These 3 Blue Chip Stocks Are Excellent Volatility Shields

Volatility has dominated the market since the start of the year, leaving investors frustrated and uncertain of what lies ahead. During these times, investors benefit from having an extra layer of defense in their portfolios.

Investing in blue chip stocks is a great way to add a layer of defense to a portfolio. Blue chip stocks are companies that have always provided quality, reliability and the ability to operate profitably in good times and bad.

Plus, they usually pay dividends – another major benefit for investors.

Three companies that meet the criteria – Coca-Cola KO, Kroger Co. KR and Johnson & Johnson JNJ – would all provide an additional layer of defense.

The chart below illustrates the year-to-date performance of the three companies while incorporating the S&P 500 as a benchmark.

Image source: Zacks Investment Research

As we can see, all three companies have been in the green since the start of the year and have significantly outperformed the S&P 500.

After all, defense wins ball games.

Let’s take a closer look at each company for investors looking for an extra layer of defense in their portfolios.

Johnson & Johnson

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

JNJ has been the definition of consistency in its quarterly reports – the company has exceeded Zacks’ consensus EPS estimate for 20 consecutive quarters. In its latest report, JNJ exceeded the earnings estimate by 2.7%.

JNJ has increased its dividend for 60 consecutive years, making it a Dividend King. The Dividend Kings have increased their dividends for at least 50 consecutive years, putting JNJ in an elite business. Additionally, the company’s annual dividend yield of 2.6% is well above that of the S&P 500 and its payout ratio is sustainably at 43% of earnings.

Zacks Investment Research
Image source: Zacks Investment Research

JNJ’s forward earnings multiple sits at 17.2X, just one tick above its five-year median value of 17.0X and below 2020 highs of 20.2X. Additionally, the value represents a nice discount of 19% compared to its Zacks sector.

Zacks Investment Research
Image source: Zacks Investment Research

JNJ is a Zacks Rank #3 (Hold) with an overall VGM score of a C.

Kroger Co.

The Kroger Co. KR, a longtime retailer residing in the low-margin grocery industry, operates approximately 2,700 retail stores under its various banners and divisions in 35 states.

KR has had a blistering earnings streak, beating net income estimates for ten consecutive quarters dating back to the start of 2020. In its latest quarter, Kroger shocked the market with a strong 13% rise in net income.

Impressively, the retailer has increased its dividend six times over the past five years, with a five-year annualized dividend growth rate of 13% in double digits. Additionally, KR’s 1.8% annual dividend yield is slightly higher than the S&P 500 and its payout ratio sits comfortably at 21% of earnings.

Zacks Investment Research
Image source: Zacks Investment Research

Kroger also has attractive valuation metrics, further displayed by its style score of an A for value. The company’s forward earnings multiple sits at 12.2X, just below its five-year median value of 12.5X, and represents an attractive 46% discount to its Zacks sector.

Zacks Investment Research
Image source: Zacks Investment Research

Kroger is a Zacks Rank #2 (Buy) with an overall VGM score of an A.

Coca Cola

The Coca-Cola Company KO is the largest beverage company in the world. In addition to its namesake Coca-Cola drinks, a few of its household names include Fanta, Minute Maid juices, Powerade and Dasani.

The beverage titan has enjoyed an impressive winning streak; KO has exceeded Zacks’ consensus EPS estimate for ten consecutive quarters. Additionally, Coca-Cola posted double-digit EPS of 10% in its most recent quarter.

Like JNJ, Coca-Cola is another Dividend King; 2022 marks the company’s 60th consecutive annual dividend increase, a remarkable feat that speaks volumes about the well-established nature of the company. Coca-Cola’s annual dividend yields 2.8%, with a payout ratio of 73% of profits.

The return is well above that of the S&P 500.

Zacks Investment Research
Image source: Zacks Investment Research

KO’s forward P/E ratio sits at 25.4X, undoubtedly pricey, but the value is well below 2020 highs of 29.1X and just slightly above its five-year median value of 24 ,4X. The stock is trading at a 26% premium to its Zacks sector.

Zacks Investment Research
Image source: Zacks Investment Research

Conclusion

Investing in blue chip stocks is a popular way for investors to combat volatility. Plus, they usually pay dividends, which makes them even more appealing. After all, who doesn’t like getting paid?

Shares of the three companies above have been in the green year-to-date, easily crushing the S&P 500 and displaying their highly defensive nature. Furthermore, all three companies have consistently released strong quarterly results and have fully established themselves as giants in their respective industries.

All three would be solid bets for investors looking to build a layer of defense into their portfolios.

Zacks names ‘only one best choice for doubling up’

From thousands of stocks, 5 Zacks experts have each picked their favorite to skyrocket by +100% or more in the coming months. Of these 5, Research Director Sheraz Mian selects one to have the most explosive advantage of all.

It’s a little-known chemical company that’s up 65% year-on-year, but still very cheap. With relentless demand, rising earnings estimates for 2022 and $1.5 billion for stock buybacks, retail investors could jump in at any moment.

This company could rival or surpass other recent Zacks stocks which are expected to double, such as Boston Beer Company which jumped +143.0% in just over 9 months and NVIDIA which jumped +175.9% in one. year.

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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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