Three All-Weather Blue-Chips for Stability

 | Jan 08, 2013 | 9:30 AM EST
  • Comment
  • Print Print
  • Print
Stock quotes in this article:






Readers might recall that we have been advocates of a barbell equity strategy, balancing growth-oriented undervalued situations with all-weather, dividend-oriented blue chips. As we start the year, we believe that 2013 should be another solid year for stocks. Nevertheless, because we expect some bumps along the road and continued volatility, the barbell strategy still makes great sense, especially after the strong start to the year for some of the more economically sensitive businesses. 

While these all-weather names have not had the same kind of relief rally that the more economically sensitive stocks have enjoyed so far this year, they too are beneficiaries of the tax agreement, especially since the new dividend tax is much less punitive than many had feared. As such, we believe these all-weather stocks will be an important part of balancing a portfolio for the volatility that the current earnings season, the debt-ceiling battle and other macro issues might bring, and they should provide some healthy income and appreciation this year.

Three iconic companies that have good and growing income streams, improving prospects, sell at reasonable valuations and lagged the market over the past year are Coca-Cola (KO), PepsiCo (PEP) and Procter & Gamble (PG). We believe that all three are due for a catch-up and should provide good balance and stability for investors' portfolios this year.

Coca-Cola continues to generate steady revenue, earnings and market-share growth through its ongoing expansion into emerging markets and new product categories. Case volumes have steadily grown 5% to 9% per year in India, China, Brazil, Africa and Eastern Europe. The stock trades slightly below its long-term valuation multiple at 17x earnings, with a below-market beta of .60 and a 2.7% dividend yield. Coke should generate a steady return in 2013 with below-market volatility.

In the past few quarters, PepsiCo has surprised investors with its steady revenue and earnings growth, growing out of a broad cost-restructuring program and expansion into emerging markets. Management has cut more than $500 million in costs and reinvested the money into new products, advertising campaigns and distribution strategies, which have provided incremental revenue and earnings growth.

The company also continues to benefit from continued emerging-market expansion into Asia, Africa and Latin America. The stock trades slightly below its long-term valuation multiple at 15.9x earnings, with a below market beta of .60 and a 3.1% dividend yield. PepsiCo should also generate a steady return for investors in 2013 with below-market volatility.

Finally, Procter & Gamble should be a steady rudder in 2013, given its continued emerging-market penetration, portfolio pruning and restructuring activities. Management has had to work harder than its peers over the past year to reduce costs and re-price key product lines. However, it should be rewarded for its efforts, as its turnaround strategies should enhance earnings in 2013. The company is also benefiting from robust emerging-market growth rates. The stock trades slightly below its long-term valuation multiple at 17.4x earnings, with a below-market beta of .60 and a 3.3% dividend yield. Procter & Gamble should generate steady returns with below-market volatility this year.

Again, these recommendations are not designed for "lights out" results. Rather, they should produce attractive returns, while muting some of the market swings that we expect this year.

Columnist Conversations

Now that AAPL has violated the shorter term support, these are the two areas I have to consider for new buy en...
The symmetry is holding up in MCD.  Target 1 is 163.34 if we continue to hold above here!  ...
As far as TSLA is concerned, I still have a higher target above the market at the 409 area.  I stated in ...
The TLT setup discussed in my last commentary is a bust. Key support was violated and it violated the recent l...



News Breaks

Powered by


Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.