3 Blue-Chip Stocks That Will Outperform the Markets in 2023
If growth stocks are the heart of a portfolio, blue-chip stocks are the soul. A portfolio cannot be envisioned without the allocation of at least 40% to 50% of funds toward blue-chip stocks. A stable business with healthy cash flows, low beta …
If growth stocks are the heart of a portfolio, blue-chip stocks are the soul. A portfolio cannot be envisioned without the allocation of at least 40% to 50% of funds toward blue-chip stocks. A stable business with healthy cash flows, low beta and regular cash dividends are some of the reasons to look at attractive blue-chip stocks to buy.
The possibility of a meaningful slowdown or recession in 2023 is another important reason to find blue-chip stocks to buy. It also goes without saying that within the blue-chip universe, there are overvalued and undervalued stocks.
Picking undervalued blue-chip stocks to buy is likely to translate into returns that outperform the index. The focus of this column is on undervalued blue-chip stocks to buy for robust returns in 2023 and beyond.
Let’s discuss the reasons that make these blue-chip stocks worth considering.
Chevron Corporation (NYSE:
Albemarle Corporation (ALB)
Albemarle Corporation (NYSE:ALB) has outperformed the markets with returns of 31% in the last 12 months. I believe that the stock will continue to trend higher from undervalued levels.
To put things into perspective, ALB stock trades at a forward price-earnings ratio of 8.4. Considering the healthy revenue and EBITDA growth outlook, I would not be surprised if the stock doubles from current levels.
The lithium segment is likely to remain the cash cow for Albemarle. For 2023, the company has guided for robust revenue growth of 65% (mid-range). Further, the company believes that it can deliver EBITDA growth of 32% on a year-on-year basis.
An important point to note is that Albemarle ended 2022 with lithium conversion capacity of 200ktpa. The company expects to boost capacity to 550ktpa (mid-range of guidance) by 2027. Capacity expansion is expected even beyond this period. With sustained growth visibility, ALB stock is poised for a meaningful rally.
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AT&T (NYSE:T) stock has been largely sideways in the last 12 months. A breakout on the upside seems imminent for T stock, which trades at a forward price-earnings ratio of 7.9.
Since the demerger of the media division, AT&T has been delivering healthy quarterly numbers. Last year, AT&T reduced net debt by $24 billion. It’s also being reported that AT&T is exploring the sale of its cybersecurity division. With the company targeting to reduce net debt further by $100 billion by 2025, the sale seems likely.
It’s also worth noting that for 2022, the company reported free cash flow of $14.1 billion. For 2023, the company has guided for FCF of $16 billion. Robust FCF will help in improving credit metrics.
At the same time, key business metrics have been encouraging. AT&T continues to report growth in post-paid phone and fiber subscribers. With some big investments toward 5G infrastructure in the last few years, subscriber growth is likely to remain healthy.
Chevron Corporation (CVX)
Source: tishomir / Shutterstock.com
Chevron Corporation (NYSE:CVX) stock has been sideways in the last six months. The stock performance can be considered as strong as oil has declined during this period. I believe that the 3.7% dividend yield stock will trend higher after consolidation.
The biggest reason to like Chevron is the company’s cash flow potential. This has resulted in an investment-grade balance sheet with high financial flexibility. For 2022, Chevron reported an operating cash flow of $47.5 billion. Even with a relatively lower realized oil price, Chevron is positioned to deliver OCF above $35 billion.
Strong cash flows ensure dividend growth and share repurchase. Chevron has also set an ambitious target of investing $15 to $17 billion annually over the next few years. These investments will ensure that the reserve replacement remains robust. Further, Chevron is investing in the low-carbon business to diversify its portfolio.
Overall, CVX stock will create value through dividends. At the same time, valuations look attractive for a meaningful rally.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
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