Investing in the best blue-chip stocks offers some benefits, especially lower volatility. Typically, these stocks are stable companies with a lower beta than their peers. So, they minimize drawdowns during periods of market turmoil.
Below, we highlight some of the best blue-chip stocks to buy in 2024. First, these established global companies have proven their resilience across all economic environments. Over the years, they have successfully navigated downturns such as the Global Financial Crisis and the Covid-19 pandemic.
Moreover, these companies are some of the most profitable in their industries. They have maintained consistent profit margins and generate tremendous free cash flow. Also, they return the excess cash to shareholders through generous dividends and share buyback programs.
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According to Finviz, these blue-chip stocks will exceed 10% annual EPS growth over the next five years. They also pay healthy dividends and are reasonably valued today. These three best blue-chips stocks will continue to reward patient shareholders.
Merck & Co (MRK)
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This leading drug manufacturer has started the year with a bang. As of this writing, it’s up 7% year-to-date. If this momentum continues, it could have an impressive 2024 performance.
There are several reasons to be bullish on one of the best blue-chip stocks for 2024, Merck & Co (NYSE:MRK). First, Keytruda, its blockbuster drug, is a leader in the oncology market and will be approved for more indications. Morningstar analyst Damien Conover estimates the drug will reach peak sales of $33 billion.
Secondly, the drug maker has an underappreciated oncology pipeline and key readouts in 2024. Also, the company is eyeing the weight loss drug market, as CEO Rob Davis recently disclosed. It is developing Efinopegdutide for weight loss treatment, which has shown impressive trial results.
Thirdly, according to Goldman Sachs, the company will accelerate sales growth in 2024. After an abysmal 1% sales growth in fiscal year 2023, analysts expect a strong 6% increase in FY2024. This topline growth will also boost EPS this year.
Fourth, Merck is trading at a discount to the S&P 500, yet it is one of the most profitable pharma companies. Over the past decade, it has maintained an operating margin above 15%, highlighting the strength of its high-margin products. Today, MRK stock trades at 14 times FY2024 consensus EPS estimates of $8.46, a bargain valuation.
Lastly, Merck is one of the most shareholder-friendly companies. It has an impressive dividend record and currently yields 2.63%. Moreover, it has increased its dividend for 13 consecutive years and has a 9.3% five-year growth rate. MRK stock is a buy at today’s bargain prices, considering its rich oncology pipeline and robust shareholder returns.
Broadcom (AVGO)
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Broadcom (NASDAQ:AVGO) was one of the winners of 2023, surging over 94%. Due to AI tailwinds, the momentum in the stock will continue. These fundamental tailwinds plus robust shareholder returns make Broadcom one of the best blue-chip stocks to buy.
In terms of fundamentals, Broadcom is a key participant in the AI world. Its Ethernet solutions and custom AI accelerators are seeing increasing demand. Most cloud service providers are using these products in their AI networks, driving robust demand.
Management raised the bar for 2024 revenues after the Q4 FY2023 earnings release. In FY2024, they expect a 30% year-over-year increase in networking revenues as hyperscalers deploy more AI accelerators and ethernet solutions. Due to this growth, they expect AI revenues to grow from 15% of semiconductor revenues to 25%.
Another attractive quality is its culture of solid shareholder returns. During FY2023, it returned $13.5 billion in dividends and buybacks to shareholders. Keeping up with tradition, the company increased the quarterly stock dividend by 14% to $5.25 per share. With the completion of the VMware acquisition, management expects an increase in cash flows to support the payment.
Lastly, the consensus analyst rating on AVGO stock is “Overweight.” They see more upside and have a $1,140 price target. As a shareholder-friendly AI company, Broadcom is one of the best blue-chip stocks to buy for 2024.
Exxon Mobil (XOM)
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Crude oil prices have stagnated despite the escalating tensions in the Red Sea. As of this writing, they are hovering around $74 a barrel. Although prices aren’t rising, the geopolitical crisis will provide a floor. Stable prices at these levels are bullish for Exxon Mobil (NYSE:XOM), which can generate profits at $50 a barrel of oil.
As long as global economic growth remains positive, this bellwether is one of the best blue-chip stocks to buy. Although there are efforts to transition to clean energy, the world will need energy from hydrocarbons for decades. Notably, oil demand is increasing in emerging markets with growing populations, such as India.
Also, since the start of the Russia-Ukraine war, demand for energy from the United States has increased. Due to sanctions on Russia, the U.S. has become Europe’s top crude oil supplier. Exxon is well-positioned to meet this demand as one of the largest oil and natural gas producers.
Notably, the company has strengthened its position by acquiring Pioneer Natural Resources (NYSE:PXD). On close, Exxon will become the largest oil and gas producer in the Permian Basin, accounting for 11% of total production. And due to its proximity to the Gulf Coast, it will be in a prime position to serve the growing export market.
At 11 times forward EPS, XOM stock is one of the best blue-chip stocks to buy. It has a 3.7% dividend and an annual $20 billion buyback plan. In a $70 per barrel oil world, it will generate tremendous free cash flow to buy back stock and pay dividends.
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.comPublishing Guidelines.
Charles Munyi has extensive writing experience in various industries, including personal finance, insurance, technology, wealth management and stock investing. He has written for a wide variety of financial websites including Benzinga, The Balance and Investopedia.
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The post The 3 Best Blue-Chip Stocks to Buy in January 2024 appeared first on InvestorPlace.
I have a deep understanding of the concepts related to investing in blue-chip stocks and can provide valuable insights into the information presented in the article. The article discusses the benefits of investing in blue-chip stocks, which are typically stable companies with lower volatility. These companies have proven resilience across various economic environments, maintained consistent profit margins, and generated significant free cash flow.
Let's delve into the information about the three highlighted blue-chip stocks for 2024:
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Merck & Co (MRK):
- Merck & Co is a leading drug manufacturer that has demonstrated strong performance, with a 7% year-to-date increase as of the current writing.
- The company's blockbuster drug, Keytruda, is a leader in the oncology market, and its peak sales are estimated to reach $33 billion.
- Merck has an underappreciated oncology pipeline and is venturing into the weight loss drug market with promising trial results for Efinopegdutide.
- Analysts predict a strong 6% increase in sales growth for fiscal year 2024, contributing to EPS growth.
- Merck is considered a bargain, trading at a discount to the S&P 500, with a consistent operating margin above 15%.
- The company is shareholder-friendly, offering a 2.63% dividend yield and a history of dividend increases for 13 consecutive years.
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Broadcom (AVGO):
- Broadcom experienced significant growth in 2023, surging over 94%, with expectations for continued momentum due to AI tailwinds.
- The company plays a key role in the AI world with increasing demand for its Ethernet solutions and custom AI accelerators.
- Management anticipates a 30% year-over-year increase in networking revenues in FY2024, driven by the deployment of more AI accelerators and ethernet solutions.
- Broadcom is known for solid shareholder returns, having returned $13.5 billion in dividends and buybacks to shareholders in FY2023.
- The completion of the VMware acquisition is expected to further support cash flows.
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Exxon Mobil (XOM):
- Despite stagnant crude oil prices, Exxon Mobil is considered a strong blue-chip stock, as it can generate profits at $50 a barrel of oil.
- The geopolitical crisis and stable oil prices provide a favorable environment for Exxon Mobil's profitability.
- The company is well-positioned to meet the increasing demand for energy, particularly in emerging markets and as the U.S. becomes Europe's top crude oil supplier.
- Exxon strengthened its position by acquiring Pioneer Natural Resources, becoming the largest oil and gas producer in the Permian Basin.
- XOM stock is attractive with a low forward EPS valuation, a 3.7% dividend yield, and an annual $20 billion buyback plan.
These analyses showcase the factors contributing to the attractiveness of each blue-chip stock, including their financial performance, market position, and potential for future growth.
