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Dow Makes a Comeback on Stimulus Hopes: 4 Blue-Chip Picks

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The Dow Jones Industrial Average recorded its biggest one-day percentage gain in almost 11 years on Mar 2, as stocks rebounded from the worst weekly slide on Feb 28 since October 2008. In fact, last Thursday, the blue-chip index had closed in the correction territory, which is defined as a drop of at least 10% from a recent peak. What’s more, last week saw the Dow fall 12.4%.

Nonetheless, the Dow bounced back on expectations that policy makers across the globe will take appropriate policies to curtail the impact of the coronavirus outbreak on corporate profit margins and the global economy.

Fed Chairman Jerome Powell recently said that the central bank is “closely monitoring” the outbreak. He added that “we will use our tools and act as appropriate to support the economy.” And traders are now expecting the Fed to cut rates at least by 75 basis points through April. Bank of Japan Governor Haruhiko Kuroda added that we “will strive to provide ample liquidity and ensure stability in financial markets through appropriate market operations and asset purchases.”

Australian central bank’s governor in the meantime acknowledged that the coronavirus outbreak does have a “significant effect” on the country’s economy and any move to ease monetary policy will certainly “provide additional support to employment and economic activity.” And the Reserve Bank of Australia has already announced a cut in its cash rate by 25 basis points to 0.5%, an all-time low. European Central Bank President Christine Lagarde also assured that the bank is monitoring the outbreak and will take “appropriate” steps if required.

Randy Frederick, vice president of trading and derivatives for the Schwab Center for Financial Research, added that “there is willingness on the part of the Fed and other central banks in the world to lower rates” to stimulate the global economy. Meanwhile, Goldman Sachs chief economist Jan Hatzius expects most of the central banks for G10 countries to trim rates.

By the way, finance ministers from the Group of Seven economies are scheduled to hold talks today to discuss the probable responses to the deadly virus. Powell and Treasury Secretary Steven Mnuchin will lead the G-7 and they expect a “coordinated effort” to curb the impact of the coronavirus (read more: Coronavirus Fears Holding You Back? 3 Smart Ways to Invest).

4 Blue-Chip Stocks to Buy Now

Thanks to the aforementioned factors, the 120-year-old index of 30 stocks is widely expected to climb north.  And these companies are slated to gain in the near term as they have large market capitalization, strong balance sheet and solid cash flow. Hence, it makes sense to invest in solid blue-chip stocks that can make the most of a Dow rally. We have selected four such blue-chip stocks that have a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Microsoft Corporation (MSFT - Free Report) has a Zacks Rank #1. The enterprise refresh cycle, new subscription model, Azure and promising new products will continue to generate sizeable cash flows. The Zacks Consensus Estimate for its current-year earnings has moved up 5% over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is 15.8% and 18.3%, respectively.

The Procter & Gamble Company (PG - Free Report) has a Zacks Rank #2. Driven by strong organic sales growth, core earnings and returns to shareholders, the company raised its view for fiscal 2020. The Zacks Consensus Estimate for its current-year earnings has moved 0.8% north over the past 60 days. The company’s expected earnings growth rate for the current quarter and year is 3.8% and 10.1%, respectively.

Intel Corporation (INTC - Free Report) has a Zacks Rank #2. The company’s leading position in PC market, strength in servers and growing software business are positive indicators of future growth prospects. The Zacks Consensus Estimate for its current-year earnings has advanced 5.7% over the past 60 days. The company’s expected earnings growth rate for the current and next quarter is 47.2% and 18.9%, respectively. You can see the complete list of today’s Zacks #1 Rank stocks here.

Apple Inc. (AAPL - Free Report) has a Zacks Rank #2. The company is witnessing an increase in sales of smartwatches, AirPods wireless earbuds and services like mobile payments and streaming-music subscriptions of late. The Zacks Consensus Estimate for its current-year earnings has climbed 4.2% over the past 60 days. The company’s expected earnings growth rate for the current and next quarter is 11.8% and 14.8%, respectively.

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