The Stocks to Watch as Small-Caps Stall

Stocks to Watch as Small-Caps StallDespite the choppy trading action before the end of the third quarter, a lot of the market’s best stocks are still ticking higher. And the positive trading action remains especially prevalent with large-caps and dividend-paying blue chips.

Big investors want earnings reliability and dividend income in a slow-growth environment. It’s a trend that began with the stock market’s breakout at the beginning of 2013 and it still has legs right into next year.

The Walt Disney Company (DIS) is a dividend-paying blue chip that I continue to like. With solid operating momentum (sales and earnings) in both media assets and theme parks, this stock has been consistently ticking higher since October of 2011.

It remains a great holding with solid prospects for more capital gains near-term. This stock is a perfect example of what institutional investors are buying—revenue and earnings growth combined with some income and reliability in regards to its outlook.

Another dividend-paying blue chip that just broke through to new record highs is PepsiCo, Inc. (PEP). This mature enterprise has been consistently bid by investors since February.

Still yielding almost three percent, the company’s food and snacks business is expected to keep its earnings momentum in the upcoming quarter. Management increased its quarterly dividends substantially this year and investors have been buying the story.

On any major price retrenchments, I do believe these two companies make for attractive long-term holdings.

Previously, we considered these two companies with the addition of NIKE, Inc. (NKE), Johnson & Johnson (JNJ), V.F. Corporation (VFC), Microsoft Corporation (MSFT), Kinder Morgan, Inc. (KMI), and 3M Company (MMM). (See “Eight Stocks to Beat the Street.”)

These eight stocks all make for attractive holdings going forward, especially for those wanting a conservative group of companies that generate income and earnings growth.

Preservation of capital in the equity market can be a difficult thing to achieve, but these blue chips offer good balance sheets, earnings visibility, and a proven track record of institutional interest in what continues to be a slow-growth environment.

The trading action in small-caps has been deteriorating recently and the Russell 2000 has been in consolidation for a year.

But the price retrenchment is well deserved, considering the index’s stunning capital appreciation over the last few years. I don’t believe this to be a catalyst ending the bull market, but rather a maturation of the current cycle that began with the stock market breakout early last year.

In any case, the best risk-adjusted bang for an investor’s buck is still with the right dividend-paying blue chips. The marketplace has proven that it will vigorously bid these stocks as they deliver with good earnings and quarterly income.

Trading action is likely to be pretty choppy very near-term, at least until third-quarter earnings season gets underway. It’s exactly what this market needs, because global economic data hasn’t been that inspiring lately.

The stocks mentioned above are worthy candidates for new buyers. As always, their earnings reports will be defining.