Investing

8 Blue Chip Stocks to Buy Ahead of Earnings for Big Upside

Jon C. Ogg

Published: July 20, 2020 12:32 pm

Last Updated: July 20, 2020 12:56 pm

On top of a resurging pandemic and a recession, most investors have been surprised and somewhat baffled that the stock market has been able to rally so much. The market cannot price in the outcome of the coming presidential and congressional elections yet, but it already is discounting that some form of a vaccine or a treatment for the coronavirus is on the way.

As earnings season kicks off, many investors feel like they have missed the boat and that many of the key stocks in the market have simply gotten away from them due to how much they have rallied from the panic-selling lows seen in March. Some key stocks are now even above their consensus targets. It turns out that those fears of key stocks being overvalued are perhaps misguided, according to some key analysts on Wall Street. Many recent analyst upgrades are even directly recommending buying shares of key blue chips ahead of the imminent earnings announcements in July and the start of August.

While traditional blue chips were considered to be Dow Jones industrial stocks, currently more than 60 U.S.-based stocks have a $100 billion market cap or higher. Another 20 or so either used to have a $100 billion market cap or are now contenders to become mega-cap stocks.

In recent days, eight key analyst calls that have stood out with major Buy and Outperform ratings that come with more than the 8% traditional total return implied upside from major research firms. These analyst calls are largely ahead of major earnings releases. Consensus target prices and other valuation data is from Refinitiv.

While no analyst call should be used as a sole reason to buy or sell a stock, investors are looking for fresh ideas about how to be positioned going into what will be a challenging earnings season, ahead of the election and as 2021 comes closer.

Amgen

Though Amgen Inc. (NASDAQ: AMGN) may not be a Dow stock as a traditional blue chip, its $150 billion market cap makes it the largest of all legacy biotech stocks. Amgen’s drugs are steady, and its shares are now close to an all-time high. It also still comes with a 2.5% dividend yield, and the company is ready to return even more capital to shareholders over the coming years. Credit Suisse reiterated Amgen as Outperform and raised its price target to $290 from $252 on Monday.

Amgen was last seen trading at $260.93, and it has a consensus target price of $256.08. Its 52-week trading range is $173.12 to $264.97.

Apple

Needham reiterated Apple Inc. (NASDAQ: AAPL) as Buy and raised its target price to $450 from $350 last week, but this follows many major upgrades and even a recent $450 price target with a much higher $525 “bull case” from Wedbush Securities. Apple had some supply chain issues earlier in the year, and it recently has begun closing stores where the coronavirus has been spreading rapidly again.

It turns out that not even a pandemic will slow iPhone demand, and the upcoming iPhone 12 for 5G is being priced-in as that upgrade super-cycle for which analysts and investors have been looking. Amazingly, this is now close to a $400 stock. Even the most cautious analyst out there is still positive on the coming 5G wave.

Apple stock recently traded at $389.17, in a 52-week range of $192.58 to $399.82. The consensus price target is $367.37, but this was under $350 just over a week ago.

Boeing

Boeing Co. (NYSE: BA) may seem risky as hell in a recession and at a time where airlines around the globe are looking to fire pilots and workers rather than buying airplanes. Despite airplane order cancellations out the you-know-what, it seems that investors do not even care that the 737 Max issues remain in place while it is running out of room to keep them anywhere.

Goldman Sachs recently touted Boeing as a top aerospace and defense stock, and its implied upside is nearly 40% at that firm. The call even telegraphs a belief that Boeing will be able to communicate greater visibility and confidence in all its key issues along with earnings, despite this earnings report expecting to be an outright disaster compared to prior years.

Boeing stock was last seen at $173.51, with a 52-week range of $89.00 to $391.00. Analysts have a consensus price target of $177.86.

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A top Dow component, Johnson & Johnson (NYSE: JNJ) has been owned by defensive and income investors alike. This health care company already has reported earnings, and firms are still positive for its stance among other defensive stocks. And it has a 2.7% dividend yield.

The company’s business has been held back somewhat because of fewer medical procedures during the COVID-19 pandemic. That said, Johnson & Johnson has a solid drug and consumer products business. It also has a role and ambitions in wanting to be a vaccine maker for COVID-19. A firm called Independent Research raised it to Buy from Hold with a $164 target price. While this is new coverage, it is nowhere close to the street-high target of $182.

Johnson & Johnson was last seen trading at $149.88 and it has a consensus target price of $166.06. Its 52-week trading range is $109.16 to $157.00.

Kraft Heinz

Kraft Heinz Co. (NYSE: KHC) is a former Dow stock, and it remains a thorn in the side of Warren Buffett and Berkshire Hathaway Inc. (NYSE: BRK-B). Yet, it turns out that with so many people staying at home to eat now, and with consumers’ wallets feeling a serious pinch in the recession, Kraft-Heinz is popular again and its foods are in demand, despite so many years of consumers shifting to organic and natural foods.

Just last week, Deutsche Bank raised the food giant’s stock from Hold to Buy with a $38 price objective. That target price is handily above the consensus and not that much lower than the $40 street-high target. The Deutsche Bank target implied almost 20% upside at the time, but its shares have rallied since then. Kraft-Heinz has been proving a chartist call from late June quite handily.

Kraft Heinz stock was trading at $34.19 and has a 52-week range of $19.99 to $35.19. The consensus price target is $32.47.

Microsoft

Microsoft Corp. (NASDAQ: MSFT) has a lot of wins in its cloud business and with more people needing to use desktop and laptop computers in the stay-at-home market. Its flagship Azure and Office 365 franchise has been called out for big gains for a multiyear trend. Its dividend is now just 1% because its stock has outperformed the broad market so much.

Wedbush reiterated its Outperform rating and recently raised its price target up to $260, with a so-called bull case of $300. That represents more than 26% in implied upside. On Monday, Barclays reiterated it as Overweight and raised its target price to $234 from $205.

Microsoft stock was trading at $207.74, in a 52-week range of $130.78 to $216.38. Analysts have a consensus price target of $212.03.

Starbucks

While Starbucks Corp. (NASDAQ: SBUX) may not be a Dow stock, its $86 billion market cap is far less than the mega-cap status it used to hold before the pandemic. Starbucks is one of those destinations people are still frequenting, and it will be just as popular as it used to be once a vaccine or better treatment for COVID-19 is available. Starbucks was started as Overweight with a $92 price target at Wells Fargo. That represents almost 25% upside from the recent $74.00 share price. The shares have fallen enough now that its dividend yield is 2.2%.

Starbucks was last seen trading at $73.90, and it has a consensus target price of $79.88. Its 52-week trading range is $50.02 to $99.72.

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Walmart

Walmart Inc. (NYSE: WMT) has been in the news a lot lately. With a sale of its stake in a U.K.-based grocer looking set and with an effort to go directly after Amazon’s turf, Walmart’s position in the future is set. It also has more than proven itself to be an essential business and is the number-one brick-and-mortar retailer in the world. The retail giant can even withstand the threat of dollar store challenges. Morgan Stanley just reiterated its Overweight rating and raised its price target from $140 to $150, a tie on the street-high analyst target.

Walmart stock recently traded at $131.72, in a 52-week range of $102.00 to $134.13. The consensus price target is $135.93.

A Runner-Up

Amazon.com Inc. (NASDAQ: AMZN) is mentioned here as a runner-up blue chip, even though it is not a Dow member and pays no dividend at all. The thing that Amazon has proven is that it is an outright winner from COVID-19, and its role in the destruction of traditional retail was bumped up by a decade because of the pandemic. There were three analyst target hikes on Monday alone, but those followed many other recent target hikes.

Amazon was last seen at $3,110.50, after having fallen back under $3,100 just last week after five straight days of selling. It has a 52-week range of $1,626.03 to $3,344.29, and analysts have a consensus price target of $2,930.30.