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Invest in Stability: Top 3 Blue-Chip Stocks for Turbulent Markets

By: MarketBeat

September 03, 2024 at 10:05 AM EDT

ANTALYA / TURKEY - January 19, 2020: Shoes of various brands stands in a shoe market shop

During periods of market volatility, and specifically economic uncertainty, investors often scram to find a safe place for their capital to be allocated. However, by the time they need to sell the risky names in their portfolios and cycle to safety, it might be too late. The key here is to act before there is a need to act, which is where having a list of blue-chip stocks is essential.

Blue chips are characterized by a low impact on the business cycle, often found in the consumer staples sector, with low volatility and low risks of delivering an unexpected blow to investors. Another major factor in these stocks is their international reach, exposing them to other currencies to make up for the potential shortfall in revenue when and if the United States consumer gets into trouble.

This list includes shoewear and athleisure brand Nike Inc. (NYSE: NKE), especially after the stock declined in the most recent quarterly earnings due to unjustified fears about the company’s slowdown in the Chinese market. Another brand that tends to do well no matter where the economy goes is McDonald’s Co. (NYSE: MCD). Coupled with this food brand is Coca-Cola Co. (NYSE: KO), an international dominator in the soft drinks market.

Nike Stock Becomes a Value Play for Safety-Seeking Investors

After the stock sold off by as much as 25% in a couple of weeks, value investor Bill Ackman from Pershing Square decided it was an unmissable deal he couldn’t let go of. Following the announcement of his new position, the stock surged by nearly 20% in two weeks.

But investors looking to justify the safety of this company need to know a few things. First, whenever the U.S. economy does badly, the consumer discretionary sector follows it on currency weakness.

While this would hurt domestic-only competitors like Lululemon Athletica Inc. (NASDAQ: LULU), Nike’s international reach gives it an advantage.

Having a significant presence in Europe, Asia, and even Latin America, Nike can cushion any negative currency effect and demand in the U.S. through international markets and currencies. This is why Wall Street analysts forecast up to 12.3% earnings per share (EPS) growth for the next 12 months, over Lululemon’s 8% growth forecast.

Leaning on these fundamental factors, analysts have also set a consensus price target of $95.6 a share for Nike stock, implying that it needs to rally by as much as 15% from its current level.

Current Market Conditions Create the Perfect Mix for McDonald's Stock

Some stocks show weak foundations as inflation-choked consumers start to feel the adverse effects on their buying power. However, those who are friendly to the consumer’s situation, like McDonald’s, tend to do well during economic cycles like this.

Notice how shares of Costco Wholesale Co. (NASDAQ: COST) keep hitting all-time highs? It’s because of its value proposition to consumers looking for savings wherever they can be found. McDonald’s stock now trades at 95% of its 52-week high, showing investors a sign of market confidence.

More than that, a low beta of 0.7 gives investors the technical safety of reduced volatility. Just like Nike, even if the U.S. consumer gets too cold, McDonald’s has enough international exposure to cushion most, if not all, of the adverse effects. This is why Wall Street analysts forecast up to 7.7% EPS growth in the next 12 months.

This growth rate may seem like little on a percentage basis. Still, it becomes more impressive when investors consider McDonald’s a $207 billion behemoth. Leaning on these fundamental factors, Loop Capital has landed on a $342 share price target for McDonald’s stock, calling for up to 18.5% upside from today’s price.

Another factor to consider is the stock’s 4.9% decline in short interest over the past month, which shows signs of bearish capitulation in the face of all the potentially bullish trends coming to the company. One of these factors is the safety it offers.

Coca-Cola Stock: A Buffett Favorite and a Safe Bet for Investors

Who better to show investors international exposure safety than Coca-Cola? Warren Buffett has been in this stock for decades, and he understands that the billions of daily servings of Coca-Cola products have the benefit of economies of scale.

This means that if Coca-Cola raised its prices by $1 per can, that would mean billions of dollars in additional revenue per day for the company, and that is one superpower that not many other companies can count on.

Wall Street analysts forecast 6.3% EPS growth for Coca-Cola in the next 12 months, which, like McDonald's, is impressive considering its $312 billion market capitalization.

These trends helped Morgan Stanley set a price target of $78 a share for Coca-Cola stock, daring the stock to rally by as much as 7.5% from its current level. The company's $1.94 payout to shareholders adds to this upside, translating to an annual dividend yield of up to 2.7% today.

Like Buffett, other institutional investors saw this stock's value as the market became more volatile. Over the past 12 months, up to $11.2 billion of institutional capital made its way into the stock, giving investors another vote of confidence.

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Invest in Stability: Top 3 Blue-Chip Stocks for Turbulent Markets

Nike Stock Becomes a Value Play for Safety-Seeking Investors

Current Market Conditions Create the Perfect Mix for McDonald's Stock

Coca-Cola Stock: A Buffett Favorite and a Safe Bet for Investors

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