There are plenty of drivers of uncertainty in the stock market right now. With high inflation, multiple geopolitical conflicts, and a banking crisis that appears to be spreading, there are plenty of reasons for investors to duck and take cover. In my view, high-quality, blue-chip stocks are among the places that investors may want to consider hiding.
That’s because, with bond yields likely to come down if interest rates rates get cut, settling for a 3%-5% yield during a bull market of stocks may not be good enough. In fact, since inflation is running around 6%, 3%-5% equates to a negative real yield.
As a result, in my view, the potential gains of blue-chip stocks are higher than those of bonds over the long-run. Additionally, many of the stocks that I discuss in this column have yields comparable with those of longer-dated bonds. Thus, with these high-quality, blue-chip stocks, investors get both capital-appreciation potential and nice, passive income streams.
Here are three of the top blue-chip stocks which I think investors in general and those looking to flee to safety in particular should consider.
Source: Fotazdymak / Shutterstock.com
First on this list of blue-chip stocks to buy is none other than Coca-Cola (NYSE:KO). A favorite of Warren Buffett and many other long-term investors, Coke is one of the most stable stocks available.
This company’s brand has delivered incredible value, with Coke holding a dominant market position in the carbonated beverage market. The reason that Buffett likes this high-quality, blue-chip stock is that it’s a cash-flow machine.
Coca-Cola has gone out of its way to return portions of its cash flows to investors in the form of buybacks and dividends over the years. Accordingly, investors shouldn’t be surprised to learn that Coke has increased its dividend for 61 consecutive years.
Currently, Coca-Cola’s dividend yield stands at 3.1%. However, if investors buy the shares now, their yields will probably climb over the long term.
Coke’s long-term outlook remains strong. Many analysts, including those at Citi, believe that Coke is undervalued. I tend to agree, given the company’s strong pricing capabilities and its consistent growth in emerging markets.
Over the long term, those factors should cause its earnings growth to accelerate. In this market, that’s what investors care about most.
Restaurant Brands (NYSE:QSR) is among the most stable blue-chip stocks in any market. That’s largely because the company owns some of the best fast-food brands.
The conglomerate’s holdings include iconic franchises such as Burger King, Tim Horton’s, Popeyes Louisiana Kitchen, and the newly acquired Firehouse Subs. Thus, Restaurant Brands is home to some of the most prestigious global franchisees.
For risk-averse investors seeking a secure investment with steady growth and dividend income, QSR stock checks all the boxes.
We all need to eat. And in these troubled, uncertain times, many consumers may opt for less expensive restaurants. QSR’s brands provide such options, making this a defensive, blue-chip stock with excellent earnings power over time.
Although the company’s recent earnings per share fell short of analysts’ average estimate by 2 cents, its revenue surpassed the mean outlook, surging 9% year-over-year to $1.69 billion.
Moreover, Burger King’s comparable-store sales increased by 8.4% YOY, while those of Tim Hortons jumped 9.4% YOY. During the earnings call, the company’s chairman, Patrick Doyle, stated that the company is gearing up for an “expedited rate of expansion for the next five to ten years” with its newly appointed CEO, Joshua Kobza, leading the way.
That’s what I like to hear from companies. Long-term investors will certainly want to consider buying this stock on any dips moving forward.
Source: ALAN RADECKI, Public domain, via Wikimedia Commons
Aeronautics Systems, Defense Systems, Mission Systems, and Space Systems are the four business divisions of Northrop Grumman (NYSE:NOC), a multinational aerospace and defense firm.
NOC is a defense giant with both a steady growth outlook and a dividend that makes the company irresistible to certain types of investors.
Indeed, NOC stock has been in my portfolio for some time, more due to its growth prospects than its yield. Currently, NOC stock yields only 1.6%, so investors looking for passive income have better options elsewhere.
That said, the company’s outlook remains strong, and most analysts continue to be bullish on Northrop Grumman. NOC stock could gain meaningfully, for reasons aside from geopolitical conflicts, which have picked up of late.
Biden’s recent 2024 budget proposal calls for higher military spending. A large percentage of those dollars is likely to be collected by the giant firms, including NOC, that develop next-generation weapons systems.
For those betting on the long-term viability of defense companies, Northrop Grumman needs to be on their lists. NOC stock remains undervalued at its current levels, despite its impressive gains over the long term.
On the date of publication, Chris MacDonald has positions in KO, QSR, NOC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.
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