Blue-Chips are appealing regardless of the economy, but the uncertainty of late makes a company’s size, prominence and history of stability increasingly important. Other traditional safe havens, U.S. Treasurys for instance, have been overbought as investors have exited the equities market, making blue chips one of few long-term solutions for safe and steady growth. Granted, blue-chips are still susceptible to the whims of the larger economy and those that will continue to exhibit strength in the coming years are those that managed to build sales in spite of the tight consumer spending this year.
Coca Cola (KO)- Third-quarter earnings for the beverage goliath rose 8.1 percent to $2.22 billion according to their most recent report. Unit-case volume at the company continued to increase and while higher costs damaged margins somewhat, Coca Cola has engaged in cost cutting measures to help maximize profitability.
Internationally, the company's volume has been on a steady incline over the past year, gaining 5 percent, a factor that can be expected to persist alongside the ongoing development and growing middle class in emerging nations. Coca Cola has global brand name recognition and as more and more people in nations like China and India begin to have disposable income, the number of potential consumers of their products can be expected to rise.
Furthermore, Coca Cola has begun to expand its offering to include non carbonated options to reflect a shift among consumers in the U.S. and Europe which could potentially help it regain some of the market share it may have lost to competitors.
In addition to the factors mounting in favor of Coca Cola’s ongoing success, the company is trading below its historical forward earnings average in spite of 2011 growth surpassing the broader sector. Beyond this, long-term projected earnings growth for the company is around 8 percent, giving it further long-term appeal. A 41 percent return on equity and a 2.8 percent yield are convincing metrics of strength and stability.
PepsiCo (PEP) –The inclusion of Pepsi Co. on this list probably makes it seem that soda is the sole ingredient in surviving volatility, but so be it. Pepsi’s earnings this year have been remarkable. Last week, the company reported that its 3Q profit rose 4 percent for the period, surpassing analyst expectations and exhibiting a key quality of a blue-chip that is well-positioned for continued success amid the volatility.
Pepsi has embraced a strategy of raising prices and ramping up overseas growth. It possesses many of the same situational advantages as Coca Cola. It’s ubiquitous and the market for consumers is expanding overseas. The company has been doing an excellent job on capitalizing on international markets, and while European sales have weakened for many companies in the sector, Pepsi has seen impressive growth in the region. European revenue grew by 37 percent for the quarter alongside higher prices and the sales contributions from Wimm-Bill-Dann, the Russian foods brand it recently acquired.
Outside of Europe, Pepsi exhibited strength in Asia, the Middle East and Africa where revenue rose 25 percent on volume growth and the elevate pricing. The company has particular success in emerging markets, a feature that bodes well for future earnings. Revenue for the Latin America Foods division grew by 19 percent with much of the strength coming from Mexico and Brazil. The higher volume there can be predicted to multiply as the economies there grow.
For the past year, Pepsi has seen revenue growth of 22 percent.
Caterpillar (CAT)- Industrials have not been the most favored sector through the volatility but one company continues to garner analyst enthusiasm. Shares of Caterpillar, a manufacturer of construction and mining equipment, are expected by analysts to climb around 33 percent in the next year. Analysts point to growing equipment demand from miners as the impetus for the improvement and continue to see potential in emerging markets.
The latest economic reports from China indicating slightly slower, 9.1 percent growth have alarmed some investors, but the numbers are still impressive even if they are slower. China and other emerging nations account for the bulk of Caterpillar’s machinery sales and while there is some deceleration, it’s more than fast enough to help Caterpillar continue to expand. China, India, Brazil and other emerging economies driving Caterpillar’s recent rise are still projected to see ongoing increases in spending and economic expansion. So long as this is happening, Caterpillar sales will continue to be strong.
The reports that emerging economies can not be relied upon as an engine for the global economy led to a broad sell off for Caterpillar, leaving it looking somewhat overbought. The factors driving Caterpillar’s share prices higher; however are still in place, only the teetering share price is gone. Caterpillar is currently trading as low as 9.5 times forward earnings in spite of a long-term growth rate of over 20 percent.
Caterpillar’s share growth may not see a colossal rise like it did earlier in the year, before investors began to doubt the strength of emerging markets but it will in all likelihood recover from the panic losses and see ongoing strength in the coming quarters.
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