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4 Blue-Chip Stocks to Buy as Dow Seals Record October Gains

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U.S. stocks slipped on Oct 31 as investors keep an eye on how much the Federal Reserve will hike interest rates this week to tame stubbornly high inflation. Lest we forget, the Fed’s hawkish stance did batter the stock market for the most part of the year. However, despite Monday’s losses, the major bourses were able to lock in gains for the month of October.

While the S&P 500 and the Nasdaq were able to notch single-digit gains in October, it’s the Dow that soared 14% and registered its best month since 1976. The blue-chip index, in fact, made a commendable comeback in October and snapped a two-month losing streak. The 30-stock index ended in the green for the month as investors continued to place their bets on traditional companies like banks.

Most importantly, the blue-chip index primarily comprises energy and industrial stocks, which no doubt have been among the best-performing sectors since the beginning of this year. Energy shares have been gaining due to the rise in oil prices. In fact, the international benchmark for oil prices — Brent crude — jumped 7.8% last month.

Oil prices, by the way, scaled north mostly due to the Russia-Ukraine war, and the resurgence of the Omicron variant of the coronavirus in China since all these led to a demand-supply disparity. Similarly, industrial shares gained, thanks to a thriving manufacturing sector, which is already boosting economic growth throughout the United States.

Talking about the economy, third-quarter GDP increased faster than expected and eased recession fears. In reality, it was the first positive quarter this year that witnessed the blue-chip stocks climbing northward.

Another reason that led to the Dow notching remarkable gains last month was its lack of exposure to mega-cap tech stocks. These stocks, unfortunately, took a beating in recent times due to discouraging earnings results.

For instance, blue-chip tech stocks like Verizon and Microsoft saw their shares tank over the course of October. While Verizon reported a decline in subscriber gains in the third quarter, Microsoft witnessed a slowdown in its cloud-computing business.

Nonetheless, with the broader blue-chip index witnessing a sharp run-up in October, it’s prudent to invest in blue-chip stocks that not only gained last month but also are poised to add more gains, banking on solid cash flows and a strong balance sheet. We have, thus, selected four such blue-chip stocks that carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here.

Caterpillar (CAT - Free Report) is the largest global construction and mining equipment manufacturer. The Zacks Consensus Estimate for its current-year earnings has moved up 0.9% over the past 60 days. CAT’s expected earnings growth rate for the current year is 18%.

JPMorgan Chase & Co. (JPM - Free Report) is one of the biggest global banks. The Zacks Consensus Estimate for its current-year earnings has moved up 3.2% over the past 60 days. JPM’s expected earnings growth rate for the next five-year period is 5%.

Home Depot (HD - Free Report) is the world’s largest home improvement specialty retailer. The Zacks Consensus Estimate for its current-year earnings has moved up 0.5% over the past 60 days. HD’s expected earnings growth rate for the current year is 7.2%.

Merck & Co. (MRK - Free Report) operates as a healthcare company worldwide. The Zacks Consensus Estimate for its next-year earnings has moved up 1.8% over the past 60 days. MRK’s expected earnings growth rate for the current year is 22.1%.

Shares of Caterpillar, JPMorgan, Home Depot and Merck, incidentally, have gained 31.9%, 20.5%, 7.3% and 17.5%, individually, in October.
 

Zacks Investment Research


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