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Buy These 4 Blue-Chip Stocks to Strengthen Your Portfolio

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Wall Street has concluded its worst first half in more than 50 years. The tremors of record-high inflation and its aftershock in the form of an extremely hawkish Fed have shaken investors’ confidence to its nadir. Concerns regarding slowing economic growth and a possible recession have resulted in severe volatility.

Year to date, the three major large-cap indexes have suffered stiff losses. Despite market mayhem, the Dow — popularly known as the blue-chip index — has suffered the least. Here are four Dow stocks with a favorable Zacks Rank that should provide good returns in the near term. These are — The Coca-Cola Co. (KO - Free Report) , The Home Depot Inc. (HD - Free Report) , Merck & Co. Inc. (MRK - Free Report) and JPMorgan Chase & Co. (JPM - Free Report) .

Dow Suffers the Least

Year to date, the three large-cap-centric stock indexes — the Dow, the S&P 500 and the Nasdaq Composite — have tumbled 13.6%, 18.2% and 25.7% respectively. The Nasdaq Composite entered a bear market in March and the S&P 500 in June. However, the Dow managed to stay out of the bear territory, although the index is in the correction zone.

The primary concern of the U.S. economy is soaring inflation which is currently at its 40-year high. In order to combat mounting inflation, the Fed has already hiked interest rate sharply and will continue to do so in the near future.

A higher interest rate is detrimental to growth stocks, especially technology  stocks. In contrast to the Nasdaq Composite and the S&P 500 indexes, the 30-stock Dow is more inclined to cyclical stocks rather than growth stocks. Therefore, the index has suffered the least.

Wall Street May Gain Some Pace in 2H 2022

A high dose of interest rate therapy and extremely tight monetary control by the Fed to combat the  record-high inflation might show positive signals. The Department of Commerce reported that personal spending — the largest component of the U.S. GDP — adjusted for inflation fell 0.4% in May, a sharp decline from the 0.3% gain in April.

Other major economic data for May and June such as ISM manufacturing and services indexes, retail sales and industrial production dropped significantly. The housing market — one of the booming sectors during the pandemic — has been declining precipitously since April.

The U.S. economy is cooling as desired by the Fed. However, recently, several major investment bankers and portfolio managers have said that the U.S. economy may not fall into a recession anytime soon despite slowing GDP growth. Even if there is a recession, the effect may be mild.

Our Top Picks

We have narrowed our search to four Dow stocks. These stocks have solid potential for the rest of 2022 and have seen positive earnings estimate revisions in the last 90 days. Each of our picks carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The chart below shows the price performance of our four picks year to date.

Zacks Investment Research
Image Source: Zacks Investment Research

The Coca-Cola has benefited from its strategic transformation and ongoing recovery around the world. Strength across the majority of markets, investments in marketplace, recovery in certain markets as well as the cycling of last year’s pandemic-led impacts aided volumes. KO retained its upbeat 2022 view. Coca-Cola is poised to gain from innovations and accelerating digital investments.

Coca-Cola has an expected earnings growth rate of 6.5% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 20.50.8% over the last 90 days. KO has a current dividend yield of 2.8%.

Merck has been benefiting from strong sales of  Keytruda, Lynparza and Bridion. With continued label expansion into new indications & early-stage settings, Keytruda is expected to remain a key top-line driver of MRK.

Animal health and vaccine products are the core growth drivers. Merck’s new COVID oral antiviral pill, Lagevrio will be a key top-line driver in 2022. MRK boasts a strong cancer pipeline, including Keytruda, which should help drive long-term growth.

Merck has an expected earnings growth rate of 21.4% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 0.4% over the last 30 days. MRK has a current dividend yield of 3%.

The Home Depot has gained from strong demand for home-improvement projects, robust housing market trends and the ongoing investments. HD also benefited from continued strength in both Pro and DIY categories as well as digital momentum.

The Home Depot’s interconnected retail strategy and underlying technology infrastructure have helped to consistently boost web traffic for the past few quarters, aiding digital sales.

The Home Depot has an expected earnings growth rate of 6.1% for the current year (ending January 2023). The Zacks Consensus Estimate for current-year earnings has improved 3.1% over the last 30 days. HD has a current dividend yield of 2.7%.

JPMorgan Chase will benefit from higher interest rates and rising loan demand. Opening new branches, strategic acquisitions/investments, global expansion and digitization, and a decent investment banking pipeline are likely to keep aiding JPM’s top line. Also, JPMorgan Chase’s steady capital deployments look sustainable and would enhance shareholder value.

JPMorgan Chase has an expected earnings growth rate of 14.4% for next year. The Zacks Consensus Estimate for current-year earnings has improved 0.2% over the last 7 days. JPM has a current dividend yield of 3.6%.

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