Investing in blue-chip stocks offers stability and reliable returns in today's volatile market. These industry-leading companies have strong reputations and solid track records. Investors benefit from steady growth, dependable dividends, and steady earnings, making blue-chip stocks a smart choice for both conservative and risk-tolerant investors.
Given this backdrop, investors might consider buying and holding strong blue-chip stocks like Johnson & Johnson (JNJ), International Business Machines Corporation (IBM), and AT&T Inc. (T) forever.
Recent reports indicate inflation has been low, with prices nearly unchanged from April to May, nearing the Federal Reserve's 2% target. The Fed has kept its policy rate steady at 5.25% to 5.5% since last July. Speculation grows about potential rate cuts if economic data continues to show slower growth and subdued inflation.
Given current economic indicators and market expectations, it's a cautious yet potentially favorable environment for investing in blue-chip stocks. Notably, the core CPI, excluding food and energy, rose 0.2%, while the overall CPI increased by 3.3% over the past year, slightly down from April's 3.4%.
Furthermore, despite uncertainty, blue-chip stocks offer stable performance, value, and diversification. They safeguard investments from downturns and showcase market leadership and resilience for investors to buy and hold forever.
Considering these conducive trends, let’s analyze the fundamental aspects of the three blue-chip picks.
Johnson & Johnson (JNJ)
JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. It operates through two segments: Innovative Medicine, and MedTech.
On June 28, 2024, JNJ’s Janssen-Cilag International NV announced EC approval for RYBREVANT (amivantamab) in combination with chemotherapy as the first-line treatment for advanced non-small cell lung cancer with EGFR exon 20 insertion mutations. This approval follows positive Phase 3 study results showing a 60% reduction in the risk of disease progression or death compared to chemotherapy alone.
On June 21, 2024, JNJ completed the acquisition of Proteologix, Inc., obtaining two pre-clinical bispecific antibodies targeting immune-mediated diseases like atopic dermatitis, potentially transforming treatment options for patients.
This acquisition enhances JNJ's portfolio with additional bispecific antibody programs aimed at various diseases, reinforcing their commitment to advancing immunology therapeutics.
In terms of the trailing-12-month EBITDA margin, JNJ’s 35.74% is 508.7% higher than the 5.87% industry average. Likewise, its 69.34% trailing-12-month gross profit margin is 21.1% higher than the 57.27% industry average. Additionally, its 27.53% trailing-12-month EBIT margin is considerably higher than the 1.48% industry average.
During the fiscal first quarter that ended March 31, 2024, JNJ’s sales to customers grew 2.3% year-over-year to $21.38 billion. Its gross profit rose 4.7% over the prior-year quarter to $14.87 billion. In addition, its adjusted net earnings from continuing operations increased 3.8% and 12.4% from the year-ago quarter to $6.58 billion or $2.71 per share, respectively.
For the quarter ending September 30, 2024, JNJ’s revenue is expected to increase 4.9% year-over-year to $22.39 billion. Its EPS for the quarter ending December 31, 2024, is expected to increase 9.9% year-over-year to $2.52. It surpassed consensus EPS estimates in each of the trailing four quarters. JNJ’s stock has declined marginally over the past month to close the last trading session at $147.05.
JNJ’s POWR Ratings reflect strong prospects. It has an overall rating of A, translating to a Strong Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B for Value and Stability. It is ranked #8 out of 155 stocks in the Medical - Pharmaceuticals industry. Beyond what we stated above, we also have given JNJ grades for Growth, Momentum, and Sentiment. Get all the JNJ’s ratings here.
International Business Machines Corporation (IBM)
IBM and its subsidiaries provide integrated solutions and services worldwide. The company operates through the Software, Consulting, Infrastructure, and Financing segments.
On July 2, 2024, IBM and HCLTech announced the creation of a Generative AI Center of Excellence using IBM's watsonx AI and data platform to help enterprises build custom AI applications and modernize legacy systems.
Stephen Smith, General Manager, Service Partners, at IBM Ecosystem, said, “Through this Center of Excellence, we plan to empower our joint clients to rapidly explore, experiment and engineer generative AI solutions with watsonx that are designed to meet their current business challenges.”
On July 1, 2024, IBM announced the completion of its acquisition of StreamSets and webMethods from Software AG, enhancing its automation, data, and AI portfolios with new data ingestion and integration capabilities.
This acquisition aims to provide clients with a comprehensive application and data integration platform to drive innovation and AI readiness.
In terms of the trailing-12-month net income margin, IBM’s 13.18% is 311.1% higher than the 3.21% industry average. Its 23.17% trailing-12-month EBITDA margin is 133.8% higher than the 9.91% industry average. Likewise, its 7.32% trailing-12-month Return on Total Capital is 161.8% higher than the industry average of 2.80%.
IBM’s total revenues for the first quarter, which ended March 31, 2024, rose 1.5% year-over-year to $14.46 billion. Its non-GAAP gross profit increased 3.3% from the year-ago value to $7.91 billion. Also, the company’s non-GAAP income from continuing operations came in at $1.56 billion and $1.68 per share, up 25.2% and 23.5% over the prior-year quarter, respectively.
Street expects IBM’s EPS and revenue for the quarter ended June 30, 2024, to increase marginally year-over-year to $2.19 and $15.62 billion, respectively. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 33.6%, closing the last trading session at $176.48.
It’s no surprise that IBM has an overall rating of B, which translates to a Buy in our proprietary POWR Ratings system.
It has a B grade for Quality. Within the Technology – Services industry, it is ranked #18 out of 79 stocks. To access the other ratings of IBM for Growth, Value, Momentum, Stability, and Sentiment, click here.
AT&T Inc. (T)
T provides telecommunications and technology services worldwide. The company operates through two segments: Communications and Latin America. It operates in the Communications segment and the Latin America segment.
On May 15, 2024, T and AST SpaceMobile signed a commercial agreement to provide a space-based broadband network directly to cell phones. This agreement, lasting until 2030, aims to significantly enhance connectivity across the U.S.
In terms of the trailing-12-month Return on Common Equity, T’s 13.15% is 277.2% higher than the 3.49% industry average. Its 11.13% trailing-12-month net income margin is 289.1% higher than the 2.86% industry average. Likewise, the stock’s 5.90% trailing-12-month Return on Total Capital is 64.4% higher than the 3.59% industry average.
For the first quarter ended March 31, 2024, T's total operating revenues stood at $30.03 billion. Its adjusted operating income rose marginally year-over-year to $6.01 billion, and adjusted EPS came in at $0.55, respectively.
T's adjusted EBITDA came in at $11.05 billion, up 4.3% year-over-year. In addition, as of March 31, 2024, its total current liabilities amounted to $44.83 billion, compared to $51.13 billion as of December 31, 2023.
Analysts expect T’s revenue for the quarter ending June 30, 2024, to increase marginally year-over-year to $29.99 billion. Its EPS for fiscal 2025 is expected to grow 2.7% year-over-year to $2.27. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past nine months, T’s stock has gained 25.8% to close the last trading session at $18.52.
T’s POWR Ratings reflect strong prospects. It has an overall rating of B, translating to a Buy in our proprietary rating system.
It has a B grade for Value. It is ranked #4 out of 17 stocks in the Telecom - Domestic industry. To see T’s Growth, Momentum, Stability, Sentiment, and Quality ratings, click here.
What To Do Next?
43 year investment veteran, Steve Reitmeister, has just released his 2024 market outlook along with trading plan and top 11 picks for the year ahead.
JNJ shares were trading at $148.61 per share on Wednesday afternoon, up $1.56 (+1.06%). Year-to-date, JNJ has declined -3.69%, versus a 18.50% rise in the benchmark S&P 500 index during the same period.
About the Author: Abhishek Bhuyan
Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments.
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