Back to Blue Chips

Brittney Barrett  |

After a broad blue chips decline at the height of the recent volatility, many investors have avoided reclaiming these large cap power houses for fear of what the market may do next. The slide seemed to express that the current terrain of the U.S. economy is unfamiliar to us and even what we considered to be safety stocks can no longer be defined as such. True, the current state of the market, defined by massive swings and the sense that we may be on the edge of a cliff feels altogether new to most investors in U.S. equities, but the fact remains that many of these companies have better credit than the U.S. government and more impressive growth predictions.

A major portion of investors have also been flooding treasurys in recent weeks in anticipation of a double dip, but the possibility of inflation and the fact that many blue chips economic bellwethers from GE (GE) to Fedex (FDX) have expressed that while growth is not good, the U.S.does not expect to enter a double dip.

With this information in mind and the host of still strong and reasonably inexpensive blue chips that are likely to exceed the yields of treasurys in the coming years, now may be the time to invest in the Dow.

Granted not all blue chips are created equal and some are more likely to surge higher than others on the index.

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Among these companies is Boeing (BA). Boeing’s787 Dreamliner has been delayed for three years, but the plane, which promises to double fuel efficiency in an industry that has been heavily put upon by the current disparity in jet fuel costs, will be relieved for the arrival of a plane that wipes out the severity of this variable. The long wait for Boeing’s product has weighed on shares leaving it at attractive levels, especially for a company with a high priced product ready for a major roll out. Boeing is currently trading at only 11.5 times forward earnings in spite of offering a 2.9 percent yield. According to Barron’s, the company also boasts an 88 percent return on equity.

As of Monday, Boeing delivered its first 787 Dreamliner to Japan's All Nippon Airways. The news helped to bolster shares, but not as much as high sales of the product could. Some began to doubt the appeal of the 787 when airlines were being pummeled but there has been a documented hunger for efficiency in transportation products and that’s likely to carry out through aeronautics. The failure of the hydrogen plane has left the Dreamliner and the most forward thinking and fuel efficient option on the market. This is likely to prompt sales.

Speaking of sales, Boeing has the unique advantage of having an enormous backlog of them, $320 billion to be exact. With the wealth of orders and the built in demand for a product like this, Boeing appears to be well positioned even in the case of economic weakness.

Kraft (KFT) –While novelty is not Kraft’s finest point, the company has its own set of news that could help bolster its profits. Kraft recently elected to divide up its businesses between its Kraft's North American grocery business and its international snacks division. Snacks has historically been the company’s more impressive section in terms of growth and revenue. Buoyed by the sales of such long-time big sellers as Oreos and Trident, the company has a loyal customer base around the globe. Dividends for the company are currently around 3.30 percent and some analysts predict that 4 percent dividends will be possible if the company is able to reduce expenditures.

Snacks are anticipated to continue to drive growth but the latest combination with the North American confectionery unit is expected to become a powerhouse by virtue of combining the positives of both domestic strength and international growth. International growth is predicted to be responsible for 75 percent of the growth and considering the rising middle class in China and India, new customers remain on the horizon for Kraft.

The streamlining of the individual businesses is expected to a boon for business and for investors taking advantage of the current pricing of the stocks.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not necessarily represent the views of Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to:


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