The Best Blue Chips to Buy Now

Advertisement

Last week, the S&P 500 was down more than 2%. Stocks were weak as investors fretted about the debt ceiling debate in Washington and the threat of defaults in Europe. Within that negative environment, the Dow Jones Industrial Average slipped by a mere fraction.

Why the divergence? Earnings growth, earnings growth, earnings growth.

Alcoa (NYSE:AA) announced second-quarter earnings that beat expectations, and investors bid up shares. The same happened with J.P. Morgan (NYSE:JPM). The large bank delivered a strong quarter, and investors responded by pushing the stock higher.

This week, IBM (NYSE:IBM) is the big winner. Its shares opened several percent higher after a strong earnings report.

If you’re seeing a pattern, it’s the same one I see – and as such, I would be a blue-chip buyer, especially in advance of earnings.

Here are some of my favorites to buy now:

Priceline

Priceline.com logoThe name-your-price online travel powerhouse keeps knocking the ball out of the park. During the past year, Priceline (NASDAQ: PCLN) has beaten earnings estimates by a wide margin and demonstrated solid year-over-year profit growth. I expect another blast when the company reports for the quarter ending June 30.

Priceline shares have appreciated greatly during the past year. The stock is up more than 30% in 2011, making it one of the top performers in the market. With business travel continuing to spike higher and the economy showing signs of recovery, Priceline is poised to deliver profit growth.

Analysts expect the company to grow earnings by 27% from the current year to 2012. With shares trading for 26 times 2011 estimates, shares are by no means expensive, making this blue chip growth stock an easy buy.

DirecTV

November Stocks - DTVHave you taken a close look at your cable bill lately? Let’s just say commodity inflation is not the only place where prices are going up. A reasonable alternative to cable is satellite television. The more prices go up, the more customers will gravitate to DirecTV (NYSE:DTV). That’s the sort of growth dynamic I like.

In the past two quarters, the company has delivered profit results that beat expectations by 20%. That’s tough to do for a blue chipper with a market cap of $40 billion. That performance helped lift shares to a gain of 31% this year. Given the increase in share price, one might assume DirecTV is expensive. It’s not.

Shares trade for just 16 times the 2011 estimate for earnings. Analysts are looking for 29% growth from the current year to 2012. Buying growth this cheap, and through a blue chip stock, typically results in large profits.

Viacom B Shares

Viacom logoThe entertainment industry has enjoyed a solid recovery from the depths of recession, and Viacom (NYSE:VIA.B) is one of the largest media players in the market. Its stable of name brands – including MTV, VH1 and Nickelodeon – keep generating interesting content that keeps audiences captive. Some of that content is controversial, but Viacom’s demographic is highly sought-after by advertisers.

Viacom shares have been on a steady path higher in the past year. The company has constantly met or beaten estimates, and while results have been consistent rather than spectacular, growth is strong. So, Viacom B shares have the characteristics not only of a growth stock, but also a utility.

Analysts expect Viacom to deliver growth of 15%, and the B shares trade for 14 times expected earnings in the current year. With advertising revenue likely to beat expectations, Viacom is a steady blue chip for the foreseeable future.

Baidu

Baidu logoA common misconception in the market is that blue chips deliver average returns. Compared to smaller, lower-priced stocks, blue chips simply trudge along. Of course, stocks like Google – which soared by double digits in one day of trading after reporting stellar earnings – have helped to blow away that perception.

In a similar vein is Chinese search engine, Baidu (NASDAQ:BIDU). This company is all about explosive growth. It dominates search in one of the best – if not the best – and fastest-growing economies in the world. Earnings are rapidly rising, and even though investors have bid up shares, the company always appears to have more room for growth.

Analysts expect Baidu to grow profits from by an impressive 50% by next year. Shares might look expensive at 57 times current-year estimates, but not when the company is growing by such a quick clip.

National Grid

National Grid logoNational Grid (NYSE:NGG) is a London-based company that operates gas and power networks in the United Kingdom and the United States. Not your average utility, this blue chip is growing profits at a double-digit rate. However, shares have moved only slightly higher this year under the shadow of the European debt crisis.

National Grid is up only 9% this year. But without the sovereign debt concerns, this stock would be much higher. What I like about National Grid is the potential with respect to its natural gas business. As the U.S. increases its use of natural gas, National Grid will benefit.

Chevron

Chevron Corp. (NYSE: CVX)The aforementioned natural gas use is likely to explode because of the dwindling domestic supply of crude oil, and near $100-per-barrel crude prices look to be going nowhere but up. OPEC has shown no sign of increasing production to help ease prices. Attempts by the U.S. government to dump supply from its strategic reserve have only resulted in keeping prices level. When that supply is absorbed, prices will ascend further.

Those high crude prices make oil blue chip stocks attractive. The name I like in this space is Chevron (NYSE:CVX). The integrated oil company is reaping profits, and shares are cheaply priced. The stock is up an impressive 17% so far this year, with more gains on the horizon.

Chevron trades for only eight times current-year estimates, making it a cheap blue chip.

James Dlugosch did not own any of the aforementioned stocks at the time of this writing.


Article printed from InvestorPlace Media, https://investorplace.com/2011/07/best-blue-chips-buy/.

©2024 InvestorPlace Media, LLC