7 Blue-Chip Stocks to Buy for Capital Preservation
The financial sector-driven panic sent investors to the refuge of safe assets, including blue-chip stocks. In general, blue-chip stocks have a low beta and this supports capital preservation. Additionally, most blue-chip stocks have an attractive dividend yield. So, today, my focus is on names that are undervalued. Even if there is a meaningful correction in the broad markets, these blue-chip stocks are likely to remain resilient. Once market sentiments reverse, these stocks can deliver healthy total returns. Let’s discuss seven blue-chip stocks to buy at current levels.
Newmont Corporation (NEM)
Gold has been trending higher and currently trades near $2,000 an ounce. Given the macroeconomic scenario and challenges in the financial system, I am bullish on the precious metal. Exposure to gold mining stocks is a good way to benefit from the rally. Newmont Corporation (NYSE:NEM) is a top name to consider with the stock trading at an attractive forward price-earnings ratio of 21.3. NEM stock also offers a dividend yield of 3.4%. Considering the rally is gold, I expect healthy dividend growth.
There are several other reasons to like Newmont. The company has an investment-grade balance sheet. Further, the company has 96 million ounces of gold reserves that ensure steady production will into the 2040s. It’s also worth noting that the company expects a reduction in all-in-sustaining-cost in the next few years. Even if gold remains sideways, there is visibility for EBITDA margin expansion. At current valuations, the downside for NEM stock is capped and the upside potential is significant.
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Lockheed Martin (LMT)
Even in challenging market conditions, Lockheed Martin’s (NYSE:LMT) stock has trended higher by 11% in the last six months. The 2.53% dividend yield stock has a low beta and is worth considering at current levels.
An important point to note is that the defense sector is relatively immune to economic shocks. Global defense spending increased even during the pandemic. With several friction points globally on the geopolitical front, defense spending is likely to remain robust.
Specific to Lockheed, the company reported an order backlog of $150 billion as of Q4 2022. On a year-on-year basis, the backlog increased by 11%. This provides the company with clear cash flow visibility. For the current year, the company has guided for a free cash flow of $6.2 billion. The company continues to invest in new defense technology like hypersonics. That’s a potential catalyst for growth besides higher order intake from NATO allies.
Albemarle’s (NYSE:ALB) stock has been rock solid in the last 12 months. At a forward price-earnings ratio of 7.4, the stock is massively undervalued. Besides capital preservation, ALB stock has the potential to deliver healthy returns. Albemarle has been on a high-growth trajectory as the company aggressively expands its lithium conversion capacity. For the current year, the company has guided sales growth in the range of 55% to 75%.
Further, the company expects operating cash flow in excess of $2 billion. With strong cash flow visibility, I expect dividend growth to be healthy. Albemarle also expects to continue expanding its lithium conversion capacity through 2027. The expansion is likely to be funded with internal cash flows. Considering the point that the lithium shortage will aggravate, the outlook for the company is bright for the coming years. As price realization increases, free cash flows will swell.
It’s worth noting that crude oil has declined significantly in the recent past on fears of recession. However, Chevron’s (NYSE:CVX) stock has remained sideways in the last six months. This is an indication of the point that the stock is an attractive value. CVX stock also offers a dividend yield of 3.87%.
A key reason to like Chevron is its strong balance sheet. As of Q4 2022, Chevron reported a net-debt ratio of 3.3%. Last year, Chevron reported an operating cash flow of $47.5 billion. With low break-even assets, cash flows will remain robust. This allows Chevron to make big investments and sustain dividends. Just to put things into perspective, Chevron plans to invest $13 to $15 billion annually in the next few years.
In the last 10 years, the company reported an average reserve replacement ratio of 99%. With strong investments, RRR is likely to remain healthy. Importantly, there is clear cash flow visibility with a strong proven, and probable reserve base.
Amidst difficult times for the technology sector, Apple’s (NASDAQ:AAPL) stock has remained largely sideways in the last 12 months. At a forward price-earnings ratio of 26.4, the stock is attractive. AAPL stock has a relatively low dividend yield of 0.58%. However, it’s among the top dividend growth stocks to consider.
For Q1 2023, Apple reported revenue de-growth of 5% on a year-on-year basis. This was likely in a challenging economic environment. The long-term outlook remains positive as Apple continues to invest in product development. It’s worth noting that Apple generated $34 billion in operating cash flow during the quarter. This implies an annualized OCF potential of $130 to $140 billion.
Given the cash flows, value creation will continue through dividends and share repurchases. It’s also worth mentioning that for Q1 2023, Apple reported record revenue of $20.8 billion from the services segment. I also remain bullish on the growth outlook for wearables.
Pfizer’s (NYSE:PFE) stock is another name among low-beta blue-chip stocks to buy and hold. PFE stock trades at a forward price-earnings ratio of 11.8 and offers a dividend yield of 4.1%. Pfizer is attractive when it comes to a deep pipeline of products. As of January, the company had 110 drug candidates in the pipeline. With significant investments in research and development, the pipeline will ensure steady growth.
The biopharmaceutical company has also been active on the acquisition front. Recently, the company signed an agreement to acquire Seagen (NASDAQ:SGEN) for a consideration of $43 billion. The latter is expected to contribute more than $10 billion to risk-adjusted revenue by 2030. Pfizer has a target of $25 billion in risk-adjusted revenue through acquisitions by 2030. It’s therefore likely that the company will continue to pursue opportunistic acquisitions to broaden its product portfolio.
AstraZeneca’s (NASDAQ:AZN) stock has been trending higher with returns of 18% in the last six months. The stock however remains undervalued at a forward price-earnings ratio of 15.0. AZN stock also offers an attractive dividend yield of 2.96%.
For 2022, AstraZeneca reported 25% and 33% growth in revenue and earnings per share respectively. For the current year, the company has guided for high single-digit to low double-digit EPS growth. Therefore, considering the growth momentum, the stock is undervalued.
A deep pipeline of drugs is another reason to be bullish. For 2023, the company will be initiating more than 30 drug trials for the third phase. Last year, AstraZeneca invested $9.5 billion in research and development. High R&D investments will ensure healthy EPS growth well beyond 2023. I also like the fact that AstraZeneca is well-diversified geographically. For 2022, the company derived 26% of its revenue from emerging markets. A strong presence in these markets is a catalyst for long-term growth.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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.
More From InvestorPlace
It doesn’t matter if you have $500 or $5 million. Do this now.
Massive Bear Market “Divergence Event” Ahead… And The #1 Way to Play It
The post 7 Blue-Chip Stocks to Buy for Capital Preservation appeared first on InvestorPlace.