These stocks covered in this article are blue chip large cap or better stocks. 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 coupled with the start of the summer doldrums may cause a selloff in stocks. 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. Furthermore we will attempt to discern the significant catalysts for the stocks going forward. The following table depicts summary statistics and Monday's performance for the stocks.
Bank of America Corporation (BAC)
The company is trading 10% below its 52-week high and has 10% potential upside based on a consensus mean target price of $12.95 for the company. BAC was trading Monday at $11.72, up almost 1% for the day.
Fundamentally, BAC has several positives. The company has a forward P/E of 9.09. BAC has an improving net profit margin of 7.28%. BAC is trading for price to book ratio of approximately 58%. Insider ownership is up by 33% over the last six months. EPS next year is expected to rise by 33% and the company pays a dividend with a yield of .34%.
Technically, BAC is showing signs of weakness but recently moved upwards. The stock just bounced back after selling off 8% which is positive. The stock has been in a solid uptrend since mid-July prior to the recent trend break.
I posit the recent pullback based on the earnings miss was healthy for the stock. BAC still has considerable upside potential, strong fundamentals and catalysts for growth. BAC still has a fortress balance sheet and strong cash flow providing the opportunity for additional share buybacks and/or dividend increases in the future. You can read the transcript here.
The stock is a solid buy at this level if the U.S. housing market continues to improve. BAC seems poised for solid growth. I see the pullback as a major buying opportunity.
Caterpillar Inc. (CAT)
The company is trading 22% below its 52-week high and has 25% potential upside based on a consensus mean target price of $103.79 for the company. CAT was trading Monday at $82.71, up almost 3% for the day.
Fundamentally, CAT has several positives. The company has a forward P/E of 9.30. CAT has a net profit margin of 8.66%. CAT has a PEG ratio of .70. EPS next year is expected to rise by 16% and the company pays a dividend with a yield of 2.51%.
Technically, CAT has been in a downtrend for most of the year. The stock has fallen to just 8% above its 52 week low. Recently the stock bounced back after reporting earnings.
CAT reported first quarter EPS of $1.31 which misses estimates by $0.07. Revenue of $13.2 billion was down -17% year over year yet beat estimates by $600M. CAT lowered its outlook for 2013. Shares are popping on news CAT will begin a stock repurchase program. You can read the transcript here.
I feel the recent weakness in CAT has been overdone. China will drive CAT higher as global growth improves. The stock is fundamentally sound and I see this as a buy the dip opportunity. The 2.5% dividend yield is icing on the cake.
Intel Corporation (INTC)
The company is trading 20% below its 52-week high and on par with the consensus mean target price of $22.91 for the company. Intel was trading Monday for $22.88, up almost 2% for the day.
Fundamentally, Intel has some positives. The company has a forward P/E of 11.27. Intel pays a dividend with a yield of 3.93%. The company has a net profit margin of 25.29%. The company is trading for slightly over two times book value and has a PEG ratio of 1.06.
Technically, the stock looks solid. The stock recently broke out to the upside of the recent trading range. The pop was due to better than expected earnings results.
INTC shares are up following nearly inline first quarter results. RBC calls the results "better than feared," and is happy with Intel's capital expenditure forecast cut. You can read the transcript here. Intel has the wherewithal to transition into the new age of tech. This thesis was confirmed by INTC maintaining its 2013 guidance in the face of dropping PC sales.
For pure dividend growth and value, you might not find a better deal in the technology sector than Intel. The risk/reward ratio favors longs and the 3.93% dividend yield provides some cover.
Microsoft Corporation (MSFT)
Microsoft is trading 4% below its 52 week high and has 6% potential upside based on a consensus mean target price of $32.67 for the company. Microsoft was trading Monday for $30.38, up nearly 4% for the day.
Microsoft is fundamentally undervalued. The company has a forward PE of 10.04. Microsoft is trading only 13 times free cash flow. Microsoft's ROE is 22.57%. The company pays a dividend with a 2.98% yield. The company's net profit margin is 21.58%.
Technically, Microsoft gapped up significantly and is currently trading for 9% above its 50-day sma. The stock looks poised to fulfill the coveted golden cross.
ValueAct Capital founder Jeffrey Ubben recently stated regarding his company's new $2B stake in MSFT,
"MSFT can flourish in the hybrid cloud world, the software giant's enterprise ops can perform well regardless of how PC sales fare."
Uben compared ValueAct's investment in Microsoft to its investment in Adobe (ADBE), which is successfully migrating its customer base to cloud apps. He posits his thesis will pan out over the next few years.
Microsoft is pulling out all the stops to keep itself in the game. The company recently beat earnings estimates. You can read the transcript here. If you are looking for a solid company for a long-term investment Microsoft fits the bill. I like the stock here.
AT&T, Inc. (T)
The company is trading on par with its 52-week high and 3% above the consensus mean target price of $37.70 for the company. AT&T was trading Monday for $38.73, up over 1% for the day.
Fundamentally, AT&T has some positives. The company has a forward P/E of 14.29. The company has a net profit margin of 5.92%. The company is trading for slightly over two times book value and 22 times free cash flow. EPS is up 40% quarter over quarter. AT&T pays a dividend with a yield of 4.65%.
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 showing signs of being overbought with an RSI of 72.
I like AT&T going into earnings. AT&T may get Samsung's (SSNLF.PK) Galaxy S IV a month before Verizon (VZ) does which is a huge coup. AT&T will start taking pre-orders for the S IV on Tuesday. International pre-order activity appears to be quite strong.
AT&T stated on its 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. This bodes well for AT&T. I like the stock here, yet would definitely layer in.
The Bottom Line
These blue chip stocks have the potential for significant upside going forward. These stocks have solid long-term growth stories and strong fundamentals. Nevertheless, nothing goes up in a straight line. If you choose to start a position in any stock, I suggest scaling to reduce risk. We may be on the cusp of another summer swoon so build your positions slowly. 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.