7 blue-chip stocks to buy and hold for the long haul
As the Federal Reserve aggressively raised interest rates by 75 basis points, stock markets plunged. Amid the fear and uncertainty, I see a golden opportunity for investors to accumulate quality stocks. While I would selectively look at growth stocks, I would be overweight some blue chip stocks under current market conditions.
Coming back to the market correction and the opportunity to accumulate, the following point is worth noting: If we look at the stock market chart for decades, there have been small and large corrections. However, the market remained in an uptrend.
Savvy investors use these corrections to accumulate stocks that can add value in the next bull market. Another important observation is: The Vanguard Large Cap ETF (NYSEARC:VV) has generated cumulative returns of 278% over the past 10 years.
Obviously, in a bull market, holding large-cap or blue-chip stocks is just as attractive. So, let’s discuss seven top-notch stocks worth considering.
|LMT||Lockheed Martin Company||$418.96|
|COST||Costco Wholesale Corporation||$463.11|
|JPM||JPMorgan Chase & Co.||$115.83|
The rise in geopolitical tensions should not be fleeting. There are several sticking points globally. This will translate into steady growth in defense spending.
Among the top-notch stocks, Lockheed Martin Company (NYSE:LMT) is one of the best choices in the defense industry. Year-to-date 2022, LMT inventory has increased by 17.5%. However, with a price/earnings ratio of 15.5, the stock looks attractive. Additionally, the shares offer a dividend yield of 2.69% at current levels.
It should be noted that Lockheed reported an order backlog of $134 billion in March 2022. With the possibility of increased defense spending for NATO allies, the order backlog is expected to improve in the years to come.
This gives Lockheed clear cash flow visibility. The company has forecast free cash flow of $6.0 billion for 2022. FCF is expected to be similar, if not higher, for 2023.
Overall, LMT stock is a quality dividend stock and as earnings growth accelerates, there is visibility for the stock to trend higher. A low beta of 0.76 also makes the stock attractive.
Given the cash potential and the health of the balance sheet, Apple Inc. (NASDAQ:AAPL) is among the best blue-chip stocks to own. Of course, it goes without saying that the innovation factor gives Apple an advantage.
For the second quarter of 2022, Apple reported revenue growth of 9%. For the same period, service revenues reached a record level. The company’s wearables segment also recorded healthy growth.
While the iPhone segment remains the cash cow, emerging segments are likely to ensure continued steady growth.
It should be noted that in March 2022, Apple declared $193 billion in cash and cash equivalents. The company’s annualized cash flow potential is approximately $150 billion.
This provides great flexibility to diversify and invest in product development. An eventual entry into the electric car business will likely be a catalyst for growth. In addition, the creation of shareholder value through dividend growth and share buyback will continue in the years to come.
Costco wholesale company (NASDAQ:COST) the stock saw a significant correction from 52-week highs of $612. With inflation hitting retailer margins, the correction was coming. In addition, there are fears of a possible recession in 2023.
Even with these short-term headwinds, COST stock is attractive over the long term. It should be noted that retail spending is a key growth engine for the US economy. Long-term policy action will ensure retail spending remains robust.
Although it may seem that with 829 warehouses worldwide, Costco has saturated things. However, the company still only has two warehouses in China and none in India. There seems to be ample room for growth in new markets.
In Q3 2022, Costco also reported 64.4 million household members. Over the past 12 months, the company has brought in $4.1 billion in membership revenue. As the number of members increases in the United States and around the world, there is room for growth in recurring revenue, which is already solid.
Costco has built a strong omnichannel presence and I’m optimistic about continued long-term growth.
Among the top pharmaceutical stocks, Pfizer Inc. (NYSE:DFP) appears to be a quality choice at current valuations. The stock is currently trading at a forward P/E of 7.0 and also offers investors a dividend yield of 3.3%.
Over the past 12 to 18 months, the drugmaker’s cash flow has been significantly boosted by sales of Covid-19 vaccines. While vaccine sales will decline on a relative basis, there are two important points to note.
The first is that Pfizer has been aggressive in terms of acquisitions in recent quarters. With strong financial flexibility, the company is well positioned to inorganically boost the product pipeline.
Additionally, Pfizer has a deep organic pipeline. As of May 2022, the company reported a pipeline of 96 drug candidates. Of these, 29 drug candidates are in phase 2 and 6 others in the registration phase. This should ensure steady revenue and cash flow growth over the next few years.
Overall, PFE stock has upside potential from current levels. Moreover, the dividend yield is attractive and the dividends are sustainable.
Chevron Company (NYSE:CLC) trended up with the surge in oil prices. CVX stock is also a top holding in Warren Buffett’s portfolio. I think a small correction would provide a good opportunity to rack up that top-notch title.
Chevron has high quality assets with a low breakeven point. With Brent crude trading above $100 a barrel, the company is positioned for annualized cash flow above $30 billion. Additionally, with a superior balance sheet, the company is positioned to maintain dividends and invest aggressively in growth. In the first quarter of 2022, Chevron had a net debt ratio of 10.8%.
Chevron has already planned capital investments in the order of $15 billion to $17 billion per year for the next few years. Significant investments in renewable assets are also on the cards. Recently, Chevron completed the acquisition of Renewable Energy Group. This will bring the company’s renewable fuels production capacity to 100,000 barrels per day by 2030.
Overall, CVX stock is a potential long-term value creator through dividends and share buybacks. Additionally, the stock should remain in a long-term uptrend.
AstraZeneca PLC (NASDAQ:AZN) is another pharmaceutical name that I would add to the list of blue chip stocks to buy. AZN stock trades at an attractive P/E of 14.9 and also offers investors a robust dividend yield of 3.3%.
AstraZeneca is attractive from a long-term perspective given the large pipeline of projects. Currently, the company has 183 projects underway. As new drugs enter the market, revenue growth should be healthy.
It should also be noted that the company is well diversified geographically. For the first quarter of 2022, 44% of revenues came from emerging markets. Wider geographic coverage coupled with drugs for diverse therapeutic areas makes AstraZeneca attractive.
From a financial perspective, the company reported net debt of $25.2 billion in March 2022. However, debt is not an issue as cash flow is expected to remain robust in the coming years. The company commands an investment grade credit rating.
JPMorgan Chase & Co. (NYSE:JPM) the stock has been depressed, down 27% in the past six months. I think the correction offers an attractive entry point for long-term investors. The blue chip stock trades at a forward P/E of 10.0 and also offers investors a dividend yield of 3.5%.
With concerns about a potential recession, the banking sector could see relatively higher defaults. However, JPMorgan Chase has a strong track record to weather tough times. Importantly, the title seems to have ignored these concerns.
With rising interest rates, the bank should generate a higher net interest margin. On the other hand, turbulent stock markets could mean investment banking growth is subdued.
However, even with a short-term headwind, analysts expect the company’s earnings to grow at a CAGR of 5% over the next five years. As a result, dividends will hold and JPM stock looks attractive at current valuations.
As of the date of publication, Faisal Humayun does not hold (either directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.