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5 Excellent Blue-Chip Stocks for Q2

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U.S. stocks ended the first quarter on a strong note, posting their best performance in a decade. With the Fed adopting a dovish stance and trade negotiations showing visible progress, stocks found enough impetus to create new milestones at the beginning of the year. Fourth-quarter earnings also exceeded expectations while China took steps to stimulate its flagging economy.

But equities may fail to replicate their success as the year progresses. While small-cap stocks have been the leading performers in the first quarter, they are likely to crumble in the face of an economic slowdown. With their large capital base and strong reputation, blue-chips may prove to be the best option for investors in the months ahead.

Benchmarks Set Searing Pace in Q1

The S&P 500 gained 13.1% in the first quarter, its highest such increase since the third quarter of 2009. This is also its best performance during the first quarter since 1998.

Among the index’s best performers were the Technology Select Sector SPDR (XLK), Real Estate Select Sector SPDR (XLRE) and the Energy Select Sector SPDR (XLE), which gained 18.2%, 16.8%, and 15.6%, respectively, during this period.

The rebound in tech stocks was spectacular with the tech-heavy Nasdaq gaining 16.5% during this period. This is its strongest performance since the first quarter of 2012. The Dow gained 11.2% in the first quarter. This is the blue-chip index’s best start to a year since 2013.

Fed’s Dovish Stance, Progress in Trade Talks Boost Markets

Last month, the central bank kept rates unchanged and revealed that it will soon end its attempts to reduce the size of its balance sheet. Economists think that the Fed may even become a net buyer of Treasury securities in the near future.

This marked change in stance by the central bank was one of the major catalysts for U.S. equities’ strong showing in the first quarter. Earlier in the year, Fed Chair Jerome Powell had remarked that the case for additional rate hikes has “weakened.”

Another major factor boosting stocks during this period was the significant progress made on the trade-negotiation front. Last week, U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin arrived in Beijing for a fresh round of trade negotiations.

Since then, reports have emerged that China has made unprecedented offers on a number of issues including forced technology transfers. It seems evident that China wants to seal the broad contours of a trade deal before Chinese president Xi Jinping visits the United States to ink the agreement in the months ahead.

Stocks Unlikely to Repeat Scale of Success

Small caps were the biggest beneficiaries of the first quarter’s phenomenal rebound, with micro-caps increasing more than 20% during the period. In contrast, large-cap stocks only gained 13% during the first quarter. However, they may prove to be more resilient over the rest of the year.

Firstly, the sell-off witnessed during the last quarter of 2018 lacked basis. Algorithms, tax selling and trade worries led investors to offload their holdings in a rush. Similarly, the realization that such a sell-off was irrational was a major factor powering the first quarter’s rebound.

While a global recession seems unlikely, a slowdown is certainly in the works. Projections for domestic growth are slipping and Europe and China’s economic indicators are continuing to disappoint. Keeping this rationale in mind, it would pay to bet on blue chips that may prove to be more resilient for the rest of 2019.

Our Choices

While small caps outperformed their larger peers during a record-busting first quarter, they are unlikely to repeat their success in the near term. A slowdown in economic growth is likely to erode their momentum over the rest of the year.

Investing in blue-chip stocks in a volatile period, which likely lies ahead, looks like a smart option. In view of these factors, we have narrowed our search to the following stocks based on a good Zacks Rank and other relevant metrics.

The Estee Lauder Companies Inc. (EL - Free Report) is one of the world's leading manufacturers and marketers of skin care, makeup, fragrance and hair care products.

Estee Lauder’s expected earnings growth for the current year is 11.3%. The Zacks Consensus Estimate for current-year earnings has improved 0.1% over the past 30 days. The stock has gained 27.3% year to date. It sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Stryker Corporation (SYK - Free Report) is one of the world’s largest medical device companies operating in the global orthopedic market.

Stryker has a Zacks Rank #2 (Buy). The company has expected earnings growth of 11.1% for the current year. The Zacks Consensus Estimate for current-year earnings has moved 0.1% north over the past 30 days. The stock has gained 26% year to date.

Accenture Plc (ACN - Free Report) is one of the world’s leading providers of management consultancy, technology and outsourcing services.

Accenture has a Zacks Rank #2. The company has expected earnings growth of 7.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 0.4% over the past 30 days. The stock has gained 24.8% year to date.

Cisco Systems (CSCO - Free Report) is an IP-based networking company, also offering other products and services to service providers, companies, commercial users and individuals.

Cisco has a Zacks Rank #2. The company has expected earnings growth of 17.6% for the current year. The Zacks Consensus Estimate for current-year earnings has moved 0.1% north over the past 30 days. The stock has gained 24.6% year to date.

Costco Wholesale Corporation (COST - Free Report) sells high volumes of food and general merchandise (including household products and appliances) at discounted prices through membership warehouses.

Costco has a Zacks Rank #2. The company has expected earnings growth of 15.9% for the current year. The Zacks Consensus Estimate for current-year earnings has improved by 3.4% over the past 30 days. The stock has gained 18.9% year to date.

Zacks' Top 10 Stocks for 2019

In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?

From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.

This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.

See Stocks Today >>

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