The shift from an economic environment marked by quantitative easing to one marked by quantitative tightening has meant many things. In the stock market it has meant that once favored growth stocks have quickly fallen out of favor. In their place, more conservative, and reliable stocks have come into favor. As such, investors are now seeking the safest blue-chip stocks to buy.
That means less capital is flowing into unprofitable growth picks and instead moving toward proven businesses. Blue-chip stocks represent exactly that: Proven, profitable businesses. A business that maintains a dominant position and produces profits is a safe business. As interest rates rise, the market is becoming increasingly aware of that truth. Over time that should mean more investor capital will flow into such firms, raising share prices.
The other good news is that the downturn has spared few. That means even the safest blue-chip stocks are on sale now.
TJX Companies (TJX)
There are multiple broad indicators that TJX Companies (NYSE:TJX) stock is currently a smart choice. The overwhelming majority of analysts rate it a buy, it has no underweight or sell ratings, and its average target price is 23% higher than its current price.
Beyond that, investors could point to its modest dividend that yields around 2% and the fact that TJX recorded an earnings beat in its most recently reported quarter. All of those arguments are relatively convincing and point to the idea that TJX stock makes sense right now.
Inflation is perhaps the most convincing argument, though. Two of its flagship brands, T.J. Maxx and Marshalls, remain synonymous with discount fashion, clothing and retail brands. The news coming out of Wall Street and the Federal Reserve is difficult to sift through. Generally though, it’s fair to state that consumers are extremely concerned and discount stores of all stripes should remain heavily favored throughout 2023.
Sales and net income both improved through the first 13 weeks of 2022 as well.
I’d venture to guess that Danaher (NYSE:DHR) is among the least-known stocks on this list. It doesn’t garner a lot of press, it isn’t flashy, and I know I certainly haven’t written about it often. But that isn’t to say that the medical equipment/life sciences/diagnostics firm deserves to be ignored or is unworthy of investment.
It possesses plenty of upside, is trading lower year-to-date, and has produced substantial earnings beats in each of the last four quarters. In other words, it’s a potential bargain waiting to be discovered.
The firm’s most recent earnings report shows that revenues and net income increased modestly despite the increasingly difficult operational environment.
Danaher’s fundamentals are anticipated to continue to grow modestly, but surely moving forward. Safe isn’t flashy most times and Danaher is no exception. But as quantitative tightening continues Danaher’s safety becomes increasingly attractive.
PepsiCo’s (NASDAQ:PEP) management wants its investors to know that it is holding up well in the high input cost environment expected to continue for the balance of 2022.
That’s why it noted that “while reflecting higher-than-expected input cost inflation for the balance of 2022, we now expect our full-year organic revenue to increase 8% (previously 6%) and we continue to expect core constant currency earnings per share to increase 8%.”
PepsiCo has already proven that it can perform well with multiple quarters of earnings-per-share beats. The company is now clearly signaling that it will continue to do so in a very difficult operating environment where costs remain a significant issue.
It hasn’t been perfect, but PepsiCo has shown its growth potential remains. In all of 2021, revenues increased 13%. However, operating profit increased only 8% during the same period. That is attributable to rising inputs. The good news, aside from Pepsi’s confidence, is that dividend payouts also increased by 6% during that time.
Microsoft (NASDAQ:MSFT) stock remains in a pullback despite the fact that Cloud dominance is boosting its position, and headcount is still expected to grow amid the tech hiring slowdown.
Regarding the pullback, Microsoft is currently down 19% on the year. Roughly a month ago Tigress Financials’ Ivan Feinseth noted that for his firm, the then 20% dip was a trigger point for it to give MSFT stock a buy rating.
He reiterated that Microsoft Cloud adoption by smaller firms was among his deciding factors. More broadly, Cloud is driving Microsoft’s improving business, which reported nearly $50 billion in revenue most recently, up from just under $42 billion a year earlier. It should be noted that Azure is a market leader, but that AWS remains the leader outright. That said, Azure is helping Microsoft move steadily upward.
Tech has had a difficult 2022. The tech wreck is most recently materializing as a there has been slowing of hiring across the sector. While that can certainly be viewed as a negative, the upside is that Microsoft should be able to find more efficiency. Investors always gravitate toward that idea. Further, Microsoft still intends to increase its overall headcount throughout 2022.
Investors should take the news that Raytheon (NYSE:RTX) is moving nearer the nation’s capital as a positive. The impetus for the defense firm is crystal clear: The nearer it is to the locus of U.S. defense decision-makers, the better.
That proximity will likely ensure that Raytheon can continue to sign deals like the recent $624 million contract to produce 1,300 stinger missiles. Part of that contract is designed to meet obligations to foreign militaries as well as to ensure that missiles sent to Ukraine are replenished.
Collins Aerospace, a division of Raytheon, has been selected to produce the next-generation space suit for NASA as well. That deal doesn’t imply near-term revenue but does indicate Raytheon is among preeminent aerospace firms.
Lockheed Martin (LMT)
Like Raytheon, Lockheed Martin (NYSE:LMT) is providing Ukraine with weapons as the nation defends itself against Russian invaders. As of early May, more than 5,000 of the company’s Javelin missiles had been sent to Ukraine.
A few weeks later, on May 16, Lockheed Martin announced it had secured a $309 million contract for more than 1,300 Javelin missiles to four other countries including Norway, Albania, Latvia and Thailand. Norway and Latvia are particularly interesting because of their proximity to Russian territory.
Q1 2022 sales were down compared to a year earlier. Earnings fell as well. But expect the war in Ukraine to bolster the firm’s coffers moving forward as the importance of strategic defense spending increases as a result of the war.
Unilever (NYSE:UL) stock is underpinned by 13 $1 billion brands. That’s a reasonable argument for investing in its shares even as they continue to trade lower throughout the year.
The company intends to direct its product portfolio toward growth areas. That means more of its products will be sold into retail channels across the U.S., China, India and emerging markets in the coming quarters and years.
It also implies that consumers can expect to see more beauty and functional nutrition products with the Unilever brand stamped on packing in those same markets moving forward. Those are particularly strong product categories for the parent company.
Unilever has been hit by inflation as have all other consumer product firms. But if its strategy works, share prices should rebound. Include the firms dividend, yielding over 4%, and suddenly UL stock becomes very attractive.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.