7 Low-beta stocks with dividend growth visibility and stock upside potential to buy now
Irrespective of market conditions, it is important to hold blue-chip stocks in your portfolio. Typically, these are stocks of companies with an established business and stable cash flows. Blue-chip stocks provide a portfolio with some stability and lower the overall portfolio beta.
On the other hand, high-growth stocks have more risk and volatility. These stocks tend to be out-performers in a bull-market. With escalating geo-political tensions and the prospects of a rate-hike, the markets have been on the edge.
In such market conditions, growth stocks tend to under-perform. Just like flow of money from risky to risk-free asset classes, market corrections trigger flow of money to blue-chip stocks.
My focus in this column is on seven blue-chip stocks to buy for February. It goes without saying that these stocks are worth holding for the long-term. Here are my top 7 picks for blue-chip stocks:
- Apple (NASDAQ:AAPL)
- Intel Corporation (NASDAQ:INTC)
- Costco Wholesale (NASDAQ:COST)
- JPMorgan Chase (NYSE:JPM)
- Microsoft (NASDAQ:MSFT)
- Equinor (NYSE:EQNR)
- Pfizer (NYSE:PFE)
Blue-Chip Stocks: Apple (AAPL)
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I see AAPL stock among the high-quality blue-chip stocks to hold for the next few years. At a forward price-to-earnings-ratio of 28.3, valuations are not stretched. Further, the stock has visibility for sustained growth in dividends.
For 2021’s fourth quarter (Q4), Apple reported revenue growth of 29% to $83.4 billion. Further, for 2021, the company reported earnings per share growth of 71% on a year-on-year basis. With a price-earnings-to-growth ratio of less than one, the stock is likely to trend higher.
In terms of business developments, iPhone remains the cash flow driver. With 5G phones, growth is likely to sustain in this segment. At the same time, Apple has witnessed healthy growth in the wearable and services segment. The revenue stream is likely to be more diversified in the coming years.
It is worth noting that for 2021, the company reported operating cash flow of $104 billion. With strong cash flows and a healthy balance sheet, the company is positioned for aggressive organic and inorganic growth. With a likely entry into the electric vehicle (EV) segment, Apple has catalysts for sustained growth in revenue.
Overall, AAPL stock is worth considering for a core portfolio. It is also a good stock to hold in relatively uncertain times for the markets.
Intel Corporation (INTC)
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At a forward price-to-earnings (P/E) ratio of less than 10, INTC stock is among the top blue-chip stocks to consider. Besides the potential for trending higher from current valuations, INTC stock also offers investors a healthy dividend yield of 2.91%.
In terms of catalysts, Intel has plans to take Mobileye public. The initial public offering is likely to happen in mid-2022 with a valuation of $50 billion. This will unlock value for Intel shareholders.
Intel also has some big investment plans for the next few years. For the current year, the planned capital expenditure is in the range of $25 to $28 billion. The company has also indicated that there is potential for further growth in investments in the coming years. These investments are likely to address the chip-shortage headwind globally.
The company is also focused on accelerating the innovation pipeline. It will be unveiling a Bitcoin (CCC:BTC-USD) mining chip next month. Additionally, the company’s partnership with ASML Holding (NASDAQ:ASML), will support high-end manufacturing. Intel also has a pipeline of new products that includes a next generation discrete GPU for gaming and the company’s first AISC-based Intelligence Processing Unit (IPU), among others.
Overall, Intel is focused on gaining the lost market share through investments in innovation. The stock looks undervalued and the dividends add to the attractiveness.
Blue-Chip Stocks: Costco Wholesale (COST)
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COST stock has been a value creator in the last few years through stock upside and dividends. After touching recent highs of $571.49, COST stock has corrected to current levels of $496. This looks like a good accumulation opportunity.
For 2022’s first quarter (Q1), Costco reported sales growth of 16.7% to $49.4 billion. Besides the traditional sales channel, the company has also ramped-up online sales after the pandemic. With improving omni-channel presence, Costco seems well-positioned to deliver healthy numbers.
It is worth noting that as of November 2021, Costco reported 62.5 million in member households and 113.1 million cardholders. This has translated into a membership fee total of $4.0 billion in the last 12 months. As recurring revenue continues to swell, the impact on cash flows will be meaningful. Costco has just two warehouses in China. Growth in emerging markets is likely to boost membership revenue.
Currently, Costco has an annual dividend pay-out of $3.16. Since initiating dividends in 2004, the company’s dividend has increased at a CAGR of 13%. COST stock is therefore attractive for income investors.
JPMorgan Chase (JPM)
I believe that the banking sector is likely an attractive investment in 2022. With the possibility of four rate hikes in the current year, I believe JPM stock is poised for a break-out.
An important point to note is that deposit rates respond relatively slowly to the rate hike. As a result, JPMorgan Chase is likely to witness growth in net interest income margin for 2022. Once there is growth traction in core banking activities, the stock is likely to trend higher.
The banking sector is also witnessing some major transformations. In 2021, the sector reported merger and acquisition deals worth $77 billion. As digital banking accelerates, a record number of branches were also closed in 2021.
Recently, JPMorgan agreed to acquire 49% ownership stake in Viva Wallet Holdings. The latter is a European cloud-based payments fintech company. It’s likely that JPMorgan will continue to accelerate investment towards payment innovations.
Overall, the bank has seen healthy growth in wealth management activities in the last few years. Core banking acceleration is likely to be a catalyst for JPM stock’s upside in 2022.
Blue-Chip Stocks: Microsoft (MSFT)
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The technology giant continues to deliver positive surprises for investors. A correction from recent highs is therefore a good opportunity to accumulate MSFT stock.
Recently, Microsoft announced strong numbers for 2022’s second quarter (Q2). The company reported revenue of $51.7 billion, which was higher by 20% on a year-over-year (YOY) basis. The strong revenue momentum was driven by the cloud business, which delivered 32% YOY growth to $22.1 billion. Additionally, Microsoft has also guided for a strong Q3 2022. This is likely to help the stock maintain a bullish momentum.
In another big news, Microsoft announced the acquisition of Activision Blizzard (NASDAQ:ATVI). This is not the first acquisition by the company in the gaming segment. With a impending growth in metaverse, Microsoft is likely to compete with Meta (NASDAQ:FB) through these acquisitions.
Therefore, there are ample growth opportunities for Microsoft in the next few years. Importantly, the company has a robust balance sheet to pursue acquisitions with a focus on innovation. This will keep earnings growth robust in the next few years.
MSFT stock also offers an annualized dividend of $2.48. Dividend growth also seems likely considering the company’s earnings expectations and cash flow upside potential.
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With Brent oil sustaining above $80 per barrel, it makes sense to have oil and gas stocks in your portfolio. Further, with escalation in geo-political tensions, crude oil might continue to trend higher.
Equinor is a quality name to consider. Over the last 12-months, EQNR stock has trended higher by about 54%. The stock also offers a healthy dividend yield of 2.62%.
One reason to like the company is low break-even assets. Even at $60 per barrel oil, Equinor expects to deliver free cash flow of $45 billion between 2021 and 2026. With Brent above $80, the free cash flow visibility seems to be significantly higher.
With strong cash flows, Equinor is also pursuing aggressive investments in the non-renewable energy sector. Over the next five-years, the investment in renewable energy is guided at $23 billion.
Therefore, Equinor is positioned for healthy growth from the core portfolio and shareholder value creation. From the current year, the company is targeting an annual buy-back target of $1.2 billion.
As earnings before interest, taxes, depreciation, and amortization (EBITDA) margins expand further on higher oil price, the stock seems to be positioned for further rally.
Blue-Chip Stocks: Pfizer (PFE)
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There is a possibility that the pandemic will shift to an endemic in 2022. However, this factor does not make PFE stock any less attractive.
The covid-19 vaccine was a cash flow machine for the company in 2021. This positive trend is likely to sustain through 2022 with booster doses and vaccinations for younger age groups becoming available. As a matter of fact, the company has a high production capacity for 2022 as compared to 2021.
With a strong cash flow and balance sheet, I see the following positives:
First, Pfizer has a deep pipeline of drug candidates in Phase two and three. The cash buffer will help in accelerating clinical trials. This will support organic revenue growth in the next few years.
Further, Pfizer has robust financial flexibility to pursue acquisitions. The company has made two acquisitions in the last six months. These will help in boosting the company’s drug pipeline further.
From a valuation perspective, PFE stock trades at an attractive forward P/E of 9.28. A low-beta and a dividend yield of 2.94% are additional factors that make the stock worth considering.
On the date of publication,Faisal Humayundid not hold (either directly or indirectly) any positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to theInvestorPlace.comPublishing Guidelines.
Faisal Humayun isasenior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modelling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.
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.
As a seasoned financial analyst with over a decade of experience in credit research, equity research, and financial modeling, I've closely followed the dynamics of various sectors, including technology, energy, and commodities. With a track record of authoring over 1,500 stock-specific articles, I've delved deep into understanding company fundamentals, market trends, and investment opportunities.
Now, let's dissect the concepts used in the article "7 Low-beta stocks with dividend growth visibility and stock upside potential to buy now":
Blue-Chip Stocks: These are established companies with a history of stable performance, reliable earnings, and often pay dividends. Blue-chip stocks are considered safer investments compared to smaller companies or high-growth stocks due to their stability and lower volatility.
Beta: Beta measures a stock's volatility compared to the overall market. A beta of less than 1 indicates lower volatility than the market, while a beta greater than 1 suggests higher volatility. Low-beta stocks are less sensitive to market fluctuations, offering stability during turbulent market conditions.
Dividend Growth: Refers to the consistent increase in dividends paid out by a company over time. Dividend growth is indicative of a company's financial health, profitability, and commitment to rewarding shareholders.
- Price-to-Earnings Ratio (P/E): Indicates the valuation of a company's stock relative to its earnings per share. A lower P/E ratio may suggest an undervalued stock, while a higher P/E ratio could indicate overvaluation.
- Price-to-Earnings-to-Growth (PEG) Ratio: Evaluates the relationship between the P/E ratio and the company's earnings growth rate. A PEG ratio of less than 1 typically suggests that a stock is undervalued relative to its earnings growth potential.
Revenue Growth: Measures the increase in a company's sales over a specific period, reflecting its ability to generate higher income.
Cash Flow: Represents the amount of cash generated and used by a company in its normal business operations. Positive cash flow indicates financial strength and the ability to meet obligations, invest in growth, and distribute dividends.
Business Developments: Includes strategic initiatives, product launches, acquisitions, and partnerships undertaken by a company to drive growth, expand market presence, or improve efficiency.
Investment Plans: Outline a company's intended capital expenditures, R&D initiatives, and expansion strategies aimed at enhancing its competitive position and long-term growth prospects.
Market Trends: Refers to prevailing conditions and patterns in the financial markets, such as interest rate changes, geopolitical events, or shifts in investor sentiment, which influence stock prices and investment strategies.
Sector Analysis: Involves assessing the performance, trends, and outlook of specific industries or sectors, such as technology, banking, or energy, to identify investment opportunities and risks.
By understanding these concepts and their implications within the context of the article, investors can make informed decisions when evaluating blue-chip stocks with dividend growth visibility and upside potential in varying market conditions.