Buy These 4 Blue-chip Stocks To Strengthen Your Portfolio – July 8, 2022

Wall Street ended its worst first half in more than 50 years. The jolts of record inflation and its response in the form of an extremely hawkish Fed have shaken investor confidence to rock bottom. Concerns about slowing economic growth and a possible recession led to high volatility.

Year-to-date, all three major large-cap indices have suffered heavy losses. Despite the market chaos, the Dow – popularly known as the blue chip index – suffered the least. Here are four Dow stocks with favorable Zacks rankings that should provide good short-term returns. These are – The Coca-Cola Company. (KO free report), Home Depot Inc. (HD free report), Merck & Co. Inc. (M.K.R. free report) and JPMorgan Chase & Co. (JPM free report).

Dow suffers the least

Year-to-date, the three large-cap-centric stock indices – the Dow Jones, S&P 500 and Nasdaq Composite – have fallen 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 bearish territory, although the index is in the correction zone.

The main concern for the US economy is soaring inflation, which is currently at its highest level in 40 years. In order to combat rising inflation, the Fed has already raised interest rates sharply and will continue to do so in the near future.

A higher interest rate is detrimental to growth stocks, especially technology stocks. Unlike the Nasdaq Composite and S&P 500 indices, the Dow Jones 30-stock is more inclined towards cyclical stocks than growth stocks. It is therefore the index that suffered the least.

Wall Street could gain momentum in 2H 2022

A high dose of interest rate treatment and extremely tight monetary control by the Fed to combat record inflation could show positive signals. The Commerce Department said personal spending – the largest component of US GDP – adjusted for inflation fell 0.4% in May, a sharp drop from April’s 0.3% gain.

Other major economic data for May and June such as the ISM manufacturing and services indices, retail sales and industrial production fell significantly. The housing market – one of the booming sectors during the pandemic – has fallen precipitously since April.

The US economy is cooling as the Fed would like. However, recently, several top investment bankers and portfolio managers have said that the US economy may not slip into a recession anytime soon despite slowing GDP growth. Even if there is a recession, the effect may be slight.

Our top picks

We narrowed our search to four Dow stocks. These stocks have strong potential for the remainder of 2022 and have seen positive earnings estimate revisions over the past 90 days. Each of our picks carries a Zacks rank #2 (buy). You can see the full 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.

Image source: Zacks Investment Research

Coca-Cola benefited from its ongoing strategic transformation and recovery around the world. Strength in the majority of markets, market investments, recovery in some markets as well as the cycle of impacts from last year’s pandemic supported volumes. KO maintained its optimistic view of 2022. Coca-Cola is poised to take advantage of innovations and accelerating digital investments.

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

Merck benefited from strong sales of Keytruda, Lynparza and Bridion. With the continued expansion of labels into new indications and early stage settings, Keytruda is expected to remain a key driver for MRK.

Animal health and vaccines are the main drivers of growth. Merck’s novel COVID oral antiviral pill, Lagevrio, will be a key revenue driver in 2022. MRK has a strong cancer product portfolio, including Keytruda, which should help drive long-term growth .

Merck forecasts a profit growth rate of 21.4% for the current year. The Zacks consensus estimate for current-year earnings has improved 0.4% over the past 30 days. MRK has a current dividend yield of 3%.

The reception deposit benefited from strong demand for home improvement projects, robust housing market trends and ongoing investment. HD also benefited from continued strength in the Pro and DIY categories as well as digital momentum.

The Home Depot’s interconnected retail strategy and underlying technology infrastructure has helped to steadily increase web traffic in recent quarters, which has driven digital sales.

The Home Depot forecasts a 6.1% earnings growth rate for the current year (ending January 2023). The Zacks consensus estimate for current-year earnings has improved 3.1% over the past 30 days. HD has a current dividend yield of 2.7%.

JPMorgan Chase will benefit from higher interest rates and increased demand for loans. New branch openings, strategic acquisitions/investments, global expansion and digitization, and a decent investment banking pipeline should continue to help JPM’s revenue. Additionally, JPMorgan Chase’s regular capital deployments appear sustainable and would increase shareholder value.

JPMorgan Chase forecasts a 14.4% earnings growth rate for next year. The Zacks consensus estimate for current year earnings has improved 0.2% over the past 7 days. JPM has a current dividend yield of 3.6%.

Comments are closed.