With all the superlatives being heaped upon the S&P 500 and the Nasdaq 100 indices as they push higher into record territory, the venerable Dow Jones Industrial Average lags. It is up only 8% year-to-date, less than half the gains of its peers. Yet it is still at a record high. This discrepancy highlights the importance of stocks with stability, such as blue-chip stocks.
It might not happen this week or next month or even this year. But as a part of the investing cycle, the stock market will correct and it could fall hard. Investors should be ready.
I like to take a two-pronged approach. On the one hand, I keep a lot of powder dry. I build up the cash portion of my portfolio so that when stock prices do fall, even crater, I’m ready to pounce to scoop up good deals. The second prong is to buy blue-chip stocks ahead of a crash. Blue-chip stocks are successful, profitable companies with a long history of growth through all business cycles.
Even better, blue-chip stocks more often than not pay a dividend. That’s important when we’re in a bear market because the dividend helps juice portfolio returns. For nearly 100 years there has never been a decade where dividend-paying stocks on the benchmark index didn’t serve up positive returns.
With that in mind, the following three blue-chip stocks are ones to buy for a Dow crash.
Johnson & Johnson (JNJ)
Healthcare giant Johnson & Johnson (NYSE:JNJ) holds an unparalleled position in the market. Well diversified across pharmaceuticals and medical devices, the healthcare stock also boasts a robust pipeline of up and coming drugs that should carry it well into the future.
Drugs deliver almost two-thirds of its revenue, or $13.6 billion in the first quarter. It owns several industry-leading therapies, including immunology drugs Stelara and Tremfya, as well as oncology treatments Darzalex and Imbruvica. Stelara and Darzalex each contributed around $1.4 billion in sales. Its industry-leading pipeline of drugs is expected to grow 5% to 7% annually from 2025 to 2030. Medical devices contributed $7.8 billion to the total.
Last year Johnson & Johnson spun off its consumer health unit into Kenvue (NYSE:KVUE), leaving it a more tightly focused healthcare stock. JNJ still owns 9.5% of the company.
The healthcare leader pays a dividend that yields 3.2% annually. It has raised the payout for 62 consecutive years making it a Dividend King and a blue-chip stock to buy for a market downturn.
Coca-Cola (KO)
Coca-Cola (NYSE:KO) is also dividend royalty. Coke first began paying dividends in the 1920s and began raising the payout continuously in 1967. The payout yields 3% a year.
Beyond consistently returning value to shareholders, Coca-Cola also offers up steady growth. The beverage giant has a 10-year total return of 106%. That’s below the Dow Jones Industrial Average, but with a beta of 0.6 it is far less volatile than the market.
Coca-Cola has transitioned to become far more than simply a soda company. While sales of its carbonated beverages still drives most of KO’s revenue, its portfolio of still beverages is arguably more important, as soda consumption is in a secular decline. Coke’s portfolio of non-carbonated beverages includes juice, water, energy drinks, teas, dairy and plant-based drinks and more.
Its focus on this segment should allow Coke to enjoy long-term, healthy top-line growth. It also invested in coffee and sports drinks, giving the company strategic market positioning against the category leaders.
While the stock is a bit pricey at 21 times next year’s earnings and six times sales, it will provide ballast to an investor’s portfolio in turbulent times.
Nike (NKE)
The seemingly riskiest of the three blue-chip stocks is apparel leader Nike (NYSE:NKE). The footwear and clothing company has been on a long downward spiral. Shares are down 31% in 2024. Yet there is hope for a turnaround.
For one, even though it cut billions from its operating costs, fired hundreds of workers and suffered from falling sales, Nike is still the dominant player in the space. Last month it reported fiscal 2024 financials showing $51 billion in sales, up 1% on a currency-adjusted basis. The closest anyone comes to that is Adidas (OTCMKTS:ADDYY), which had 21.4 billion euros in sales last year, or about $23.3 billion.
It still owns important brands including Air Jordan and Air Force 1. While some complain about staleness in the brands that has caused sales to falter, performance was rekindled in the fourth quarter across all channels and geographies. Especially in the basketball segment, where sales grew at double-digit rates across Jordans, men’s, women’s and kids.
Nike also moved into the athleisure market and is challenging Lululemon Athletica (NASDAQ:LULU). Management noted “statement leggings,” which it is looking to for future growth, jumped by high double-digit rates in the fourth quarter.
Buying a deeply discounted brand that can still grow is the pinnacle of value investing. Nike stock, with its depressed valuations, is a blue-chip stock that ought to generate significant returns for investors in the years ahead, whether the Dow Jones Industrial Average crashes or not.
On the date of publication, Rich Duprey held a LONG position in JNJ and KO stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.