Many investors are currently seeking safe harbor, given the economic uncertainty and volatility in the market. While explosive growth stocks can generate life-changing gains during bull markets, they often face existential risk during downturns or crises. That’s why even growth-focused investors should allocate a portion of their portfolio to dependable blue-chip stocks.
Blue-chip stocks represent industry-leading companies with solid balance sheets, consistent profitability, and durable competitive advantages. They provide stable returns across market cycles, while minimizing downside portfolio risk. Though they may not outperform during speculative rallies, blue chips offer resilient income and capital appreciation regardless of broader economic fluctuations.
In today’s late-cycle environment, I believe doubling down on quality is prudent. While I don’t anticipate a recession hitting imminently, this economic expansion has been historically elongated. And with markets jittery, valuations compressed, and volatility persisting, blue chips provide ballast.
The seven stocks highlighted in this article check every blue-chip box. They boast strong cash flows, dividend growth, wide moats, and leadership in fields ranging from consumer staples to healthcare. Though past performance never guarantees future results, these companies have flourished through varying economic climates for decades. Let’s take a look!
Booz Allen Hamilton (BAH)
Booz Allen Hamilton (NYSE:BAH) enjoys a lucrative position as a leading provider of management and technology consulting to the U.S. government. The company assists vital military, intelligence, and civil agencies, fueling steady growth and profits. Of note, BAH’s backlog has recently swelled to $31 billion.
Government outsourcing should prove recession-resilient as budgets remain expansive. Meanwhile, priority areas like cybersecurity, artificial intelligence, and modernizing IT infrastructure necessitate Booz Allen’s expertise. The company’s top line expanded by 18% year-over-year to $2.65 billion, in the latest reported quarter. Year-end sales growth is estimated to be above 11.4%, and I believe this is excellent growth for a company of this size.
Though BAH trades at a premium 22-times forward earnings, its 17% profit growth warrants a quality premium. The stock also pays a sustainable 1.7% dividend. Investors benefit from market-beating growth paired with defense stock stability, an ideal blue-chip combination.
Tractor Supply (TSCO)
Tractor Supply (NASDAQ:TSCO) has the most significant rural lifestyle retail store footprint in the United States. The company meets the unique needs of recreational farmers, ranchers, and tradespeople who depend on its products daily. With inflation boosting food prices, Tractor Supply provides income-strapped rural consumers with cost-effective solutions for tending livestock, crops, lawns, and gardens.
Despite economic fluctuations, demand for Tractor Supply’s products persists thanks to the non-discretionary nature of their products. The company has increased yearly sales since at least 1994 – a feat few retailers can match. Over the past five years, TSCO stock has grown by nearly 150%, driven by consistently high profit growth. Likewise, its dividend per share has grown at a 25.8% annualized pace over the past half-decade.
Trading at 21-times forward earnings, Tractor Supply looks reasonably-priced, given its time-tested business model and loyal customer base. The stock deserves a place in income and blue-chip-focused portfolios.
Clorox (CLX)
When times get tough, consumers still wash their clothes, clean their homes, and disinfect surfaces. That’s what makes Clorox (NYSE:CLX) such a resilient stock. The company owns 20 brands, including Kingsford charcoal, Glad trash bags, and its namesake Clorox bleach. Clorox products offer reliable value during inflationary periods, evidenced by decades of steady sales and cash flows.
Despite some pandemic-related volatility, Clorox has compounded its dividend at a 6.3% annual rate over the past five years. Its balance sheet remains rock-solid with $367 million of cash against less than $3 billion of debt. While supply chain constraints impacted recent results, management is working to improve operations and its financial ratios over time.
New product innovations and increased brand spending should also catalyze growth. Trading at 26-times forward earnings, CLX stock isn’t cheap. But you pay a fair price for quality. This blue-chip stalwart deserves consideration from income and low-volatility investors. The company’s dividend currently yields 3.1%, and I believe its current share price is unlikely to go any lower.
Honeywell (HON)
Diversified industrial giant Honeywell (NASDAQ:HON) is a textbook blue chip company. Honeywell provides mission-critical solutions to aerospace, chemicals, defense, healthcare, and other key industries. This diversification mutes risk, as weakness in any end-market gets offset elsewhere. Despite varying macro conditions, Honeywell posted 18% net income growth in the latest reported quarter.
Honeywell’s balance sheet is rock-solid, carrying an A credit rating from Fitch. The company generates ample cash to fund its dividend and growth initiatives. It has raised its payout by 7.6% annually over the past five years. Additionally, Honeywell repurchases shares opportunistically as well.
Despite near-term macro concerns, Honeywell’s leadership sees strength ahead. Commercial flight activity continues to recover, fueling aerospace demand. Energy, non-residential construction, and pent-up infrastructure investment provide additional tailwinds. At 20-times earnings, HON stock offers reasonable value. The company’s defensive attributes combined with its upside potential check all the blue-chip boxes.
Costco (COST)
With cavernous warehouses packed with vats of peanut butter and pallets of paper towels, Costco (NASDAQ:COST) wins by selling staples in bulk. The company pioneered the membership warehouse model, in which customers pay an annual fee for the right to shop at steep discounts unavailable elsewhere. This subscription-based structure gives Costco immense pricing power, insulating it from recessions better than traditional retailers.
Members flock to load up on household essentials and discounted gasoline while treasure-hunting “hot buys” on everything from jewelry to patio furniture. Costco’s affluent customers have remained resilient through economic ups and downs. Despite looming recession risks, membership renewal rates recently hit an all-time high of 92.6% domestically and 90.5% worldwide.
Costco can continue to thrive amidst inflation due to its scale, efficient supply chain, and Kirkland private label brand. The company boasts a fortress balance sheet with $13.7 billion in cash and only $9 billion of debt. Costco has hiked its dividend annually since 2004, though it currently yields a modest 0.7%. Again, shares do trade at a premium, but Costco remains a best-in-class retail operator built to weather economic turbulence.
McDonald’s (MCD)
With tens of thousands of restaurants worldwide serving 69 million customers daily, McDonald’s (NYSE:MCD) has honed convenient, consistent, and craveable fast food down to a science. The company’s global scale and real estate footprint are tremendous competitive advantages, as is its branding power. After 70 years in business, the Golden Arches remain one of Earth’s most iconic and valuable logos.
McDonald’s combination of convenience, value, and familiarity makes it a go-to choice when consumers grow price-sensitive during downturns. Drive-thrus and delivery provide easy access, while Dollar Menu items appeal to cash-strapped diners trading down for pricier restaurant fare.
Though the restaurant industry generally suffers steep declines during recessions, McDonald’s has shown remarkable resilience. The stock rose 8.55% in 2008 amidst the Great Recession and grew 11.3% despite COVID-induced lockdowns in 2020. I find that astonishing, since, again, this is a restaurant business.
McDonald’s has increased its dividend annually since 1976, qualifying it as a dividend aristocrat. With a reasonable 25-times price-earnings ratio and a 2.2% dividend yield, the stock looks poised to satisfy investors’ hunger for stability.
PepsiCo (PEP)
Best known for its namesake sodas and sports drinks, global food and beverage titan PepsiCo (NASDAQ:PEP) also owns billion-dollar snack brands such as Frito-Lay, Cheetos, and Doritos. This diversification provides a layer of defense lacking in more narrowly focused rivals. PepsiCo’s products face steady demand regardless of economic conditions – consumers still sip soda and munch chips when times get tough, perhaps to a greater degree.
The company has paid dividends since 1965 and raised its payout annually over the last 52 years, marking PepsiCo as a dividend king. Currently, PEP stock yields a safe 2.8%. PepsiCo holds leading positions across its portfolio, owns coveted retail shelf space, boasts unmatched distribution scale, and invests aggressively in advertising and product innovation.
With rising pricing power, an excellent balance sheet, and a recession-resistant mix of staple food and beverages, PepsiCo appears poised to deliver stability during rocky markets. The stock provides investors with a quality option at a reasonable valuation. I find it hard to justify leaving PEP stock out of any blue-chip portfolio, no matter how obvious of a pick it may be.
On the date of publication, Omor Ibne Ehsan did not have (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.com Publishing Guidelines.
