A lot of great blue-chip stocks are on sale right now. Several American names that have long track records of out-performance are down this year and presenting attractive entry points to investors.
Best of all, many of these blue-chip stocks are of quality companies that have continued to produce strong financial results and whose share prices are down because of issues beyond their control, many of which look to be temporary.
Some of these beaten down stocks also have catalysts forming that could reignite their share price in the coming months, whether management changes, rebranding strategies, or acquisitions.
Now is a great time to bet on some well-known blue-chip stocks that look to be getting up off the mat after being knocked down over the last 12 to 18 months.
Here are seven blue-chip stocks primed for a breakout.
Adobe (ADBE)
Adobe (NASDAQ:ADBE) is one of the blue-chip stocks that just had a nice print. The software company behind popular creative products such as Illustrator and Photoshop beat Wall Street forecasts across the board, announcing a profit of $4.09 per share versus $3.98 that analysts had expected.
Revenue came in at $4.89 billion, up 10% from a year earlier and ahead of consensus forecasts of $4.87 billion. The strong results led to a slew of analyst upgrades on ADBE stock, including from Goldman Sachs (NYSE:GS), which lifted its price target to $625 a share, nearly 20% higher than current levels.
They issued the latest earnings days after introducing a new suite of generative artificial intelligence products. The company announced new AI tools and enhancements for consumer use that build on its “Firefly” suite of AI tools that includes a popular text-to-image feature.
The company said that, so far in 2023, its customers have produced more than two billion images using its AI products.
Looking ahead, Adobe raised its forward guidance, forecasting revenue of $4.975 billion to $5.025 billion and profits of $4.10 to $4.15 per share for the current third quarter. ADBE stock is up 57% year to date and has gained 103% over five years.
Netflix (NFLX)
Shares of streaming giant Netflix (NASDAQ:NFLX) have fallen 10% in the last five trading sessions, making it one of the blue-chip stocks with a buy-the-dip opportunity.
NFLX stock is now trading over 20% below the median price forecast among 37 analysts who cover the company, most whom maintain a “buy” rating on the shares.
The latest pullback comes as the strike by Hollywood writers and actors drags on, and follows comments made by Netflix Chief Financial Officer Spencer Neumann at a recent conference.
Speaking to a crowd in New York City that included media, Neumann lowered the guidance on the company’s operating margins and warned investors that Netflix’s new advertising tiers are not yet material to overall revenue.
Neumann said Netflix is now forecasting operating margins in the 18% to 20% range, below the current consensus estimate of 22%. He added that while Netflix continues to develop video games and lifestyle sports programming, the company has no plans to acquire the rights to live sporting events such as NFL football.
Clearly none of this is what analysts and investors wanted to hear. However, even with the current selloff, NFLX stock is still up 63% over the last 12 months and likely to breakout again once the Hollywood strike ends and film and television production restarts.
Walt Disney Co. (DIS)
While it is usually one of the more reliable blue-chip stocks, Walt Disney Co. (NYSE:DIS) is a mess right now.
In late August, the stock fell to its lowest level in nine years as sentiment towards the Mouse House turns increasingly bearish.
Disney issued mixed second-quarter financial results and investors appear skeptical of CEO Bob Iger’s turnaround plans. Those plans have included price hikes across the company’s streaming services and aggressive cost cuts that have resulted in thousands of employee layoffs.
However, there are signs that Disney is trying to take a different approach now to get its share price moving in the right direction again.
Rumors are flying that Disney is in talks to sell its television assets that include the ABC network and National Geographic specialty channel for as much as $10 billion. While they haven’t announced a deal, reports that Disney is considering offloading its legacy media properties that have become a drag on earnings is encouraging.
Disney bought ABC for $19 billion in 1995. Today it’s worth less than half that amount.
Many analysts are also calling for Disney to sell its specialty sports network ESPN, which could fetch more than $50 billion through a sale. They have made no announcement on ESPN either, but those types of sales could be the spark needed to get DIS stock rising again.
There are also rumors the company will reinstate the dividend it cut during the pandemic. Disney’s share price is down 23% over the last five years.
Starbucks (SBUX)
Don’t count out coffee chain Starbucks (NASDAQ:SBUX) when you’re looking for blue-chip stocks to buy.
New management and a reinvention of the coffee brand could breathe new life into SBUX stock, which is down 5% this year and ready for a rally.
The latest news from Starbucks is that Howard Schultz, who ran the company on multiple occasions over the last 40 years, has once again retired and is stepping down from the coffee chain’s board of directors. However, Schultz has left the company in good shape and well-positioned for the future.
In March of this year, Schultz stepped aside as Starbucks CEO and handed the reins of the company to Laxman Narasimhan, who has been busy putting his own team in place.
During his latest stint as CEO, which was his third, Schultz successfully battled efforts by Starbucks employees to unionize and launched a rebrand of the coffee and its retail store locations.
Today, Starbucks is a global coffee giant with more than 36,000 stores worldwide and annual sales of more than $30 billion.
Schultz is being replaced on Starbucks’ board of directors by Wei Zhang, who was recently a senior advisor to Alibaba Group (NYSE:BABA), which should help the company with its strategy in China, one of its biggest international markets.
SBUX stock is up 68% over the last five years.
J.M. Smucker Co. (SJM)
Now might be the time to take a gamble on J.M. Smucker (NYSE:SJM) as the food and beverage company moves to buy Hostess Brands (NASDAQ:TWNK) for $5.6 billion.
To be sure, SJM stock has been in the doldrums for a long time now. The company’s share price is down 20% this year and is only up 15% through five years. However, Twinkies and Ding Dongs could be just the thing to turnaround J.M. Smucker, a company that has been around since 1897 and is today best known for making jams and Jif peanut butter.
Hostess has been a going concern since 1930 and makes several iconic snack cakes that also include Ho-Hos and Zingers.
Despite its brands, Hostess has filed for bankruptcy twice in the past, in 2004 and again in 2012, because of high debt levels. The J.M Smucker acquisition excludes Hostess’ net debt of $900 million, according to the companies. Analysts appear to be taking a wait-and-see approach to the takeover, though some have said that Hostess brands should complement J.M. Smucker, which also makes coffee and pet food.
Home Depot (HD)
If interest rates are close to peaking, as many economists suspect, and likely to be cut next year, that could spur a rebound in the housing market, which would be good for the stock of Home Depot (NYSE:HD).
The housing market is in a funk right now with the average interest rate charged on a mortgage sitting at 7%. But that could change should rates start coming down in 2024. And HD stock would be a smart way to play a resurgence in the housing market.
The company’s shares are only up 2% this year and look like a bargain right now.
Home Depot announced Q2 financial results that beat Wall Street expectations on both the top and bottom lines. The company reported earnings per share (EPS) of $4.65 versus $4.45 that was expected among analysts.
Revenue in the April through June period totaled $42.92 billion compared to $42.23 billion that had been forecast. However, Home Depot maintained muted guidance for the rest of this year, saying it still expects comparable sales to decline between 2% and 5% from 2022 levels.
That glum outlook could soon change as interest rates move in the opposite direction. In the meantime, Home Depot announced as part of its Q2 earnings a new $15 billion share buyback program that takes effect immediately. HD stock is up 51% over the last five years.
Goldman Sachs (GS)
Investment bank Goldman Sachs is another blue-chip name whose stock has fallen on hard times.
The once high-flying name has seen its share price decline 1% this year, lowering its five-year gains to 45%. While disappointing, there are signs that the tide might turn at Goldman Sachs and the stock could soon stage a breakout and return to its former glory.
The first catalyst is a series of recent executive changes announced at the bank by CEO David Solomon following several media articles critical of his management style.
Goldman announced that Ericka Leslie is stepping down as its chief administrative officer to become chief operating officer of the global banking and markets division, which houses the firm’s investment banking and trading operations.
Will Bousquett, who previously ran global banking, will become chief operating officer of the bank’s asset and wealth management unit. The leadership changes come after two veterans of the bank, Julian Salisbury and Dina Powell McCormick, left Goldman Sachs during the summer.
Besides the management shake-up, another catalyst appearing on the horizon for Goldman Sachs is the resumption of initial public offerings.
In the last week, Goldman was involved in the blockbuster IPO of British microchip designer Arm Holdings (NASDAQ:ARM), which was the largest deal of the year so far.
Next up, online grocery retailer Instacart should go public at a $10 billion valuation.
Shoemaker Birkenstock has announced plans to also go public this fall, raising hopes that the IPO market is storming back. This would be great for Goldman Sachs, which makes most its revenue from deals and trading.
— Joel Baglole
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Source: Investor Place