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Market Rallies Despite Trade Worries: 5 Blue-Chip Picks

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The U.S. stock markets' bullish-run entered its longest ever expansionary phase on Aug 22. In fact, the stock market sustained its long-term winning streak despite global trade war concerns and series of geopolitical conflicts. The stock market is trading in the green even in September so far this year which is traditionally a tough month for the investors.

The current momentum in stock markets can primarily attributed to large-cap blue-chip stocks as investors shrugged off trade war jitters. A strong U.S. economy, robust job market and record corporate profits in the first half of 2018 are more than mitigating trade war apprehensions. Consequently, investment in blue-chip stocks with favorable Zacks Rank and strong growth potential will be lucrative.

Economic Data Boosts Stocks, Investors Ignore Trade Worries

The U.S. GDP grew at 4.2% in the second quarter of 2018, marking its highest gain since the third quarter of 2014 and the third-best growth rate since 2008. Unemployment rate remains at 3.9%, its 18-year low.

Moreover, a relatively soft retaliatory measure taken by China against the latest round of U.S. tariffs was welcomed by investors. On Sep 17, President Trump announced of levying tariffs worth $200 billion on Chinese goods. The new tariffs will be implemented from Sep 24. However, on Sep 18, China retaliated with tariffs worth of just $60 billion on U.S. goods. Notably, the range of tariff was kept within the range of 5% to 10% compared with 20% to 25% stated previously.

Meanwhile, the U.S. government set the tariff rate at 10% which will be increased to 25% from Jan 1, 2019. This was in contrast to Trump administration's earlier stand of imposing 25% tariff from the beginning.

Blue Chips Thrive on Cash Pile, Dividends

Blue chip stocks are the favorites when gloomy macros-economy pushes investors away from high growth, risky stocks. These stocks have strong cash piles, good dividend yields, generally steady earnings and long-performing management history. Although more expensive than other stocks, investors are rewarded due to the lower risk component of these stocks. Market sentiments are indeed reflected in the prices of these stocks, but their strong fundamentals and reliable performance make them a valuable pick. (Read More: 4 Blue Chip Stocks to Invest in Despite Market Volatility )

Our Picks

Strong economic fundamentals of the United States suggest that the recent volatility may be transitory in nature and that markets will continue their uptrend. At this stage, investment in blue-chip stocks with favourable Zacks Rank will be a prudent move. However, picking winning stocks can be a difficult task.

This is where our VGM Score comes in handy. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select the winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM Score.

We have narrowed down our search to five such stocks, each of which has a Zacks Rank #2 (Buy), a VGM Score of B and solid dividend yield. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

The chart below depicts price performance of our five picks in the last three months.

Caterpillar Inc.CAT is a leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. It has a dividend yield of 2.3%. The company has expected earnings growth of 69.3% for current year. The Zacks Consensus Estimate for the current year has improved by 8.4% over the last 60 days.

Waste Management Inc.WM is a leading provider of integrated environmental solutions in North America. It has a dividend yield of 2%. The company has expected earnings growth of 26.7% for current year. The Zacks Consensus Estimate for the current year has improved by 1.7% over the last 60 days.

MetLife Inc.MET is a leading global provider of insurance, annuities and employee benefit programs, serving 90 million customers. It has a dividend yield of 3.5%. The company has expected earnings growth of 16% for current year. The Zacks Consensus Estimate for the current year has improved by 3% over the last 60 days.

Eli Lilly and Co.LLY discovers, develops, manufactures, and markets pharmaceutical products worldwide. The company operates through two segments - Human Pharmaceutical Products and Animal Health Products. It has a dividend yield of 2.1%. The company has expected earnings growth of 27.8% for current year. The Zacks Consensus Estimate for the current year has improved by 6% over the last 60 days.

Rogers Communications Inc.RCI is Canada's national communications service provider offering Digital PCS, cellular, messaging and data network services. It has a dividend yield of 2.9%. The company has expected earnings growth of 17% for current year. The Zacks Consensus Estimate for the current year has improved by 1.3% over the last 60 days.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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