The Federal Reserve finds itself between a rock and a hard place. It continues to fight high levels of lingering inflation. However, its higher interest rate policy threatens to cause a substantial slowdown in the economy, if not an outright recession, as key sectors such as housing and vehicles roll over. As a result, many investors are turning to more conservative blue-chip stocks to keep their portfolios steady ahead of a potential storm.
While there is no one definitive list, people have generally looked to the Dow Jones Industrial Average as a representation of blue-chip stocks. That benchmark tends to include older, more established companies, while the S&P 500 and Nasdaq can include smaller, newer and more growth-focused companies.
The DJIA outperformed the other major American equity indexes in 2022. It may do so again going forward, especially if economic conditions take a turn for the worse. These 10 blue-chip stocks are all Dow components and should serve as solid defensive holdings during the coming economic volatility.
Here are 10 of the best blue-chip stocks to buy now:
|Stock||Year-to-date Performance (as of Sept. 21 close)|
|Coca-Cola Co. (ticker: KO)||-7.4%|
|Walgreens Boots Alliance Inc. (WBA)||-39.9%|
|Walmart Inc. (WMT)||15.5%|
|Travelers Companies Inc. (TRV)||-8.5%|
|Verizon Communications Inc. (VZ)||-11.2%|
|Procter & Gamble Co. (PG)||2.3%|
|Home Depot Inc. (HD)||-0.8%|
|Johnson & Johnson (JNJ)||-6.5%|
|Chevron Corp. (CVX)||-5.3%|
|Visa Inc. (V)||14.6%|
Coca-Cola Co. (KO)
Sometimes the best offense is a good defense. Soft drink giant Coca-Cola is hardly the most dynamic growth company out there. But in troubled times such as these, Coca-Cola’s steady sales and consistent profitability are a welcome relief for investors. And with commodity price and packaging materials inflation starting to abate, Coca-Cola should enjoy a solid bump in profitability in 2024.
Famed investor Warren Buffett has held shares of Coca-Cola for decades, throughout its ups and downs, and has been amply rewarded for it. Coca-Cola increases its dividend every year and shares currently yield a solid 3.2%. Furthermore, shares have dipped recently and are now near their lows for the year. As a result, the stock goes for just 22 times forward earnings today. That creates a reasonable margin of safety for investors.
Walgreens Boots Alliance Inc. (WBA)
This past year has been a disappointing one for Walgreens shareholders, to put it mildly. The pharmacy chain has seen its stock price plunge approximately 40% year to date. For a firm with as routine a business as consumer wellness and drug retail, it’s been quite the slump. Some of this is tied to the normalizing of things after the pandemic: As demand for COVID-19 vaccines declines, it pressures foot traffic in Walgreens’ stores. Walgreens faces some more structural issues around profit margins and changes in drug pricing and insurance models. That said, pharmacy isn’t going anywhere as a business model. Walgreens’ large footprint and trusted brand give it the recipe to turn things around. With Walgreens’ CEO stepping down recently, the company now has the chance to head in a new direction under fresh leadership. Shares are now a deep value at less than six times forward earnings.
Walmart Inc. (WMT)
Walmart remains the country’s dominant brick-and-mortar retailer. The company’s e-commerce business is also a growing portion of its revenue. On top of that, Walmart has an extensive international arm, with operations in two dozen countries and more than 10,000 stores.
Walmart’s extensive size combined with its low-price strategy makes it a standout pick for investors worried about a slowing economy. It’s worth considering that Walmart was the best-performing stock of the 30 in the Dow Jones Index during the 2008 financial crisis up through the March 2009 lows. As it turns out, Walmart gains a lot of new shoppers during economic declines as folks look to stretch their dollar further. Between high inflation and the resumption of student loan payments, a lot of shoppers may turn to Walmart to make ends meet going into 2024.
Travelers Companies Inc. (TRV)
It’s been a challenging year for the financials sector. Banks have come under fire following the historic failures of firms such as Silicon Valley Bank and First Republic Bancorp. However, investors shouldn’t throw out the baby with the bathwater. In fact, insurance companies like Travelers are in a far better position. That’s because of how they’re funded.
With a bank, depositors can pull their funds at any time, leading to a crisis. With insurance, however, policyholders pay in premiums over time and then the insurance company invests those funds for many years before paying out on the policies. This capital is long-term in nature, making an insurer like Travelers immune to short-term crises of confidence. Meanwhile, higher interest rates are ultimately a good thing for financial companies, despite the recent volatility. And with long-term interest rates hitting new highs in September, Travelers should be able to deploy its customers’ funds at more profitable rates going forward.
Verizon Communications Inc. (VZ)
Investors have long looked to the large telecom companies as leading blue-chip stock picks. Unfortunately, their reputation has been tarnished a bit over the past few years. Rival AT&T Inc. (T) shocked folks with a large dividend cut. Increasing competition has limited the telecom companies’ pricing power at the same time operators are seeking to defray costs related to expensive 5G network deployments. And potential lawsuits over lead pollution in telephone cables make for another headache. However, all these worries have created an historic buying opportunity in Verizon shares today. After all, people are dependent on their phones for all sorts of reasons and will keep paying their bills even in a steep recession. Verizon’s cash flows are steady and it remains a gusher of profits. Verizon shares now sell for just seven times forward earnings and offer a stunning 7.9% dividend yield. Furthermore, that dividend is secure with management having just announced a dividend hike on Sept. 7.
Procter & Gamble Co. (PG)
Procter & Gamble is one of the world’s largest consumer products companies. The company’s roots go back almost two centuries. Modern-day P&G has focused on branded consumer goods for categories such as baby, feminine, family care, grooming, beauty and laundry. These are the classic staples consumers need to buy on a regular basis regardless of economic conditions.
There is some risk from generic products or cheaper alternatives, but P&G’s size and large marketing budget give it significant and persistent advantages against rivals. P&G stock has been roughly flat since the end of 2021. However, that could change in a hurry when investors look for defensive stocks with rock-solid yields like Procter & Gamble.
Home Depot Inc. (HD)
Home Depot shares peaked above $400 at the end of 2021. At that time, the American housing market was in a raging bull market and sales were only trending upward. Needless to say, the past 24 months have changed the playing field dramatically. Today, the housing market is showing signs of strain with sunbelt markets like Austin and Phoenix appearing at risk of significant downside.
Investors have understandably sold off home improvement retailers and building supplies companies out of fear that high interest rates will stifle the market. However, it’s important to remember that there is a large market for home repair and renovation as well; Home Depot isn’t nearly as tied to house prices and interest rates as traders might think. To that point, Home Depot shares recovered all of their 2008 housing crisis losses by the end of 2011 and then proceeded to soar fivefold from there in the ensuing decade. Home Depot has a tremendous business model and investors should take advantage of any weakness generated by broad housing market concerns.
Johnson & Johnson (JNJ)
Johnson & Johnson, like P&G, is another mainstay in many conservative investors’ portfolios. The health care giant has increased its dividend for an incredible 60 years in a row, offering investors a growing income stream for nearly a whole lifetime. J&J has just completed one of its biggest moves in decades. It spun off its consumer wellness operations into a new company named Kenvue Inc. (KVUE).
In doing so, this should improve J&J’s operations by giving it greater exposure to faster-growing categories such as medical devices. In addition, J&J may be able to shelter itself from some of its legal liabilities related to legacy wellness products such as talc powder via the Kenvue spinoff. In any case, with Kenvue out the door, the remaining J&J should have faster revenue and earnings growth. For now, the blue-chip health care company sells for just 15 times forward earnings.
Chevron Corp. (CVX)
The oil and gas industry enjoyed a strong recovery over the past two years as inflation and geopolitical risks highlighted the value of oil and gas assets. And after a brief dip earlier this year, oil is roaring higher once again. Continued production cuts out of OPEC combined with the end of releases from the Strategic Petroleum Reserve have set the stage for a swift rebound in oil from the $60s to around $90 a barrel today.
Chevron is well-positioned to cash in on higher energy prices from its oil and natural gas production. Additionally, its investments in liquefied natural gas, or LNG, have proven invaluable in providing electricity to Europe as traditional gas sources from Russia have become challenged. Chevron stock is still down year to date despite the surging oil market, making this an attractive entry point.
Visa Inc. (V)
Visa and rival Mastercard Inc. (MA) process most credit card transactions globally. This makes for attractive industry dynamics. The power of a global network linking countless banks, merchants and individuals creates a massive benefit that distances the company from competitors. Visa also enjoys large economies of scale, allowing it to offer individual transactions with low fees that fintech startups have struggled to match. Investors might think the credit card growth story is played out. However, growth continues to be robust, especially in emerging markets. That’s reflected in recent data. While the global economy is slowing down overall, Visa continues to post strong metrics with global processed transactions up 10% and total payments volume up 7% in August. This indicates that Visa is a secular growth story and won’t necessarily get hit much even during a recession.
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Update 09/22/23: This story was previously published at an earlier date and has been updated with new information.