When investors think of blue-chip stocks, they think of tried and true, large companies with entrenched businesses. They think of robust cash flows, healthy financials, and stocks they can own and still sleep well at night regardless of short-term gyrations. Generally, blue-chips also sacrifice some growth potential for greater predictability or dividend income. The following stocks, taken together, fit that more conservative mindset – but should still benefit should markets edge higher. After a record bull run, there’s something to be said for investing while still eyeing the impact of a recession. That in mind, here are 10 of the best blue-chip stocks to buy for 2020.
The term “unicorn” has been liberally deployed to describe startups with valuations of more than $1 billion. The implication that such companies are rare doesn’t hold water today, with more than 400 club members. But diversified holding company Berkshire Hathaway is a true unicorn, as it has no peer. Warren Buffett became a household name by using his uncanny financial savvy to build an insurance empire (Berkshire owns Geico and General Re), using premiums to acquire undervalued assets. Famously patient and cash-rich, Berkshire’s M.O. is to secure sweetheart deals from businesses in need of instant liquidity or market confidence; 2019’s $10 billion purchase of Occidental Petroleum (OXY) preferred stock with a finger-licking 8% coupon is a prime example. Berkshire still has a spare $128 billion to invest, and who better to do that than Buffett and team?
Drugmaker AbbVie, the company behind the world’s best-selling drug, Humira, is also among the best blue-chip stocks to buy for 2020. Offering a 5.5% dividend, it’s got investors covered on the income front. Opportunistically tapping bond markets for $30 billion in November (as borrowing costs hovered near 2019 lows), ABBV is using cheap money to gobble up Allergan (AGN), the face behind Botox, in a bid to diversify and expand. Trading at just 9 times forward earnings, ABBV appears meaningfully undervalued entering 2020. Also named as one of U.S. News’ 10 best stocks to buy for 2020 (blue-chip or otherwise), AbbVie offers compelling exposure to the health care sector, which tends to outperform in aging bull markets and recessions.
Alibaba Group Holding
Switching gears, Chinese e-commerce behemoth Alibaba may not qualify as an archetypal blue-chip stock, but at half a trillion dollars and growing, it’s earned significant global respect and long-term staying power. As the largest company in the world’s hottest major market, Alibaba arguably enjoys better long-term growth prospects than Amazon.com (AMZN) and yet trades for a muted 23 times earnings. Its cloud business, though just 8% of the company, grew 64% last quarter, while core commerce operations grew by 40%. Sure, the oft-discussed trade war looms, but BABA is weathering it gracefully. Anything that President Donald Trump does to ease U.S.-China trade tensions during an election year would help BABA even further.
Johnson & Johnson
Johnson & Johnson is a set-it-and-forget-it stock from your grandparents’ era – and it’s still making the moves required to be one of the best blue-chip stocks to buy for 2020. The allure of JNJ is its predictability and impressive insulation from recession conditions. A health care and consumer staples play wrapped into one, JNJ’s ability to survive and thrive since its 1887 inception is no coincidence. A diversified portfolio of products includes fast-growers like immunotherapy drug Stelara, multiple myeloma treatment Darzalex and oncology mainstay Imbruvica. While unlikely to offer blockbuster growth, its 2.7% dividend and status as a cash cow make it an evergreen favorite. Strong overseas sales provide additional reassurance should the U.S. dollar soon reverse course and weaken.
Any company with 2.5 billion users is unlikely to go the way of the dodo bird. Facebook, with all its PR issues, still makes the list as one of the best blue-chip stocks to buy today. Regular growth can be hard to come by cheaply on Wall Street, but even conservative investors should consider cheap growth stocks when available. FB stock isn’t for everyone – shares trade for 31 times earnings and don’t pay a dividend – but with analysts expecting 41% earnings per share growth in 2020, that’s a price worth paying. Investors should expect more volatility than they would with JNJ stock, but if you can put the blinders on and hold for three to five years, the potential return seems worth the stretch. Along with subsidiaries Instagram and WhatsApp, Facebook can be simply viewed as a bet on two eternal human traits: ego and a desire to connect.
British American Tobacco p.l.c.
The highest-yielding of the 10 blue-chip stocks to buy for 2020, British American Tobacco will catch the eye of income investors with its enticing 7% dividend. A high yield itself doesn’t justify buying any stock, but BTI seems conservatively priced at 11.5 times earnings. That’s 18% below its five-year average price-earnings ratio of 14, so further P/E attrition seems unlikely, providing nice downside protection for shares of the $89 billion tobacco giant. Taking the long view, 2020 seems an ideal time to buy BTI; a steep sell-off based partly on overblown fears of vaping’s competitive threat means shares are still off more than 40% from 2017 highs. BTI’s brands include Camel, Pall Mall, Kool, Lucky Strike and Dunhill, among others.
Past isn’t always prologue, but it tends to make for more auspicious investing decisions. The rearview mirror shows that McDonald’s weathered the 2008-2009 crisis like a champ. In 2008, when General Electric (GE) was on the verge of slashing its dividend, McDonald’s was increasing its payout, an annual ritual it’s successfully maintained for 42 years. That year, shares outperformed the S&P 500 (.SPX) by 46 percentage points. The fast food giant’s 2.6% yield isn’t setting any records, but the fact that it’s unflinchingly sustainable de-risks MCD greatly. The stock can be viewed as both a hawker of Big Macs and a high-quality real estate play, and McDonald’s model of demanding above-market lease rates from carefully vetted, financially sound franchisees is a proven recipe for success.
Duke Energy, one of largest utilities in the country, is one of the more reasonably valued major utilities stocks entering the New Year, trading at 18 times earnings. Clearly a defensive play, utilities like DUK are famous for weathering bear markets and recessions well – barriers to entry are extremely high, electricity and gas are software-proof, and widespread demand for its services is guaranteed for decades to come. Duke provides electricity for 7.7 million customers and natural gas for 1.6 million in the Southeast and Midwest. Its 4.2% dividend is soundly financed entering 2020, as the company uses 77 cents from every dollar of profit to fund it. While certainly not a potential blockbuster, the income and predictability that DUK offers are invaluable in financial markets, where fates can swiftly reverse.
Dollar General Corp.
Discount retailer Dollar General is another recession-tested stock with a sound business that promises to fare well in uncertain waters and crank out acceptable growth in more normal environments. DG is coming off a “beat and raise” third quarter in which revenue and earnings topped analyst expectations and the retailer bumped full-year profit guidance higher. The last reported quarter was the best for same-store sales (SSS) growth in almost five years as SSS jumped 4.6%. Combined with an expansion plan that saw the company open over 700 net new stores in the last year, prospects look rosy for the underlying business. An increased focus on higher-margin private label brands and a responsive shift to health and beauty products are helping bolster results.
Rounding out the list is Novartis, a $200 billion pharma company that pays a respectable 3.1% dividend yield and uses just 57% of profits to do so. CEO Vas Narasimhan, who assumed the top spot at the Swiss drugmaker in early 2018, has already proven to be a wheeler and dealer. Since taking the reins, NVS has acquired gene therapy company AveXis, spun off ophthalmology unit Alcon, and agreed to buy The Medicines Company (MDCO) for $9.7 billion, which has developed a potentially groundbreaking drug for cholesterol and cardiovascular disease. The company plans on putting strong late-stage trial results in front of U.S. and European regulators by the end of Q1 2020. At 16 times forward earnings, upside from Narasimhan’s dealing may not be far off.