7 Top Blue Chip Buys With Booming Earnings

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 |  Includes: AA, CAT, CVX, DD, DIS, JPM, XOM
by: David Alton Clark

The following Blue Chip stocks have the highest EPS growth rates in the Dow over the current fiscal year, great stories and positive catalysts for future growth. Blue Chip stocks are seen as a less volatile investment than owning shares in companies without blue chip status because blue chips have an institutional status in the economy. Investors may buy blue chip companies to provide solid growth in their portfolios. The stock price of a blue chip usually closely follows the S&P 500. A Blue Chip stock is a nationally recognized, well-established and financially sound company. Blue Chips generally sell high-quality, widely accepted products and services. Blue Chip companies are known to weather downturns and operate profitably in the face of adverse economic conditions, which helps to contribute to their long record of stable and reliable growth.

Regarding EPS, the earnings per share of a company is conceivably the most important statistic to understand before investing in a company’s stock. Each time you consider starting a position in a stock, you should prudently scrutinize its earnings information. The reason earnings are so vital to investors is because they tell you about the relative profitability of a company. Earnings per share is defined as the net income of a company divided by the shares of common stock outstanding. With the EPS measure, you are looking at the amount of money left over for shareholders. The value is reported after taxes are subtracted, and we are normalizing those profits by stating them on a per-share basis.

When a company is profitable, and has money to give back to shareholders in the form of earnings, the company has two basic options. It can distribute some of the earnings in the form of a stock dividend. Factor this in with the fact that historically, dividend-paying stocks have outperformed non-dividend-paying stocks, and you have a recipe for outstanding returns. After the precipitous drop in the Dow in 2008, the high-dividend-payers were the first to recover. Whatever is not paid out in the form of dividends is placed into the retained earnings, which then become a source of capital that can be used to help support the growth of a company.

These are bullish indicators regarding a stock's possible future performance. Moreover, most of these stocks are trading well below consensus analysts’ estimates and have been severely sold off over the past few weeks creating a buying opportunity. Several have recent upgrades and positive analyst comments. Many analysts are predicting a recession going forward. I don’t see it happening. How soon we forget: Just weeks ago you heard nothing of a recession, and now it is assured, according to the crowd. In my experience the crowd is usually wrong.

There may be more volatility in front of us even with the more than 10% drop in the market recently. Nevertheless this may be a good point to start a position in these buying opportunities. As Warren Buffett says, “Look at market fluctuations as your friend rather than your enemy; profit from folly rather than participate in it.”

The seven Blue Chip DOW stocks with the highest EPS growth rates over the current fiscal year are: Exxon Mobil Corporation (NYSE:XOM), Chevron Corporation (NYSE:CVX), JPMorgan Chase & Co. (NYSE:JPM), Walt Disney Co. (NYSE:DIS), Caterpillar Inc. (NYSE:CAT), EI DuPont de Nemours & Co. (NYSE:DD) and Alcoa, Inc. (NYSE:AA).

Below are two tables with detailed statistics regarding each company’s current summary information, earnings per share and dividend information, followed by a brief review of each company, detailed current analysts' estimates and up/downgrade activity, followed by a chart of the company's key statistics. Please use this as a starting point for your own due diligence.

Summary Statistics

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Earnings and Dividend Statistics

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Company Reviews

Exxon Mobil Corporation engages in the exploration, production, transportation and sale of crude oil and natural gas. It also involves in the manufacture, transportation and sale of petroleum products. The company is trading below analysts' estimates. Exxon has a median price target of $94.25 by 16 brokers and a high target of $105. The last up/downgrade activity was on Jan 14, 2011, when Standpoint Research downgraded the company from Buy to Hold.

Chevron Corporation, through its subsidiaries, engages in petroleum, chemicals, mining, power generation, and energy operations worldwide. It operates in two segments, Upstream and Downstream. The company is trading below analyst’s estimates. Chevron has a median price target of $121 by 19 brokers and a high target of $137. The last up/downgrade activity was on Aug 15, 2011, when Standpoint Research upgraded the company from Hold to Accumulate.

General Electric Co. operates as a technology, media, and financial services company worldwide. The company is trading significantly below analysts' estimates. General Electric has a median price target of $23 by 14 brokers and a high target of $30. The last up/downgrade activity was on Jan 28, 2011, when Argus upgraded the company from Hold to Buy.

JPMorgan Chase & Co., a financial holding company, provides various financial services worldwide. The company is trading significantly below analysts' estimates. JPMorgan has a median price target of $54 by 29 brokers and a high target of $62. The last up/downgrade activity was on May 20, 2011, when Stifel Nicolaus initiated coverage on the company with a Hold rating.

The Walt Disney Company, together with its subsidiaries, operates as an entertainment company worldwide. The company is trading significantly below analysts' estimates. Walt Disney has a median price target of $43 by 23 brokers and a high target of $56. The last up/downgrade activity was on Aug 10, 2011, when Wunderlich downgraded the company from Buy to Hold.

Caterpillar manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives worldwide. The company is trading below analysts’ estimates. Caterpillar has a median price target of $135 by 15 brokers and a high target of $158. The last up/downgrade activity was on Jun 16, 2010, when Jefferies initiated coverage on the company with a Buy rating.

DuPont operates as a science and technology company worldwide. It operates in seven segments: Agriculture & Nutrition, Electronics & Communications, Performance Chemicals, Performance Coatings, Performance Materials, Safety & Protection, and Pharmaceuticals. The company is trading below analysts' estimates. DuPont has a median price target of $64 by 11 brokers and a high target of $70. The last up/downgrade activity was on July 27, 2010, when BB&T Capital Markets upgraded the company from Hold to Buy.

Alcoa, Inc. engages in the production and management of aluminum, fabricated aluminum, and alumina. The company operates in four segments: Alumina, Primary Metals, Flat-Rolled Products, and Engineered Products and Solutions. The company is trading below analysts' estimates. Alcoa has a median price target of $20 by 11 brokers and a high target of $28.10. The last up/downgrade activity was on Aug 12, 2011, when BMO Capital Markets upgraded the company from Underperform to Market Perform.



Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in XOM, CVX, AA, DD, JPM, GE, CAT over the next 72 hours.