Countless stocks are pushing new highs and a lot of them are still blue chips. The Dow Jones Industrial Average is lagging the other indices this year, but this is not unusual.
The fact that many blue chips are still slogging higher is further indication of a bull market, despite all the shocks, risks, and the fact that stocks haven’t experienced a real correction for a number of years now.
PepsiCo, Inc. (PEP) had a great second quarter (for such a mature brand). The company increased its quarterly dividend once again and Wall Street earnings estimates for this year and next have been going up across the board.
What large corporations and well-known business brands say about their operating conditions is as useful as any other kind of information or opinion regarding the equity market. Stocks get overvalued and undervalued, but the best investing information I’ve found is what corporations actually report about their businesses, regardless of whether a company meets, beats, or comes in below consensus.
What Caterpillar Inc. (CAT) says about its global heavy equipment sales is material information, even if you aren’t interested in buying the stock. The same goes for Intel Corporation (INTC), The Boeing Company (BA), Visa Inc. (V), and The Walt Disney Company (DIS).
Second-quarter earnings season came in better than expected, and while many blue chips reiterated their existing guidance, I suspect it’s a simple strategy to make it easier to beat the Street by keeping expectations modest.
It could easily be another great year for stocks with a fundamental backdrop that is still so favorable to equities. And this includes the reality of higher interest rates next year.
Corporate balance sheets are in excellent condition and profitability is growing due to a combination of increasing volume (product or service) and rising prices.
It’s a very good combination for corporations and shareholders and while sales growth has still been in the low to mid-single-digits for most blue chips, this profitability trend has been going on for a number of quarters.
With stocks at a record high and the possibility of a well-deserved correction at any time, I believe dividend-paying blue chips are still the place to be for new buyers.
Institutional investors are buying these stocks for their earnings safety and predictability. They have the economies of scale to leverage single-digit sales growth into double-digit earnings growth. And like they’ve proven to do the last several years, they can ride out a global economy still producing stagnant inflation-adjusted growth.
In terms of portfolio strategy, I do believe that dividend-paying blue chips are the kind of stocks with the best bang for your buck on a risk-adjusted basis. In a slow-growth economy, corporate dividends really add up and dividend reinvestment is an excellent way to build wealth if you don’t require the income.
Core positions that long-term investors can consider at this time include stocks like Microsoft Corporation (MSFT), PepsiCo, Johnson & Johnson (JNJ), NIKE, Inc. (NKE), V.F. Corporation (VFC), The Walt Disney Co., 3M Company (MMM), and Kinder Morgan, Inc. (KMI).
Technology, consumer products, pharmaceuticals and medical devices, energy, media, and industrial products stocks cover the bases simply with good potential for earnings growth and income.