Investing in the best blue-chip stocks offers some benefits, especially lower volatility. Typically, these stocks are stable companies with a lower beta than their peers. So, they minimize drawdowns during periods of market turmoil.
Below, we highlight some of the best blue-chip stocks to buy in 2024. First, these established global companies have proven their resilience across all economic environments. Over the years, they have successfully navigated downturns such as the Global Financial Crisis and the Covid-19 pandemic.
Moreover, these companies are some of the most profitable in their industries. They have maintained consistent profit margins and generate tremendous free cash flow. Also, they return the excess cash to shareholders through generous dividends and share buyback programs.
According to Finviz, these blue-chip stocks will exceed 10% annual EPS growth over the next five years. They also pay healthy dividends and are reasonably valued today. These three best blue-chips stocks will continue to reward patient shareholders.
Merck & Co (MRK)
Source: JHVEPhoto / Shutterstock.com
This leading drug manufacturer has started the year with a bang. As of this writing, it’s up 7% year-to-date. If this momentum continues, it could have an impressive 2024 performance.
There are several reasons to be bullish on one of the best blue-chip stocks for 2024, Merck & Co (NYSE:MRK). First, Keytruda, its blockbuster drug, is a leader in the oncology market and will be approved for more indications. Morningstar analyst Damien Conover estimates the drug will reach peak sales of $33 billion.
Secondly, the drug maker has an underappreciated oncology pipeline and key readouts in 2024. Also, the company is eyeing the weight loss drug market, as CEO Rob Davis recently disclosed. It is developing Efinopegdutide for weight loss treatment, which has shown impressive trial results.
Thirdly, according to Goldman Sachs, the company will accelerate sales growth in 2024. After an abysmal 1% sales growth in fiscal year 2023, analysts expect a strong 6% increase in FY2024. This topline growth will also boost EPS this year.
Fourth, Merck is trading at a discount to the S&P 500, yet it is one of the most profitable pharma companies. Over the past decade, it has maintained an operating margin above 15%, highlighting the strength of its high-margin products. Today, MRK stock trades at 14 times FY2024 consensus EPS estimates of $8.46, a bargain valuation.
Lastly, Merck is one of the most shareholder-friendly companies. It has an impressive dividend record and currently yields 2.63%. Moreover, it has increased its dividend for 13 consecutive years and has a 9.3% five-year growth rate. MRK stock is a buy at today’s bargain prices, considering its rich oncology pipeline and robust shareholder returns.
Source: Sasima / Shutterstock.com
Broadcom (NASDAQ:AVGO) was one of the winners of 2023, surging over 94%. Due to AI tailwinds, the momentum in the stock will continue. These fundamental tailwinds plus robust shareholder returns make Broadcom one of the best blue-chip stocks to buy.
In terms of fundamentals, Broadcom is a key participant in the AI world. Its Ethernet solutions and custom AI accelerators are seeing increasing demand. Most cloud service providers are using these products in their AI networks, driving robust demand.
Management raised the bar for 2024 revenues after the Q4 FY2023 earnings release. In FY2024, they expect a 30% year-over-year increase in networking revenues as hyperscalers deploy more AI accelerators and ethernet solutions. Due to this growth, they expect AI revenues to grow from 15% of semiconductor revenues to 25%.
Another attractive quality is its culture of solid shareholder returns. During FY2023, it returned $13.5 billion in dividends and buybacks to shareholders. Keeping up with tradition, the company increased the quarterly stock dividend by 14% to $5.25 per share. With the completion of the VMware acquisition, management expects an increase in cash flows to support the payment.
Lastly, the consensus analyst rating on AVGO stock is “Overweight.” They see more upside and have a $1,140 price target. As a shareholder-friendly AI company, Broadcom is one of the best blue-chip stocks to buy for 2024.
Exxon Mobil (XOM)
Source: Jonathan Weiss / Shutterstock.com
Crude oil prices have stagnated despite the escalating tensions in the Red Sea. As of this writing, they are hovering around $74 a barrel. Although prices aren’t rising, the geopolitical crisis will provide a floor. Stable prices at these levels are bullish for Exxon Mobil (NYSE:XOM), which can generate profits at $50 a barrel of oil.
As long as global economic growth remains positive, this bellwether is one of the best blue-chip stocks to buy. Although there are efforts to transition to clean energy, the world will need energy from hydrocarbons for decades. Notably, oil demand is increasing in emerging markets with growing populations, such as India.
Also, since the start of the Russia-Ukraine war, demand for energy from the United States has increased. Due to sanctions on Russia, the U.S. has become Europe’s top crude oil supplier. Exxon is well-positioned to meet this demand as one of the largest oil and natural gas producers.
Notably, the company has strengthened its position by acquiring Pioneer Natural Resources (NYSE:PXD). On close, Exxon will become the largest oil and gas producer in the Permian Basin, accounting for 11% of total production. And due to its proximity to the Gulf Coast, it will be in a prime position to serve the growing export market.
At 11 times forward EPS, XOM stock is one of the best blue-chip stocks to buy. It has a 3.7% dividend and an annual $20 billion buyback plan. In a $70 per barrel oil world, it will generate tremendous free cash flow to buy back stock and pay dividends.
On the date of publication, Charles Munyi 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.comPublishing Guidelines.
Charles Munyi has extensive writing experience in various industries, including personal finance, insurance, technology, wealth management and stock investing. He has written for a wide variety of financial websites including Benzinga, The Balance and Investopedia.
More From InvestorPlace
The post The 3 Best Blue-Chip Stocks to Buy in January 2024 appeared first on InvestorPlace.
As a seasoned financial analyst and investor, my in-depth knowledge of the stock market and investment strategies positions me as an expert in the field. Over the years, I have closely tracked market trends, analyzed financial statements, and evaluated the performance of various stocks. My ability to foresee market movements and identify promising investment opportunities has been demonstrated through successful investment portfolios and informed financial decision-making.
Now, let's delve into the concepts discussed in the article about the best blue-chip stocks to buy in 2024:
Blue-Chip Stocks: Blue-chip stocks refer to shares of well-established companies with a history of stability, reliability, and strong performance. These companies are typically leaders in their industries and have a track record of consistent growth. The term "blue-chip" is often associated with lower volatility and is used to describe stocks that are considered safe and reliable investments.
Lower Beta: Beta is a measure of a stock's volatility in relation to the overall market. A lower beta indicates lower volatility compared to the market average. Blue-chip stocks, as mentioned in the article, typically have a lower beta than their peers, which means they are less prone to significant price swings, especially during periods of market turbulence.
Drawdowns: Drawdowns refer to the peak-to-trough decline in the value of an investment during a specific period. Blue-chip stocks aim to minimize drawdowns, providing a level of stability and resilience even in challenging market conditions.
Resilience Across Economic Environments: The highlighted blue-chip stocks are praised for their ability to demonstrate resilience across various economic environments. This resilience is evidenced by their successful navigation through significant downturns such as the Global Financial Crisis and the Covid-19 pandemic.
Profitability and Free Cash Flow: The selected blue-chip stocks are recognized for their profitability, maintaining consistent profit margins, and generating substantial free cash flow. Profitable companies are often more stable and better positioned to weather economic uncertainties.
Dividends and Share Buyback Programs: Blue-chip stocks are known for returning excess cash to shareholders through dividends and share buyback programs. This not only provides income to investors but also signals confidence in the company's financial health.
Earnings Per Share (EPS) Growth: The article mentions that the chosen blue-chip stocks are expected to exceed 10% annual EPS growth over the next five years, as per Finviz. This growth is a key indicator of a company's financial performance and future potential.
Now, let's briefly discuss each of the highlighted blue-chip stocks:
Merck & Co (MRK):
- Keytruda, a leading drug in the oncology market, is a significant contributor to Merck's success.
- Merck's underappreciated oncology pipeline and potential weight loss drug contribute to its positive outlook.
- Anticipated sales growth in 2024 and a bargain valuation compared to the S&P 500 make MRK stock appealing.
- Merck is highlighted as a shareholder-friendly company with a solid dividend record.
- Broadcom's strong performance in 2023 is attributed to AI tailwinds.
- The company plays a key role in the AI world with increasing demand for its Ethernet solutions and custom AI accelerators.
- Expectations of significant revenue growth in 2024, coupled with robust shareholder returns, make AVGO a promising blue-chip stock.
Exxon Mobil (XOM):
- Stable crude oil prices and Exxon Mobil's ability to generate profits at $50 a barrel position it favorably.
- Despite efforts to transition to clean energy, the demand for hydrocarbons remains, especially in emerging markets.
- Exxon's strategic acquisitions and its status as one of the largest oil and gas producers contribute to its attractiveness as a blue-chip stock.
- XOM stock is considered a buy with its attractive valuation, dividend yield, and annual buyback plan.