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Dow on Pace for Best June: 5 Blue Chip Stocks to Buy

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The Dow is set to experience the best June in 80 years — thanks to the Fed’s hints at a rate cut later this year for the first time in more than a decade on weak global economic outlook and concerns about a prolonged trade war. Now, it makes sense to invest in solid blue-chip stocks that can make the most of a Dow rally.

Dow on Track for Best June Since 1938

Major bourses have relished an unrestrained upward journey so far this month, with the Dow Jones Industrial Average now up about 7.7%. If the gains continue, the blue-chip index will record its best monthly performance since October 2015 and its best June since 1938, when the index soared 24.3%, per Dow Jones Market Data.

In its last trading session, the Dow ended at 26719.13, following a previous high of 26907.37. The Dow now is less than 1% short of its all-time closing high set on Oct 3. Not just the blue-chip index, the broader S&P 500 is also on track for its best June since 1955, with a gain of about 7.2%, added Dow Jones Market Data. In fact, historically, stocks tend to do well during the spring season. And the S&P 500 has registered the seventh successive advance during the season.

What’s Driving the Dow?

Signs of global economic slowdown, mostly in Europe and Asia, coupled with U.S. tariffs on trading partners adversely impacted U.S. stocks last month, with the major indexes experiencing the worst May since 2010.

However, U.S. stocks saw a banner last week after the Fed signaled at a cut in short-term rates in the coming months. After all, stocks tend to rise in an environment when rates are declining as it eventually leads to cheaper borrowing costs for both corporate houses and individuals.

Fed’s willingness to trim rates is primarily to curb the ill effects of tariff clashes between the United States and its trading partners, which have roiled the global economy and threatened to squeeze corporate profits. This is in sharp contrast to the earlier months, when Fed was more inclined toward hiking federal funds rates.

It’s also worth pointing out that the stock market rally was sparked by European Central Bank President Mario Draghi, who said that ECB will roll out fresh stimulus to boost the Eurozone economy as soon as its next policy meeting in July.

5 Blue-Chip Stocks to Add

Thanks to the aforementioned bullish factors, there has been a particularly sharp run up in the 120-year-old index of 30 stocks.  These companies are slated to gain further in the near term as they have large market capitalization, strong balance sheet and solid cash flow. We have, thus, selected five such blue-chip stocks that have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Microsoft Corporation (MSFT - Free Report) develops, licenses, and supports software, services, devices, and solutions. The Zacks Consensus Estimate for its current-year earnings has moved up 0.4% over the past 60 days. The company’s expected earnings growth rate for the current year is 18.3%, compared with the Computer - Software industry’s projected rally of 4%. The company has outperformed the broader industry so far this year (+34.9% vs +31.4%).

Chevron Corporation (CVX - Free Report) engages in integrated energy, chemicals, and petroleum operations. The Zacks Consensus Estimate for its current-year earnings has moved 3.9% north over the past 60 days. The company’s expected earnings growth rate for the current quarter is 14%, compared with the Oil and Gas - Integrated - International industry’s projected decline of 20.6%. The company has outperformed the broader industry on a year-to-date basis (+14.8% vs +9.4%).

Cisco Systems, Inc. (CSCO - Free Report) designs, manufactures, and sells Internet Protocol-based networking and other products related to the communications and information technology industry. The Zacks Consensus Estimate for its current-year earnings has moved up 0.7% over the past 60 days. The company’s expected earnings growth rate for the current year is 18.5%, compared with the Computer - Networking industry’s estimated decline of 7.7%. The company has outperformed the broader industry so far this year (+31.6% vs +30.3%).

Merck & Co., Inc. (MRK - Free Report) provides healthcare solutions. The Zacks Consensus Estimate for its current-year earnings has risen 1.9% over the past 60 days. The company’s expected earnings growth rate for the current year is 9.2%, compared with the Large Cap Pharmaceuticals industry’s anticipated fall of 2.7%. The company has outperformed the broader industry on a year-to-date basis (+10.6% vs +4.3%).

Visa Inc. (V - Free Report) operates as a payments technology company. The Zacks Consensus Estimate for its current-year earnings has moved up 0.2% over the past 60 days. The company’s expected earnings growth rate for the current year is 16.5%, compared with the Financial Transaction Services industry’s projected rally of 12.8%. The company has outperformed the broader industry over the past one-year period (+32.4% vs +23.4%).

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