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Defense Wins Ballgames; 3 Blue-Chip Stocks To Consider
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If there were one word to describe the market in 2022 so far, most investors would agree that “volatile” would be the right choice. The Fed has fully pivoted to a hawkish nature, cranking interest rates in an attempt to bring down historically elevated inflation.
During times of heightened volatility, investors could consider adding some blue-chip stocks to their portfolios for an added layer of defense.
Blue-chip stocks are companies that have consistently provided quality, reliability, and the ability to operate profitably in both good and bad times.
Due to their well-established nature and track records of success, these companies have positioned themselves to weather a dark fiscal cloud better than most.
To put the cherry on top, they generally carry rock-solid dividend metrics, allowing investors to reap a steady income stream.
Three stocks – McKesson (MCK - Free Report) , Johnson & Johnson (JNJ - Free Report) , and Caterpillar (CAT - Free Report) – all fit the criteria. Below is a chart illustrating the share performance of all three companies YTD with the S&P 500 blended in as a benchmark.
Image Source: Zacks Investment Research
As we can see, all three companies’ shares have been notably stronger than the S&P 500 YTD, undoubtedly displaying their defensive nature.
Let’s take a closer look at each one.
McKesson Corp.
Located in Texas, McKesson (MCK - Free Report) is a healthcare services and information technology company operating through two segments: Distribution Solutions and Technology Solutions.
Analysts have been bullish on their earnings outlook over the last several months, helping land the stock into a favorable Zacks Rank #2 (Buy).
Image Source: Zacks Investment Research
In addition to a strengthening earnings outlook, McKesson shares could be undervalued, further bolstered by its Style Score of an A for value.
The company’s 14.2X forward earnings multiple sits above its five-year median but represents a staggering 33% discount relative to its Zacks Medical Sector.
Image Source: Zacks Investment Research
Further, MCK has a very favorable growth profile – earnings are forecasted to climb 2.3% in FY23 and an additional 7.4% in FY24.
Top-line growth is also worth highlighting; MCK’s annual revenue is projected to increase by 4% in FY23 and 5% in FY24.
Image Source: Zacks Investment Research
Johnson & Johnson
Headquartered in New Jersey, Johnson & Johnson (JNJ - Free Report) is an American multinational corporation that develops medical devices, pharmaceuticals, and consumer packaged goods.
JNJ is part of the elite Dividend King group, upping its dividend payout for a mind-boggling 60 consecutive years.
JNJ’s annual dividend yields a sizable 2.7%, much higher than its Zacks Medical Sector average of 1.4%. To top it all off, JNJ carries a rock-solid five-year annualized dividend growth rate of 6%.
Image Source: Zacks Investment Research
The company’s consistent growth trajectory looks to continue – earnings are forecasted to climb nearly 3% in FY22 and a further 4.7% in FY24.
Top-line growth is also commendable, with the company’s revenue projected to increase by 2% and 4% in FY23 and FY24, respectively.
Image Source: Zacks Investment Research
Like MCK, Johnson & Johnson shares trade at enticing valuation multiples; the company’s 15.6X forward earnings multiple is nicely below its 16.9X five-year median and represents a deep 26% discount relative to its Zacks Medical Sector.
Image Source: Zacks Investment Research
Caterpillar
Caterpillar (CAT - Free Report) is the world’s largest construction-equipment manufacturer. The company designs, develops, engineers, manufactures, markets, and sells machinery, engines, financial products, and insurance to customers.
CAT has impressively increased its dividend for 28 consecutive years, classifying it as a Dividend Aristocrat. The company’s annual dividend yields a sizable 2.7%, visibly higher than its Zacks Industrial Products Sector average of 1.7%.
In addition, the machinery titan carries an attractive 8.9% five-year annualized dividend growth rate paired with a payout ratio sitting sustainably at 39% of earnings.
Image Source: Zacks Investment Research
CAT’s forward earnings multiple has fallen extensively from its 33.6X high in 2020, perhaps indicating that long-term investors could be interested.
Currently, the company carries a 14.2X forward earnings multiple, nowhere near its five-year median of 16.7X, and representing a notable 8% discount relative to its Zacks Sector.
Image Source: Zacks Investment Research
To wrap it up, the company has a stellar growth profile, with earnings forecasted to soar by double-digit percentages in FY22 and FY23.
Top-line growth is also commendable – revenue is projected to climb 12% in FY22 and 6% in FY23.
Image Source: Zacks Investment Research
Bottom Line
Blue-chip stocks generally provide an additional layer of defense to a portfolio. And in 2022, it goes without saying that all investors could benefit from a defense-heavy approach.
In addition, they generally shell out sizable dividends paired with a strong track record of proven and successful business operations.
With the Fed’s tightening cycle hitting high-growth and tech harder than most, McKesson (MCK - Free Report) , Johnson & Johnson (JNJ - Free Report) , and Caterpillar (CAT - Free Report) could all be options for investors looking to offset losses in higher-beta stocks.
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Defense Wins Ballgames; 3 Blue-Chip Stocks To Consider
If there were one word to describe the market in 2022 so far, most investors would agree that “volatile” would be the right choice. The Fed has fully pivoted to a hawkish nature, cranking interest rates in an attempt to bring down historically elevated inflation.
During times of heightened volatility, investors could consider adding some blue-chip stocks to their portfolios for an added layer of defense.
Blue-chip stocks are companies that have consistently provided quality, reliability, and the ability to operate profitably in both good and bad times.
Due to their well-established nature and track records of success, these companies have positioned themselves to weather a dark fiscal cloud better than most.
To put the cherry on top, they generally carry rock-solid dividend metrics, allowing investors to reap a steady income stream.
Three stocks – McKesson (MCK - Free Report) , Johnson & Johnson (JNJ - Free Report) , and Caterpillar (CAT - Free Report) – all fit the criteria. Below is a chart illustrating the share performance of all three companies YTD with the S&P 500 blended in as a benchmark.
Image Source: Zacks Investment Research
As we can see, all three companies’ shares have been notably stronger than the S&P 500 YTD, undoubtedly displaying their defensive nature.
Let’s take a closer look at each one.
McKesson Corp.
Located in Texas, McKesson (MCK - Free Report) is a healthcare services and information technology company operating through two segments: Distribution Solutions and Technology Solutions.
Analysts have been bullish on their earnings outlook over the last several months, helping land the stock into a favorable Zacks Rank #2 (Buy).
Image Source: Zacks Investment Research
In addition to a strengthening earnings outlook, McKesson shares could be undervalued, further bolstered by its Style Score of an A for value.
The company’s 14.2X forward earnings multiple sits above its five-year median but represents a staggering 33% discount relative to its Zacks Medical Sector.
Image Source: Zacks Investment Research
Further, MCK has a very favorable growth profile – earnings are forecasted to climb 2.3% in FY23 and an additional 7.4% in FY24.
Top-line growth is also worth highlighting; MCK’s annual revenue is projected to increase by 4% in FY23 and 5% in FY24.
Image Source: Zacks Investment Research
Johnson & Johnson
Headquartered in New Jersey, Johnson & Johnson (JNJ - Free Report) is an American multinational corporation that develops medical devices, pharmaceuticals, and consumer packaged goods.
JNJ is part of the elite Dividend King group, upping its dividend payout for a mind-boggling 60 consecutive years.
JNJ’s annual dividend yields a sizable 2.7%, much higher than its Zacks Medical Sector average of 1.4%. To top it all off, JNJ carries a rock-solid five-year annualized dividend growth rate of 6%.
Image Source: Zacks Investment Research
The company’s consistent growth trajectory looks to continue – earnings are forecasted to climb nearly 3% in FY22 and a further 4.7% in FY24.
Top-line growth is also commendable, with the company’s revenue projected to increase by 2% and 4% in FY23 and FY24, respectively.
Image Source: Zacks Investment Research
Like MCK, Johnson & Johnson shares trade at enticing valuation multiples; the company’s 15.6X forward earnings multiple is nicely below its 16.9X five-year median and represents a deep 26% discount relative to its Zacks Medical Sector.
Image Source: Zacks Investment Research
Caterpillar
Caterpillar (CAT - Free Report) is the world’s largest construction-equipment manufacturer. The company designs, develops, engineers, manufactures, markets, and sells machinery, engines, financial products, and insurance to customers.
CAT has impressively increased its dividend for 28 consecutive years, classifying it as a Dividend Aristocrat. The company’s annual dividend yields a sizable 2.7%, visibly higher than its Zacks Industrial Products Sector average of 1.7%.
In addition, the machinery titan carries an attractive 8.9% five-year annualized dividend growth rate paired with a payout ratio sitting sustainably at 39% of earnings.
Image Source: Zacks Investment Research
CAT’s forward earnings multiple has fallen extensively from its 33.6X high in 2020, perhaps indicating that long-term investors could be interested.
Currently, the company carries a 14.2X forward earnings multiple, nowhere near its five-year median of 16.7X, and representing a notable 8% discount relative to its Zacks Sector.
Image Source: Zacks Investment Research
To wrap it up, the company has a stellar growth profile, with earnings forecasted to soar by double-digit percentages in FY22 and FY23.
Top-line growth is also commendable – revenue is projected to climb 12% in FY22 and 6% in FY23.
Image Source: Zacks Investment Research
Bottom Line
Blue-chip stocks generally provide an additional layer of defense to a portfolio. And in 2022, it goes without saying that all investors could benefit from a defense-heavy approach.
In addition, they generally shell out sizable dividends paired with a strong track record of proven and successful business operations.
With the Fed’s tightening cycle hitting high-growth and tech harder than most, McKesson (MCK - Free Report) , Johnson & Johnson (JNJ - Free Report) , and Caterpillar (CAT - Free Report) could all be options for investors looking to offset losses in higher-beta stocks.