The defense wins the ball games; 3 top stocks to consider

If there was one word to describe the market in 2022 so far, most investors would agree that “volatile” would be the correct choice. The Fed has completely pivoted to a hawkish nature, raising interest rates in an effort to bring down historically high inflation.

In times of heightened volatility, investors might consider adding blue chip stocks to their portfolios for an extra layer of defense.

Blue chip stocks are companies that have always provided quality, reliability and the ability to operate profitably in good times and bad.

Due to their entrenched nature and track record of success, these companies have positioned themselves to weather a dark tax cloud better than most.

To put the icing on the cake, they typically post rock-solid dividend metrics, allowing investors to reap a steady stream of income.

Three stocks – McKesson MCK, Johnson & Johnson JNJ and Caterpillar CAT – all meet the criteria. Below is a chart illustrating how the three companies’ stocks have performed year-to-date with the integrated S&P 500 as a benchmark.

Image source: Zacks Investment Research

As we can see, the stocks of all three companies were significantly stronger than the S&P 500 YTD, no doubt displaying their defensive nature.

Let’s take a closer look at each of them.

McKesson Corp.

Texas-based McKesson MCK is a healthcare services and information technology company operating through two segments: Delivery Solutions and Technology Solutions.

Analysts have been bullish on their earnings outlook over the past few months, helping the stock rise to a favorable Zacks rank of No. 2 (buy).

Zacks Investment Research
Image source: Zacks Investment Research

Along with a strengthening earnings outlook, McKesson shares could be undervalued, further bolstered by its style score of an A for value.

The company’s 14.2X forward earnings multiple sits above its five-year median, but represents a staggering 33% discount to its medical sector Zacks.

Zacks Investment Research
Image source: Zacks Investment Research

Additionally, MCK has a very favorable growth profile – earnings are expected to grow by 2.3% in FY23 and a further 7.4% in FY24.

The growth in turnover is also worth highlighting; MCK’s annual revenue is expected to increase 4% in FY23 and 5% in FY24.

Zacks Investment Research
Image source: Zacks Investment Research

Johnson & Johnson

Based in New Jersey, Johnson & Johnson JNJ is an American multinational corporation that develops medical devices, pharmaceuticals and consumer packaged goods.

JNJ is part of the elite Dividend King group, increasing its dividend payout for an astonishing 60 consecutive years.

JNJ’s annual dividend yields 2.7%, well above the 1.4% average for its Zacks medical sector. To top it off, JNJ boasts a rock-solid five-year annualized dividend growth rate of 6%.

Zacks Investment Research
Image source: Zacks Investment Research

The company’s steady growth trajectory appears to be continuing – earnings are expected to climb nearly 3% in FY22 and another 4.7% in FY24.

Revenue growth is also commendable, with the company’s revenue expected to grow 2% and 4% respectively in FY23 and FY24.

Zacks Investment Research
Image source: Zacks Investment Research

Like MCK, Johnson & Johnson shares are trading at attractive valuation multiples; The company’s 15.6X forward earnings multiple is well below its five-year median of 16.9X and represents a steep 26% discount to its Zacks medical sector.

Zacks Investment Research
Image source: Zacks Investment Research

caterpillar

Caterpillar CAT is the world’s largest manufacturer of construction equipment. The company designs, develops, designs, manufactures, markets and sells machinery, engines, financial products and insurance to its customers.

CAT has impressively increased its dividend for 28 consecutive years, ranking it as a dividend aristocrat. The company’s annual dividend yields 2.7%, which is noticeably higher than Zacks Industrials sector average of 1.7%.

Additionally, the machinery titan boasts an attractive five-year annualized dividend growth rate of 8.9%, coupled with a payout ratio that is sustainably at 39% of earnings.

Zacks Investment Research
Image source: Zacks Investment Research

CAT’s forward earnings multiple has fallen significantly from its 2020 high of 33.6X, perhaps indicating that long-term investors may be interested.

Currently, the company is posting a forward earnings multiple of 14.2X, a far cry from its five-year median of 16.7X, and is a notable 8% discount to its Zacks sector.

Zacks Investment Research
Image source: Zacks Investment Research

In summary, the company has a stellar growth profile, with earnings expected to climb in double-digit percentages in FY22 and FY23.

Revenue growth is also commendable – revenue is expected to grow 12% in FY22 and 6% in FY23.

Zacks Investment Research
Image source: Zacks Investment Research

Conclusion

Blue chip stocks generally provide an additional layer of defense to a portfolio. And in 2022, it goes without saying that all investors could benefit from a heavily defense-focused approach.

Additionally, they typically pay large dividends coupled with a strong track record of proven and successful business operations.

With the Fed tightening cycle hitting high growth and tech harder than most, McKesson MCK, Johnson & Johnson JNJ and Caterpillar CAT could all be options for investors looking to offset losses in beta stocks. higher.

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Caterpillar Inc. (CAT): Free Inventory Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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