These are the top blue-chip stocks for 2021.
The term “blue-chip stocks” connotes a certain type of investment: well-established, reliable companies with advantageous positions in their markets. Often, the predictability and success of these businesses allow such firms to reward shareholders with regular dividends. Investors in this subset of equity tend to eschew the higher-risk, growth-oriented parts of Wall Street for what tend to be larger-cap stocks with below-average volatility. Blue-chip equities generally tend to advance and decline less than the overall market. Here’s a look at U.S. News’ list of the 10 best blue-chip stocks to buy for 2021 and how they’re holding up so far this year. After accounting for dividends, only one has declined so far.
Johnson & Johnson (ticker: JNJ)
The consummate blue-chip stock, Johnson & Johnson is a well-diversified health care and consumer goods company with a corporate history dating to 1886. Worth about $470 billion, JNJ is so safe that the big three rating agencies all grade its debt as AAA, the highest rating. By comparison, the U.S. government itself has a AAA rating from only two of the three agencies. Despite reliability that even Uncle Sam can’t match, this stock pays a dividend at a 2.4% annual rate, roughly double the 10-year U.S. Treasury yield. JNJ shares have performed well this year, boosted in a large part by the resurgence of its medical devices segment, which saw revenue jump 62.7% in the second quarter as demand for elective procedures began to normalize.
Year-to-date returns (through Aug. 20, including dividends): +15.4%
Berkshire Hathaway Inc. (BRK.B)
The most valuable company on this list, with a market capitalization of about $650 billion, Warren Buffett’s Berkshire Hathaway is another example of practically unmatched stability. A good example of Berkshire’s gravitas came in the wake of the financial crisis, when Berkshire crafted a sweetheart 2011 deal to invest $5 billion in Bank of America Corp. (BAC), which was suffering a crisis of confidence from investors as it dealt with a litany of Great Recession-related lawsuits. Berkshire made a $12 billion return on that investment within six years and remains the single largest BAC shareholder. Goldman Sachs Group Inc. (GS) and General Electric Co. (GE) also borrowed Berkshire’s credibility in crisis-era deals with the financial conglomerate. Widely considered the greatest investor of all time, Buffett oversaw $12.6 billion in stock buybacks in the first six months of 2021 — a record pace of buybacks for the conservatively run holding company.
YTD returns: +23%
JPMorgan Chase & Co. (JPM)
The largest bank in the U.S., JPMorgan is firing on all cylinders as markets enter the final third of the year. Despite its size — the company is worth about $470 billion — JPMorgan put up impressive growth metrics in the second quarter as a recovering economy drove credit and debit card spending up 22% from the second quarter of 2019. Originations in home and auto lending rose 64% and 61%, respectively, last quarter, while investment banking fees rose 25% to an all-time high as growing activity in mergers and acquisitions drove demand. One catalyst that made JPM one of the best blue-chip stocks to buy at the top of the year has not disappointed: A pandemic-era Federal Reserve ban on stock buybacks by large U.S. banks was lifted in 2021, a freedom JPMorgan took advantage of via $10.2 billion in net repurchases in the first half of the year. The company pays a sustainable 2.3% dividend and trades for about 12 times forward earnings.
YTD returns: +24.1%
3M Co. (MMM)
An industrial giant, 3M is an incredibly well-diversified company worth north of $110 billion that’s been around since 1902. Unsurprisingly, 3M’s business is benefiting from some semblance of a return to normalcy, with its transportation and electronics division (led by areas such as automotive parts, its semiconductor business and factory automation) and its health care segment (driven by its oral care, medical solutions and food safety operations) driving growth in the second quarter. Although not the most exciting of the best blue-chip stocks to buy, the company’s established business lines do benefit from a culture of innovation: 3M 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. MMM trades for less than 20 times earnings and pays a 3.1% dividend.
YTD returns: +13.7%
AbbVie Inc. (ABBV)
AbbVie, a drugmaker worth more than $200 billion, boasts an enviable portfolio of medicines that includes the world’s highest-grossing drug in Humira and a handful of other billion-dollar products, like plaque psoriasis treatment Skyrizi, cancer medication Imbruvica and Botox. More traditional income investors will appreciate ABBV’s 4.4% dividend, the second-highest on this list. The stock trades for just 9.5 times forward earnings, making AbbVie one of the more conservatively priced blue-chip stocks to buy. AbbVie’s $63 billion acquisition of Botox maker Allergan is starting to pay off: Last quarter, both cosmetic and therapeutic Botox sales more than doubled year over year.
YTD returns: +14.8%
The Walt Disney Co. (DIS)
An archetypal corporate America success story, entertainment giant Disney, founded in 1923, earned its spot as one of the best blue-chip stocks to buy for 2021. Although shares have essentially treaded water this year, the underlying business at the House of Mouse is strong and getting stronger. Parts of its core business like parks, cruises and film distribution were hammered by the sudden onset of the pandemic and have remained soft. Still, Disney is seeing meaningful progress, with its parks, experiences and products division turning a profit last quarter. And importantly, Disney has quickly risen to become a dominant player in the streaming wars with offerings such as Disney+, ESPN+ and Hulu encompassing more than 173 million subscribers — not a far cry from Netflix Inc.’s (NFLX) 209 million subscribers.
YTD returns: -3.3%
AT&T Inc. (T)
AT&T fits well within the blue-chip stock category — it’s a straightforward, well-established and largely predictable business that cranks out free cash flows like a champ. With hundreds of billions of dollars invested in the infrastructure needed to provide cable, internet and phone services to millions of subscribers, AT&T enjoys an enviable competitive advantage that dramatically limits competition. If it’s capital gains you’re after, then AT&T isn’t the best play, but if you’re simply looking for a stable company paying a high dividend, the stock is a fitting choice. AT&T pays a 7.5% dividend, the highest on this list.
YTD returns: +1.0%
The Procter & Gamble Co. (PG)
A classic consumer defensive stock, Procter & Gamble is the oldest company on this list, having been founded in 1837. Much as times may change certain industries, Procter & Gamble is essentially timeless and recession-proof, selling necessities like toothpaste, razors, laundry and dish detergent, toilet paper, and shampoo. Its highly recognizable brands are too numerous to list but include Tide, Crest, Gillette and Pampers. You can count on reliable single-digit revenue and earnings-per-share growth year in and year out. A dividend aristocrat, PG has raised its dividend payout for 64 consecutive years. The $350 billion company currently offers a 2.4% dividend yield. In the last fiscal year, the company returned $19.3 billion to shareholders through buybacks and dividends.
YTD returns: +6.2%
Lowe’s Cos. Inc. (LOW)
Also named to U.S. News’ overall list of the best stocks to buy for 2021, home improvement retailer Lowe’s is coming off a blockbuster 2020 on the heels of increased pandemic-driven demand from do-it-yourselfers, a surge in remodeling projects and a red-hot real estate market. Although accustomed to playing second fiddle to larger rival Home Depot Inc. (HD), Lowe’s still looked cheaper than its primary competitor to start the year. Its August earnings announcement reiterated why Lowe’s is the better pick between the two: The day after Home Depot fell 4% on a disappointing quarterly report, LOW stock jumped 9.6% as its quarterly earnings surpassed analyst expectations. Lowe’s also offers a modest 1.5% dividend and has plenty of room to raise it, based on robust earnings.
YTD returns: +31.1%
Cigna Corp. (CI)
Last, and least by market cap, is health care insurer Cigna, which at about $70 billion is one of the largest health insurers in America. Cigna is coming off a rough second-quarter earnings report that triggered an 11% one-day haircut as the company reported higher-than-expected costs for both COVID-19 and non-COVID-19 medical expenses. The news was simply a result of behavioral changes among those Cigna covers: People were getting more comfortable seeking out discretionary medical procedures in the second quarter as the pandemic appeared to wane. Although the short-term prospects for Cigna are cloudy, CI stock still looks like a long-term winner, trading for only about 10 times forward earnings. Analysts agree, with a consensus price target of $275.44 for shares, a roughly 33% upside to its most recent close.
YTD returns: +0.5%
The 10 best blue-chip stocks to buy for 2021:
— Johnson & Johnson (JNJ)
— Berkshire Hathaway Inc. (BRK.B)
— JPMorgan Chase & Co. (JPM)
— 3M Co. (MMM)
— AbbVie Inc. (ABBV)
— The Walt Disney Co. (DIS)
— AT&T Inc. (T)
— The Procter & Gamble Co. (PG)
— Lowe’s Cos. Inc. (LOW)
— Cigna Corp. (CI)
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Update 08/23/21: This story was published at an earlier date and has been updated with new information.