simply something investors must accept — 2020 was a harsh reminder of that reality — some stalwarts of industry can still offer more peace of mind than the average stock. Here’s a look at 10 of the best blue-chip stocks to buy for 2021.
Johnson & Johnson (ticker: JNJ)
First among the best blue-chip stocks to buy for 2021 is the health care and consumer goods giant Johnson & Johnson. The company has been around since 1886 and has been a healthy, diversified “steady Eddy” stock for decades. In fact, JNJ is such a well-rounded, financially sound company that rating agencies have given its debt a perfect AAA rating — a measure of risk that suggests Johnson & Johnson has a lower risk of defaulting than the U.S. government. Worth around $400 billion, JNJ pays a 2.6% dividend, which is more than double the rate that U.S. 10-year Treasurys pay. Analysts expect earnings per share (EPS) to rise by about 12% in 2021. The stock trades for less than 24 times earnings.
Berkshire Hathaway (BRK.B)
The largest company on this list, famed financial conglomerate Berkshire Hathaway, which grew to prominence under the iconic long-term investor Warren Buffett, is worth around $530 billion. Berkshire is in the same league as JNJ when it comes to stability — in fact, the company doesn’t even pay a dividend, opting instead to remain flush with cash for Buffett and his proteges to deploy opportunistically in times of market panic or irrationality. With holdings in railroads (BNSF Railway Co.), insurance (GEICO, Gen Re and others), utilities and several other industries — as well as a sprawling $245 billion stock portfolio and a $145 billion cash hoard — the entire global economy would have to implode in an unprecedented way to threaten Berkshire’s staying power.
JPMorgan Chase & Co. (JPM)
Also named one of the best dividend stocks to buy for 2021, JPMorgan is the single-largest bank in the U.S. The company, which is worth more than $360 billion, pays a 3% dividend yield and currently uses less than 47% of its profits to do so, leaving an ample cushion for hard times and room to increase the dividend going forward. Although lower interest rates hit net interest income for JPM and the banking industry at large, JPMorgan has been able to reap rewards from increased market activity in 2020, with trading revenue jumping 30% year over year in the third quarter. The Federal Reserve prohibited large banks from repurchasing shares through the end of 2020, so the lifting of that restriction should be a catalyst for EPS growth in 2021.
Founded in 1902, 3M is yet another extremely well-diversified, stable company practically custom-made for the risk-averse stock market investor. It’s an out-and-out industrial powerhouse, producing personal protective equipment, respirators, automotive parts, and other gadgets and gizmos spanning other vital parts of the economy like aerospace, health care and electronics. Also behind consumer products like Post-it notes and Scotch tape, 3M has plenty of established business lines but also values innovation: it strives to have 30% of revenue come from products introduced in the last four years and allows technical employees 15% of their paid time to work on personal projects. The safety and industrial division was 3M’s largest segment last quarter, making up 36% of sales. MMM stock trades for around 20 times earnings and pays a 3.4% dividend.
AbbVie is a repeat member of the best blue-chip stocks to buy list, with shares making the cut in 2020 as well. Not including dividends, ABBV rose roughly 17% on the year through mid-December, as the overdone 2018 and 2019 sell-off — driven in part by the drugmaker’s $63 billion purchase of Botox-maker Allergan — began to be corrected by the markets. The stock still looks cheap, trading for less than nine times forward earnings and paying a handsome 4.9% dividend. AbbVie is the company behind Humira, the world’s single-highest-grossing drug, and has a handful of other billion-dollar drugs, including plaque psoriasis treatment Skyrizi, cancer medication Imbruvica and Botox, which has both cosmetic and therapeutic value.
The Walt Disney Co. (DIS)
Named as one of U.S. News’ 10 best stocks to buy for 2021, the $270 billion entertainment giant Disney went through some temporary struggles in 2020 as its parks and cruises businesses have taken a major hit due to the pandemic. Not only should those return to normal in the coming years, but the company launched its Disney+ streaming platform at the perfect moment in late 2019. Since then, Disney has already accumulated 86.8 million subscribers in that time and expects subscribers to roughly triple to 260 million by 2024. Should that come to fruition, Disney+ will then exceed the current number of Netflix (NFLX) subscribers, which total more than 195 million paid members through Sept 30. Disney’s unrivaled portfolio of old content and intellectual property, as well as ownership of Marvel, Pixar and Lucasfilm, makes DIS a venerable long-term stock to own.
No other stock on this list pays the type of dividend that AT&T does at 6.8%. AT&T’s size, at $218 billion, demonstrates its staying power, but more important is its status as a leading member of the U.S. telecom oligopoly alongside Verizon Communications (VZ) and T-Mobile US (TMUS). It’s not just being a cable and wireless giant that makes AT&T one of the top blue-chip stocks to buy for 2021. T also owns Warner Media, whose HBO Max streaming asset should be an area of growth for AT&T as its Warner Bros. studio releases all its theatrical releases through the streaming channel, driving more subscribers. AT&T currently trades for less than 10 times forward earnings, less than 40% of the forward P/E ratio on the S&P 500, which sits at more than 25.
Procter & Gamble Co. (PG)
A classic consumer defensive stock, Procter & Gamble is the oldest company on this list, with a track record just shy of two centuries, having been founded back in 1837. Its army of consumer goods brands includes Braun, Gillette, Mr. Clean, Swiffer, Febreze, Tide, Cascade, Crest, Oral-B, Metamucil, Old Spice, Charmin and many more. PG’s dividend stands at 2.3%, and the company uses just 57% of earnings to pay the dividend. Trading for less than 26 times earnings, PG is worth more than $339 billion and is essentially insulated from recessionary downward trends due to its defensive portfolio of strong consumer products with recognizable brand names.
Named one of U.S. News’ 10 best stocks to buy for 2021, the home improvement retailer is coming off a blockbuster year. LOW stock rose more than 36% in 2020 through mid-December, driven by an unexpected surge in demand for home improvement products throughout the pandemic. Not only is that trend primed to continue well into next year, but LOW stock is priced for a steal; it trades for about 23 times earnings, while EPS is expected to grow by more than 23% annually over the next five years. A 1.5% dividend only makes this $120 billion company even more compelling.
Cigna Corp. (CI)
Last and least by market cap is health care insurer Cigna, which at about $75 billion is one of the largest health insurers in America. What Cigna lacks in its dividend, which is practically nonexistent at a yield of 0.02%, it makes up for by returning money to shareholders through stock buybacks. Between Jan. 1 and Nov. 4, Cigna bought back $2.9 billion in stock. With shares only trading for around 14 times earnings, analysts expect Cigna’s EPS growth to exceed 10% annually over the next five years. On top of that, President-elect Joe Biden intends to expand the Affordable Care Act, likely growing the addressable market for Cigna’s Medicare business.
The 10 best blue-chip stocks to buy for 2021:
— Johnson & Johnson (JNJ)
— Berkshire Hathaway (BRK.B)
— JPMorgan Chase & Co. (JPM)
— 3M (MMM)
— AbbVie (ABBV)
— The Walt Disney Co. (DIS)
— AT&T (T)
— Procter & Gamble (PG)
— Lowe’s (LOW)
— Cigna Corp. (CI)
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