The Dow Jones Industrial Index is made up of 30 of the largest, publicly traded companies trading on either the New York Stock Exchange (NYSE) or the Nasdaq. These companies are known as blue-chip stocks to buy for their ability to deliver stable, reliable performance no matter what’s going on in the economy.
These stocks are part of many institutional portfolios. In fact, if you own a mutual fund like the SPDR S&P 500 ETF (NYSEARCA:SPY), you own more than one of these blue-chip stocks. However, when choosing individual stocks to own, retail traders and investors may stay away from these stocks in favor of companies that offer stronger growth potential.
That was the case in 2023 and has continued in 2024. Investors flocked into tech stocks and particularly artificial intelligence (AI) stocks. However, there are signs that the current market rally is likely to expand beyond the Magnificent 7. And with a two-day rally that sent the Dow stocks up over 900 points, it’s likely that investors are looking for blue-chip stocks to buy like the ones listed here.
Caterpillar (CAT)
First up on this list of blue-chip stocks to buy is Caterpillar (NYSE:CAT). The manufacturer and supplier of heavy machinery has been a major beneficiary of the $1.2 trillion that is still being released into the economy through the Infrastructure Act of 2021.
That spending drove investor interest and pushed CAT stock up nearly 40% in the last 12 months. So why is the stock considered a bargain? For starters, the Federal Reserve is now widely expected to cut interest rates, possibly as early as September. That is likely to spur another round of infrastructure spending, this time fueled by the private sector.
Plus, the stock had a pullback of nearly 15% from peak to trough after its first quarter earnings report. At that time, revenue came in about flat year-over-year which gave investors a good reason to take a breather.
Caterpillar also recently increased its dividend for the 30th consecutive year. The increase of 8.4% was larger than the company’s three-year average growth rate of 6.6%. And with a payout ratio of around 23%, that dividend growth looks like it will extend well into the future.
McDonald’s (MCD)
It’s been a rough year to own McDonald’s (NYSE:MCD) stock. And to be fair, the company has been guilty of some self-inflicted wounds. It’s been a beat or two slow to recognize the impact that inflation was having on its core customer base.
That said, some of the talk about the company’s pricing needs to be taken with a grain of salt. McDonald’s business model allows franchisees to set their own pricing depending on their location. So for every social media tweet about $15 Big Mac’s (I’m exaggerating), many consumers can find the prices to be inflation adjusted, but competitive with other fast-food options.
But what about the price that matters to investors, the stock price? MCD stock is down 13% in 2024 and the stock recently was trading at its 52-week low. But as investors look for blue-chip stocks to buy, they seem to be agreeing that McDonald’s is offering value.
And as Nikolaos Sismanis wrote for InvestorPlace, investors are undoubtedly announcing that McDonald’s has delivered 13 consecutive quarters of positive same-store sales growth. And even if that growth is weaker than in the past, growth is still growth.
Johnson & Johnson (JNJ)
Johnson & Johnson (NYSE:JNJ) is a different company than the one that reached an all-time high in 2022. The company spun off its consumer products division into a new company, Kenvue (NYSE:KVUE). And earlier this year, the company brought its long-standing talc lawsuit to an end.
So it’s understandable that it’s taken investors a little time to figure out just what type of company they own. The answer is a company that is becoming a leader in the development of innovative medicine and medical technology.
In the area of innovative medicine, Johnson & Johnson has a robust pipeline that includes many oncology drugs including advancing several novel therapies. And the company is making strategic acquisitions to solidify its position in MedTech.
Investors are taking notice and the company’s second quarter earnings report delivered on July 17 will do nothing to steer them away. The company came in light on revenue year-over-year but easily beat analysts’ estimates. Its earnings beat analysts’ estimates and were also higher year-over-year.
On the date of publication, Chris Markoch had a LONG position in MCD. 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.