9 blue-chip stocks to weather a bear market

These stocks could outperform if the economy goes from bad to worse.

  • By Wayne Duggan,
  • U.S. News & World Report
  • – 03/11/2020
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The global coronavirus outbreak has created extreme near-term economic uncertainty and rattled financial markets around the world.

The Federal Reserve issued its first cut in interest rates by half a percentage point since 2008. The recent rate cut marks the fourth consecutive cut in less than a year.

Throughout history, four consecutive Fed rate cuts have been followed by U.S. recessions 100% of the time, so investors are justified in getting defensive.

Blue-chip stocks have what it takes to weather a potential bear market. Here are nine blue-chip stocks to buy today, according to CFRA.

Walt Disney Co.

After years of watching Netflix (NFLX) steal market share, Disney launched its Disney Plus streaming service back in November. Following the Disney Plus launch, analyst Tuna Amobi says Disney is a rare combination of a dependable, blue-chip stock that also has a compelling long-term growth story. Amobi says Disney has a strong content pipeline following its Fox asset acquisition, and its transition to a direct-to-consumer model creates opportunities for margin expansion. Finally, Disney has the cash flow to delever its balance sheet. CFRA has a “buy” rating and $160 price target for DIS stock.

General Dynamics Corp.

General Dynamics is an American aerospace and defense company that produces Gulfstream business jets, combat vehicles, nuclear-powered submarines and other products and systems. Analyst Colin Scarola says General Dynamics’ strong brands, its safe market share and its exposure to U.S. Department of Defense spending have the stock on track for sustainable, long-term earnings growth. Scarola is projecting 5% revenue growth in 2020 and 8% earnings per share growth in both 2020 and 2021. He also says the company should maintain midteen returns on invested capital. CFRA has a “buy” rating and $211 price target for GD stock.

Mastercard

Mastercard is the second-largest global payments processor. Analyst Chris Kuiper says investors aren’t fully appreciating Mastercard’s long-term growth potential as the global payments landscape transitions toward mobile and electronic payments. Kuiper says Mastercard’s combination of a capital-light business and its massive scale generates high operating leverage for the company. CFRA is projecting between 14% and 15% revenue growth over the next three years. As Mastercard continues to expand into high-growth areas such as e-commerce and mobile payments, Kuiper says earnings margins should trend higher. CFRA has a “buy” rating and $355 price target for MA stock.

Northrop Grumman Corp.

Northrop Grumman is a global defense company that operates in four segments: aerospace systems, innovation systems, mission systems and technology services. Scarola says Northrop has relatively high exposure to areas of the military that will likely see above-average appropriations in the next several years. In addition, he says Northrop’s impressive cash flow should drive additional capital returns in the long term. Scarola is projecting 7% revenue growth in 2020 given the company’s $48.8 billion project backlog at the end of 2019, up 15% from a year ago. CFRA has a “strong buy” rating and $450 price target for NOC stock.

Raymond James Financial

Raymond James Financial is a financial and investment services company. Analyst Pauline Bell says net interest margins will continue to be pressured as interest rates fall, but a healthy investment banking business, aggressive asset growth and commitment to capital returns will help support the stock after its 23% sell-off in the past month. Growth in the core banking business due to commercial real estate loans and residential mortgages can help offset margin pressures from falling interest rates. CFRA is projecting 8.3% earnings per share growth in 2020 and 3.5% EPS growth in 2021.

Ross Stores

Shares of discount retailer Ross Stores took a pounding after its recent earnings report, but analyst Camilla Yanushevsky says there are plenty of things to like about the stock. In the event of an economic downturn, Yanushevsky says Ross should benefit from a rise in bargain hunting among shoppers. In addition, Ross is gaining market share from its planned opening of at least 100 stores in fiscal 2021. Yanushevsky is projecting at least 6.3% revenue growth in each of the next two fiscal years. CFRA has a “buy” rating and $125 price target for ROST stock.

Tractor Supply Co.

Tractor Supply is the largest U.S. farm and ranch supply retailer. Yanushevsky says Tractor Supply is growing its footprint by opening about 100 stores annually, bucking the broad trend of store closures within the retail sector. In addition, she says Tractor Supply’s often large, niche product offerings have helped insulate it from Amazon.com (AMZN). CFRA is projecting 6.9% revenue growth in 2020 and 7.1% growth in 2021. In addition to new store openings, Yanushevsky says Tractor Supply should maintain same-store sales growth of more than 3%. CFRA has a “buy” rating and $110 price target for TSCO stock.

Universal Health Services

Universal Health Services operates acute care hospitals, behavioral health centers and surgery and radiation oncology centers. Analyst Paige Meyer recently upgraded Universal Health, and she says the stock is one of the few investments that could get a major boost in the event of a widespread coronavirus outbreak within the U.S. The Centers for Disease Control and Prevention recently said a major U.S. outbreak is more a question of when than if. Meyer is forecasting 5.8% revenue growth for Universal Health in 2020. CFRA has a “buy” rating and $152 price target for UHS stock.

UnitedHealth Group

UnitedHealth is one of the world’s largest managed-care organizations. Analyst Sel Hardy says scale advantages and Optum integration opportunities should help UnitedHealth generate best-in-class earnings growth among industry peers in coming years. Hardy is projecting 9% revenue growth and $17.5 billion of free cash flow in 2020. Hardy says Democratic presidential candidate Joe Biden’s strong primary performances are also bullish for health insurers, reducing the risk associated with rival Bernie Sanders’ plan to dramatically overhaul the U.S. health care industry. CFRA has a “strong buy” rating and $352 price target for UNH stock.

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