Blue-chip stocks represent well-established companies with robust fundamentals. For risk-averse investors, it’s best to remain overweight on blue-chip stocks as they have a low-beta.
Further, almost all blue-chip stocks provide robust dividends with some names being dividend aristocrats. This column discusses three of the best blue-chip stocks to buy and hold forever.
An important point to note is that the S&P 500 index has delivered total return of 12.23% annually over the last 10-years. Blue-chip stocks can be performers. Over the long-term, these stocks can comfortably deliver positive returns when adjusted for inflation.
Another point is that irrespective of the risk-taking profile, blue-chip stocks should be an integral part of the portfolio. Even the most aggressive investor needs to have 30% to 50% exposure to blue-chip stocks. This is particularly true in a global economy with multiple uncertainties.
Chevron Corporation (CVX)
With crude oil trending higher, it’s a good time to buy and hold oil and gas exploration stocks. Chevron Corporation (NYSE:CVX) is a top name to consider among blue-chip stocks. Amidst volatility in oil prices, CVX stock has remained sideways in the last one year. With strong fundamentals and cash flows, a breakout on the upside is imminent.
The first reason to like Chevron is an investment grade balance sheet. As of Q2 2023, the company reported a net-debt ratio of 7%. With the company’s assets having an attractive break-even, the cash flows are robust.
To put things into perspective, Chevron reported operating cash flow of $6.3 billion in Q2 2023. This was when oil was trending lower. If oil is in the rage of $80 to $90 per barrel, Chevron will be well positioned to deliver annual OCF of $30 billion.
This provides ample flexibility for robust dividends, share repurchase, and aggressive investments. Chevron is targeting annual capital expenditure in the range of $13 to $15 billion over the next few years.
Newmont Corporation (NEM)
I strongly believe that gold is an attractive asset class for the next few years. With the rate hikes largely done, there is a case for a weaker dollar and uptrend in precious metals. Newmont Mining (NYSE:NEM) is a good proxy for investment in physical gold. NEM stock looks attractive at a forward price-earnings ratio of 18.6.
Newmont has strong fundamentals and a quality asset base. For Q2 2023, the company reported a liquidity buffer of $6.2 billion. Further, a net-debt-to-adjusted-EBITDAX of 0.7 provides high financial flexibility. I believe Newmont is positioned for acquisition driven growth.
However, even with no acquisition, the company has a strong asset base for stable production into the 2040s. The company also expects its all-in-sustaining-cost to decline in the coming years. If gold trends higher, Newmont is positioned for significant cash flow upside.
For Q2 2023, the company reported operating cash flow of $626 million. This already implies an annual OCF potential of $2.5 billion. Newmont is therefore positioned to sustain dividends and create value through share repurchases.
Lockheed Martin (LMT)
As global defense spending continues to swell, Lockheed Martin (NYSE:LMT) is among the best blue-chip stocks to buy. LMT stock trades at a forward P/E of 16.4 and the stock offers an attractive dividend yield of 2.69%.
An obvious reason to like Lockheed is clear revenue visibility. As of Q2 2023, the company reported a record backlog position of $158 billion.
Given the global geopolitical scenario, I expect the backlog to swell further. This will translate into healthy cash flows and Lockheed has guided for free cash flow of $6.2 billion for 2023.
Another reason to like Lockheed is return to growth. For Q2 2023, the company reported revenue of $16.7 billion, which was higher by 8% on a year-on-year basis. With revenue and earnings growth likely to sustain, LMT stock is due for re-rating.
Lockheed has been investing in innovation, which will ensure long-term growth. The company has been investing in next-generation defense technology like hypersonics. Recently, the company was selected to develop nuclear-powered spacecraft.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
