Blue-chip stocks are typically cornerstones of most long-term portfolios. They’re large capitalization businesses with relatively long histories, a broad range of resources, strong brands, stable earnings and cash-flow growth. These businesses benefit from economies of scale and can quickly invest in new technologies. The 30 stocks included in the Dow Jones Industrial Average (DJIA) are blue-chip stocks. So, today I’m introducing you to seven DJIA blue-chip names that could work for buy-and-hold investors.
The companies in the DJIA represent a wide range of industries. Following the market lows seen in spring 2020, they have also rebounded significantly. In fact, the broad-based market rally since November has taken the index to new highs in recent days. Year-to-date (YTD), the index is up over 8%. Similarly, the SPDR Dow Jones Industrial Average ETF Trust (NYSEARCA:DIA) — an exchange-traded fund (ETF) that tracks the returns of the DJIA — has also returned over 8%.
April means the start of a new earnings season, which typically brings increased volatility to broader markets. Are you worried that further choppiness may put pressure on many stocks that have gone up double digits in the past 52 weeks? Then it may be time to look for solid blue-chip stocks that could brave possible further headwinds in second quarter.
With that background in mind, here are seven of the best blue-chip stocks in the Dow Jones. I believe these names have strong business models, clean balance sheets, proactive management and strong competitive positions. They should create shareholder value for many quarters to come:
- American Express (NYSE:AXP)
- Intel (NASDAQ:INTC)
- Merck (NYSE:MRK)
- Microsoft (NASDAQ:MSFT)
- Procter & Gamble (NYSE:PG)
- Salesforce (NYSE:CRM)
- Verizon Communications (NYSE:VZ)
Blue-Chip Stocks to Buy: American Express (AXP)
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52-week range: $72.61 – $151.46
One-year change: Up about 86%
Dividend yield: 1.19%
First up on this list of blue-chip stocks, American Express offers charge and credit payment card products as well as travel-related services across the globe. With significant exposure to the travel and leisure sectors, though, sales have been negatively affected over the past year.
The company released Q4 and full-year metrics back in late January. Revenue for the quarter was $9.35 billion, down 18% year-over-year (YOY). That also showed little improvement from Q3. Net income also came to $1.43 billion, meaning a decline of 15%. Diluted earnings per share (EPS) was $1.76, a decrease of 13%. However, EPS is expected to be between $5 and $7 in 2021. That would mean a partial recovery from the Covid-19-related decline seen in 2020. CEO Stephen Squeri noted:
“While we remain cautious about the pace of recovery, we are focused on achieving our aspiration of being back to the original EPS expectations we had for 2020 in 2022, and for the company to be positioned to execute on its financial growth algorithm.”
Currently, AXP stock’s forward price-earnings (P/E) and price-sales (P/S) ratios are 22.4 and 2.93, respectively. With expected increases in travel spending in the coming months, the company’s revenues will possibly improve during the year. However, given the upcoming earnings release in late April, shares could be volatile. A potential decline toward the $135-level would offer better value.
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52-week range: $43.61 – $67.44
One-year change: Up about 24%
Dividend yield: 2.15%
Intel is one of the largest chipmakers in the world. Its products range from personal computing to data-center applications and it delivers computer, networking, data storage and communications platforms. In fact, Intel is one of the most important providers of central processing units (CPUs) for laptops, desktops and servers.
What’s more, recently Intel has been in focus, thanks to an increase in the share price following the announcement that Pat Gelsinger would be the new CEO. Over the past several years, the performance of INTC stock has lagged behind the semiconductor sector. Now, though, the company is taking steps to enter the foundry business. The Street seems to approve of these plans.
In late January, Intel announced Q4 and full-year metrics. Quarterly revenue was $20 billion, down just 1% YOY. Non-GAAP net income was $6.2 billion, down 6% YOY. Furthermore, EPS was flat at $1.52 on a non-GAAP basis. In 2020, the group also generated a record $35.4 billion cash from operations and $21.1 billion of free cash flow during the quarter. Bob Swan, Intel’s CEO at the time, noted:
“We significantly exceeded our expectations for the quarter, capping off our fifth consecutive record year […] Demand for the computing performance Intel delivers remains very strong and our focus on growth opportunities is paying off […] Intel is in a strong strategic and financial position as we make this leadership transition and take Intel to the next level.”
This pick of the blue-chip stocks has forward P/E and P/S ratios of 14.01 and 3.60, respectively. I believe the chipmaker deserves to be on your radar screen. However, a potential decline closer to $60 would improve the margin of safety.
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52-week range: $71.72 – $87.80
One-year change: Up about 4.5%
Dividend yield: 3.37%
Next up on this list of blue-chip stocks, pharma giant Merck develops leading treatments against cancer and infectious diseases. The company’s research and products also extend to animal health. Keytruda, an antibody used in cancer immunotherapy, is one of the leading sources of revenue for the company.
In early February, Merck released Q4 and full-year results. Worldwide sales during the quarter were $12.5 billion, up 5% YOY. Non-GAAP EPS was $1.32 for the quarter. Further, worldwide revenue for the fiscal year rose 2% YOY to $48 billion, while full-year non-GAAP EPS was $5.94. Management expects full-year 2021 sales between $51.8 billion and $53.8 billion as well as non-GAAP EPS between $6.48 and $6.68. On the results, CEO Kenneth Frazier commented:
“Our scientists continue to advance our internal pipeline of promising medicines and vaccines, including in oncology, HIV, and pneumococcal disease, and, more recently, therapeutics for COVID-19. These pipeline developments provide us with increasing line-of-sight to significant potential growth drivers later this decade and into the next.”
Merck’s forward P/E and P/S ratios are 11.84 and 3.74, respectively. This name is well-known as a reliable dividend company that also buys back shares. So, any decline in MRK stock during the upcoming earnings season would make it a strong candidate for dividend growth and passive income portfolios.
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52-week range: $152.19 – $246.13
One-year change: Up about 59%
Dividend yield: 0.92%
Tech darling Microsoft needs little introduction on this list of blue-chip stocks. The firm is best known for its Windows operating systems and Office productivity suite. Recent years have seen operations also extend to its cloud-based Microsoft Azure, which now competes with Amazon’s (NASDAQ:AMZN) Amazon Web Services (AWS). Generally over the past year, MSFT shares have benefited greatly from the digitalization trend.
Microsoft announced Q2 2021 results at the end of January. Revenue was up by 17% YOY and came at $43.1 billion. The biggest revenue driver was the company’s Intelligent Cloud segment, with a 23% YOY increase. Additionally, net income increased 33% and reached $15.5 billion. Diluted EPS also jumped by 34% to $2.03. Finally, total cash and equivalents at the end of period stood at $132 billion. Amy Hood, CFO of Microsoft, commented on the earnings call:
“[F]or FY21, with our strong performance in the first half of the fiscal year and our outlook for Q3, we expect to deliver another full year of double-digit revenue and operating income growth, as well as healthy operating margin expansion even after excluding the impact of the change in accounting estimate and COVID-related savings.”
Management expects as much as $13.6 billion in revenue from the Productivity and Business processes segment in Q3. For the Intelligent Cloud segment, top line is estimated to be between $14.7 billion and $14.95 billion. Finally, the Personal Computing segment is anticipated to see $12.3 billion to $12.7 billion in revenue.
Right now, shares of MSFT stock are trading at a forward P/E of 32.88 and P/S of 11.16. Moving forward, analysts expect the company to become a leading name in artificial intelligence (AI) as well the Internet of Things (IoT). However, a potential decline toward $225 would improve the risk-return profile here.
Procter & Gamble (PG)
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52-week range: $111.25 – $146.92
One-year change: Up about 23%
Dividend yield: 2.36%
Procter & Gamble is one of the most important consumer goods manufacturers worldwide. Billions of global citizens use its brands, including Ariel, Crest, Dawn, Gillette, Pampers, Tide and more. Altogether, the company has a strong market share both stateside and globally. Plus, the pandemic has meant increased sales for many of its household products.
Over the past several years, PG’s management has focused on making the company a leaner organization, narrowing its offering to approximately 70 to 80 brands. As a result, organic growth has been stable. These restructuring efforts have also led to significant cost-cutting.
Like other blue-chip stocks on this list, this company announced fiscal year 2021 Q2 results in late January. Net sales of $19.7 billion meant an increase of 8% YOY. Net earnings were $3.8 billion, up 4% YOY. Diluted net EPS was $1.47, also up 4%. Finally, free cash flow as of Dec. 31, 2020 was roughly $4.9 billion. Altogether, PG came out of 2020 with strong financials. President and CEO David Taylor noted:
“We remain focused on executing our strategies of superiority, productivity, constructive disruption and improving P&G’s organization and culture. These strategies enabled us to build strong business momentum before the COVID crisis, accelerated our progress in calendar year 2020 and remain the right strategies to deliver balanced growth and value creation over the long term.”
However, PG stock’s forward P/E and P/S ratios of 23.60 and 4.38 point to an overstretched valuation level. So, interested investors might want to wait for the next quarterly results and a potential pullback toward $125. With a wide moat and dividend-aristocrat status, though, PG stock should appeal to a range of passive income seekers.
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52-week range: $131.66 – $284.50
One-year change: Up about 63%
Dividend yield: N/A
Our next pick of the blue-chip stocks, Salesforce was added to the DJIA back in August 2020. This group provides customer relationship management (CRM) enterprise products. Its well-known platform includes marketing and sales automation, customer service, digital commerce, analytics and collaborative productivity tools. What’s more, the company has been increasingly focused on cloud-based offerings.
Salesforce announced Q4 and full-year results back in February. Quarterly revenue was $5.82 billion, up 20% YOY. Non-GAAP diluted earnings per share was $1.04. Cash from operations for the quarter was also up 33%, at $2.17 billion. Total cash and equivalents came at $11.97 billion.
Furthermore, management raised its first-quarter fiscal 2022 revenue guidance to between roughly $5.88 billion and $5.89 billion, which would be growth of about 21%. On the results, CEO Marc Benioff noted: “We had a record quarter and year by innovating more and faster than ever, enabling our customers to be successful from anywhere, and becoming more relevant and strategic than ever.”
CRM stock’s forward P/E and P/S ratios are 63.58 and 7.82, respectively, pointing to an overextended valuation. Investors have recently started to rotate away from technology stocks. Therefore, a potential decline below $200 is possible in the coming weeks. Personally, CRM is on my strong wish list in Q2. As one of the largest software-as-a-service (SAAS) businesses, it has a bright future for the next decade.
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52-week range: $52.85- $61.95
One-year change: Up about 10%
Dividend yield: 4.31%
Our last entry on this list of blue-chip stocks, Verizon is an important telecommunications group for the ongoing digitalization trend in the United States. It provides provides products and services in tech, communications, information and entertainment. It is also becoming a significant player in 5G. With its voice, data and video services, the company generated revenues of $128.3 billion in 2020.
Verizon announced Q4 and full-year results in late January. Quarterly revenue was $34.7 billion, down fractionally YOY. Net income was $4.7 billion, which was down 9.6%. Adjusted EPS was $1.21, too. Finally, the company ended 2020 with free cash flow of $23.6 billion, an increase of about 32% YOY. CEO Hans Vestberg commented:
“[Verizon] witnessed a mass shift toward virtual collaboration, touchless retail and delivery, remote work, distance learning, and telemedicine […] We continued to execute our multi-use network strategy; we were recognized by RootMetrics as the best overall wireless provider, undefeated in all categories; and we continue to be the partner of choice for the world’s most innovative brands. Today, we are excited to lead technological advances beyond mobile devices, and create new opportunities for growth across multiple industries.”
VZ stock currently has forward P/E and P/S ratios of 11.49 and 1.81, respectively. All in all, 2020 became the year when consumers needed faster networks. Verizon succeeded in offering that. As a result, it has a dependable stream of revenue and cash — both crucial qualities in a dividend player.
On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.