Blue-chip stocks act as a portfolio anchor that prevents steep losses. And, they often pay substantial dividends that can keep returns ticking over amid market volatility.
These stocks strategically offer an appealing hedge while investors take on more risk elsewhere. Also, they are often names that bounce back the fastest after recovering from a market downturn.
In fact, these companies can potentially deliver strong gains in their own right. Let’s explore three blue-chip stocks capable of outperforming peers, as they show impressive financials and wide competitive moats.
Microsoft (MSFT)
Microsoft (NASDAQ:MSFT) is set to shine, with several irons in the fire. It’s ready to deliver value to shareholders, such as through its investments in OpenAI to its development of quantum computers.
MSFT’s stock’s investment in AI will likely be a continued tailwind for the company. A closed ecosystem, it offers many lucrative upgrades and add-ons to drive higher margins. This has led to the integration of AI features across Microsoft’s product suite, including its Azure cloud platform and Office productivity services.
And, the company is rolling out new features using generative AI such as with Copilot in Microsoft 365. Further, it will help keep its existing subscription revenue from churning, as well as attract new subscribers. For valuation, MSFT looks attractive, as its forward P/E and price-to-sales ratios are all lower than their trailing values. In essence, this means Wall Street is predicting a rise in its top and bottom lines. Thus, MSFT is a blue-chip stock to place on your buy list.
Johnson & Johnson (JNJ)
Johnson & Johnson (NYSE:JNJ) is a healthcare giant that’s also a Dividend King. Owning JNJ stock can lead to stable income over the long-run. Also, it serves as a defensive hedge while one makes risky upside bets.
JNJ appears unfairly undervalued. A key reason it may not trade at its fair value is the looming uncertainty around its talc powder litigation. Potentially, that could erase a substantial amount of cash and value from its balance sheet.
However, I believe that these fears are overblown. For example, JNJ guided last quarter that the the loss would not exceed $9 billion (maintained on its balance sheet). Additionally, the payment can be made over 25 years which contains the risks from the litigation.
Finally, JNJ trades at a steep discount relative to its trailing and forward ratios which could make it a strong performer in 2024.
Altria (MO)
Altria (NYSE:MO) is most known for producing cigarettes, but has also pivoted toward vaping and nicotine pouches as the smoking rate continues to decline worldwide.
Undoubtedly, MO faces a difficult transition to a smoke-free business model. And, its top lines have shown some erosion over the last few quarters via a drop in sales.
However, a company’s share price can become too cheap to ignore, especially when paired with highly attractive dividends. MO’s dividend yield hovers around the 9.70% mark, and the company produces an enormous amount of free cash flow to support it.
Additionally, MO buys back shares from the market and has a strong buffer to maintain future dividend payments and increases. A near 15% drop in revenue or a 10% drop in net income would be required in order for the dividend to be threatened. At this time, both of those scenarios seem unlikely. Altria has strong rebound potential to deliver capital gains as well as income for investors.
On the date of publication, Matthew Farley did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
