Blue-chip stocks are a crucial component of any investment portfolio, with different levels of exposure depending on the investor’s risk tolerance. One strategy for blue-chip investing involves holding onto evergreen blue-chip stocks for five to ten years, while also investing in blue-chip stocks with a shorter time frame of less than five years in order to take advantage of potential surges in stock performance after lean periods. By focusing on blue-chip opportunities that have been subdued over the last year or two, investors can potentially surpass index returns in the next 36 months.
One blue-chip stock that shows promise is Lockheed Martin (LMT), a defense company that is undervalued with a forward price-earnings ratio of 17.8. Despite positive business developments and industry trends, LMT stock has remained stagnant, presenting a good opportunity for accumulation before a potential breakout rally. Lockheed ended Q4 2023 with a record order backlog of $160.6 billion, providing revenue and cash flow visibility. With a projected free cash flow of $6.2 billion for the current year, Lockheed is well-positioned for stability and innovation in defense technology solutions.
Another undervalued blue-chip stock is AT&T (T), which trades at a forward price-earnings ratio of 7.5 with a dividend yield of 6.72%. Despite a period of depression, T stock has shown an 8% increase in the last six months, signaling a potential turnaround. AT&T has demonstrated improvements in financial metrics, including a free cash flow of $16.8 billion and declining net-debt-to-adjusted EBITDA ratio. With the addition of 5G wireless and fiber subscribers and EBITDA margin expansion, AT&T’s outlook is positive and poised for a surge from oversold levels.
Pfizer (PFE) is another blue-chip stock that appears undervalued, with a strong reversal rally expected from its current valuation. PFE stock offers a robust dividend yield of 6.46% and sustainable dividends. In 2023, Pfizer received nine new molecular entity approvals from the FDA, with a pipeline of 112 new molecular entities targeting incremental revenue of $20 billion by 2030. Additionally, Pfizer’s acquisition of Seagen provides a significant foothold in the oncology segment, with a revenue target of $25 billion from new business deals by the end of the decade. Despite challenges such as declining COVID-19 vaccine revenue, Pfizer’s long-term growth prospects remain steady.
Overall, investing in quality blue-chip companies with accelerated growth potential and strong cash flows can lead to significant returns for investors. By identifying undervalued blue-chip stocks like Lockheed Martin, AT&T, and Pfizer, investors can capitalize on opportunities for long-term growth and increased dividends. With a strategic investment approach focused on both short-term and long-term opportunities, investors can potentially outperform index returns and build a resilient portfolio.