The stocks covered in this article are blue chip S&P 500 large cap or better stocks with dividend yields of 3% or better. AT&T, Inc. (T) has the highest with a yield of 4.98% while Johnson & Johnson (JNJ) has the least, yet still substantial, at 3.08%. See chart below.
Furthermore, these stocks are considered blue chips. A blue chip is a stock in a corporation with a national reputation for quality, reliability and the ability to operate profitably in good times and bad.
There may be an uptick in volatility in front of us with the markets at all-time highs, an impending Washington debt ceiling showdown and a potential debacle in Cyprus looming next week. This may be an ideal time to rotate out of more speculative names and into these blue chip opportunities.
In the following sections, we will perform a review of the fundamental and technical state of each company to determine if this is the right time to start a position. The following table depicts summary statistics and Friday's performance for the stocks.
AT&T pays a dividend with a yield of 4.98%. The company is trading 4% below its 52-week high and on par with the consensus mean target price of $36.54 for the company. AT&T was trading Friday for $36.46, up nearly 1% for the day.
Fundamentally, AT&T has some positives. The company has a forward P/E of 13.34. The company has a net profit margin of 5.92%. The company is trading for slightly over two times book value and 21 times free cash flow. EPS is up 40% quarter over quarter.
Technically, the stock is solid. It has been on a tear since the start of the year. The golden cross was just achieved. The stock is neither overbought nor oversold with an RSI of 60.
AT&T stated on their last earnings call that earnings and revenue would grow this year even if the economy does not improve due to the explosion in Internet enabled mobile devices.
The average mobile user used 201 megabytes of data per month in 2012, more than twice the 92 megabytes per month consumed in 2011. Cisco (CSCO) predicts mobile data traffic will post a 66% CAGR from 2012 to 2017. This bodes well for AT&T. The stock is a buy at the level.
Freeport-McMoRan Copper & Gold Inc. (FCX)
FCX pays a dividend with a yield of 3.79%. The company is trading 23% below its 52-week high and has 22% upside potential based on the consensus mean target price of $40.29 for the company. Freeport was trading Friday for $33.05, up slightly for the day.
Fundamentally, Freeport has several positives. The company has a forward P/E of 6.92. Freeport is trading for 1.7 times book value. EPS is up 16% quarter over quarter. The company has a net profit margin of 22.08% and an ROE of 18%.
Technically, Freeport is in a well-defined downtrend. The stock has fought back to test resistance at the top of the downtrend channel.
I feel the backlash by Freeport's shareholders over the $20 billion buyout deals was overdone. The stock is a buying opportunity here after bouncing off support at $32. This is an ideal time to start a long-term position in Freeport.
General Electric Company (GE)
GE pays a dividend with a yield of 3.26%. The company is trading 2% below its 52-week high and has 7% potential upside based on the consensus mean target price of $25.07 for the company. GE was trading Friday at $23.39, up slightly for the day.
Fundamentally, GE looks undervalued. GE's forward P/E is 12.59. GE's quarter-over-quarter EPS and sales growth rates are 10% and 4%, respectively. GE's net profit margin is 10.11%.
Technically, GE has been in an uptrend since bouncing off a low of $18 in June. Recently, the stock has broken out to the upside after testing the 200-day sma twice in the last quarter. Currently the stock is consolidating just above the 20-day sma.
GE looks poised to take advantage of an upturn in growth in the emerging markets. GE raised its authorized stock buyback to $35 billion and plans to buy back $10 billion worth of shares in 2013. I like the stock here, yet would definitely layer into any position.
McDonald's Corp. (MCD)
MCD pays a dividend with a yield of 3.13%. The company is trading at its 52-week high and has 2% potential upside based on the consensus mean target price of $101 for the company. MCD was trading Friday at $99.39, up almost 1% for the day.
Fundamentally, MCD has some positives. MCD's forward P/E is 15.57. MCD's quarter-over-quarter EPS and sales growth rates are positive. MCD's net profit margin is 20%. ROE is 37%.
Technically, MCD looks solid. The stock has been in a well-defined uptrend since November of last year. The golden cross was achieved in late January. The stock is testing resistance at the top of the long-term uptrend channel.
I love MCD. They are the leaders in their category. MCD is truly the best of breed when it comes to fast food. The company just raised prices across the board, which should underpin the bottom line. MCD is a buy here.
Johnson & Johnson
JNJ pays a dividend with a yield of 3.09%. The company is trading on par with its 52-week high and 2% above the consensus mean target price of $78 for the company. JNJ was trading Friday at $79.63, up almost 1% for the day.
Fundamentally, JNJ has some positives. JNJ's forward P/E is 13.72. JNJ's quarter-over-quarter EPS and sales growth rates are positive. JNJ's net profit margin is 15.64%.
Technically, JNJ has been in an uptrend for the last year. Recently, the stock has broken out to the upside of the current trading range. Nonetheless, the stock is showing signs of being overbought currently with an RSI of 74.
JNJ is a solid buy with increasing EPS and an ROE of 17. Reuters reports,
"JNJ recently announced plans to take on Botox maker Allergan (AGN) and expects to seek U.S. approval next year for an anti-wrinkle drug that could break Botox's 85% market share."
This is big news for the company and bodes well for the stock. I like JNJ here, but would wait for a pullback to start a position.
The Bottom Line
These blue chip stocks have the potential for significant upside in 2013. These stocks have solid long-term growth stories. These facts coupled with the Fed's announcement that the QE program will continue leads me to believe these stocks are set for solid growth throughout 2013.
Nevertheless, nothing goes up in a straight line. If you choose to start a position in any stock, I suggest scaling to reduce risk. Furthermore, always remember to have a well-balance diversified portfolio containing several different asset classes to reduce risk.
Additional disclosure: This is not an endorsement to buy or sell securities. Investing in securities carries with it very high risks. The information contained within this article is for informational purposes only and is subject to change at any time. Do your own due diligence and consult with a licensed professional before making any investment.