As economic uncertainty rises, blue-chip stocks to buy can provide stability for the prudent investor. Typically, these are resilient and established businesses with a track record of steady performance. In addition, in prior downturns, they have preserved capital relative to the market.
In today’s financial markets, you must bolster your portfolio with blue-chip stocks. Rising interest rates, unsustainable U.S. debt, and conflicts in the Middle East and Ukraine all pose significant risks. Therefore, you need reliable companies with steady demand.
In this article, we highlight three blue-chip stocks to buy. The trio promises stability and sustainable growth irrespective of the economic cycle. Additionally, the three companies have positioned themselves advantageously for the future. Lastly, they generate strong free cash flows and have manageable debt levels.
Build your portfolio foundation with these time-tested performers. Let’s explore why they are considered trustworthy investments and why they might deserve a place in your blue-chip stocks to buy list.
Cintas (CTAS)
Cintas (NASDAQ:CTAS) is a market leader providing highly specialized services and products. The company operates primarily through two segments: Uniform Rental and Facility Services and First Aid and Safety Services.
Through Uniform Rental and Facility Services, it offers uniform rental services in the U.S. Businesses such as hospitals and hotels rent uniforms from Cintas for a small daily fee. Due to its broad distribution network, it has carved out a strong competitive moat. It is the largest uniform rental company and earns four times the revenue of its nearest competitor, UniFirst (NYSE:UNF).
Additionally, it offers first aid and safety products and services. Altogether, these comprehensive service offerings make it a one-stop shop for corporate clients. Cintas’ reliability and scale have led to customer stickiness and increased the lifetime value of each customer.
As a result, the company has grown revenues and operating profits consistently. Over the last three years, it compounded revenues at an 8.6% annual rate. Impressively, EBIT over the same period grew faster, at a 15.3% CAGR, highlighting the firm’s operating leverage.
Looking at profitability, Cintas’s profits dwarf those of peers Unifirst. Over the last three years, its operating margins have averaged 20% compared to Unifirst’s 7%. Given the consistent growth and best-in-class profitability, it’s no surprise that it’s on the Goldman Sachs Conviction List.
Lastly, Cintas boasts a history of delivering shareholder value through consistent dividends. It’s a dividend aristocrat that has increased its dividend for 41 consecutive years. With its stable business, steady growth, and rising dividend, CTAS stock can offer the necessary reliability.
Republic Services (RSG)
Waste management is an essential service with defensive characteristics that provides stable earnings across economic cycles. One key player with a broad geographic footprint covering multiple states and serving millions of customers is Republic Services (NYSE:RSG). It is the second-largest provider of non-hazardous solid waste collection, transfer, disposal, recycling, and energy services in the United States.
Several factors make Republic Services one of the best blue-chip stocks to buy. First, demand for waste services is inelastic due to its essential nature. Thus, the company enjoys consistent demand, earning steady revenues and cash flows irrespective of the broader economic environment.
Secondly, the industry is highly regulated, which creates barriers to entry and limits competition. The company benefits from long-term contracts and exclusive franchises. Besides, it is costly and complex for new competitors to enter the markets it serves.
Thirdly, Republic Services has a track record of growth through successful integration of acquisitions. Over the years, it has made several acquisitions to expand its geographic reach and service offerings. The latest example is the $2.2 billion acquisition of U.S. Ecology in 2022.
As of this writing, the stock trades at 27x forward earnings. It’s one of the best blue-chip stocks to buy, and Wall Street analysts see over 10% upside. The highly fragmented nature of waste management services continues to provide ongoing opportunities for accretive acquisitions.
Merck (MRK)
Merck (NYSE:MRK) is a global healthcare giant that offers prescription medicines, vaccines, biological therapies and animal health products. With a robust pipeline, Merck is one of the top blue-chip stocks to buy.
Like all pharmaceutical companies, Merck faces risks from patent expirations. However, Merck’s pipeline is among the strongest in the pharmaceutical industry. It has a significant number of potential new therapies and vaccines in various stages of clinical development. This pipeline is critical for the company’s long-term growth as it mitigates the impact of patent expirations on legacy drugs.
Furthermore, the company’s flagship oncology product, Keytruda, continues to dominate the immuno-oncology space. For instance, on October 31, the FDA approved the drug for biliary tract cancer. With expanding indications, it has the potential to drive revenue growth further.
Keytruda’s success is pivotal to Merck’s current valuation and prospects. In the recent quarter, revenues in the pharmaceutical segment surged 10% year-over-year. Keytruda was the star, netting $6.3 billion in revenues, a 17% year-over-year growth. Gardasil also impressed with 2.6 billion in sales, growing 16%.
The animal health segment continued to provide diversification away from the human pharmaceuticals sector. In the quarter, sales grew 2.1% YOY to $1.4 billion. For now, Keytruda will continue dominating the narrative. Buy Merck before the drug is approved for more indications.
On the date of publication, Charles Munyi did not hold (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.
