By any measure, the eight-and-a-half-year-old bull market is getting tired, and after one of the biggest percentage runs in stock market history, it may be time for investors to move to higher ground. The problem for many is that a move to assets like corporate bonds hardly makes sense with the lowest yields in 60 years, and 30-year Treasury bonds are yielding less than 3%. One good idea may be to shift to blue chip stocks that are either out of favor or missed on an earnings report and got hit.
With earnings-per-share expectations being eclipsed by the gains on the S&P 500, the current forward price-to-earnings for the index stands at 17 times. That is 14% above the average PE, and hardly lends itself to allowing a huge amount of upside. We screened our 24/7 Wall St. research database for blue chips stocks rated Buy, with a 3% or better dividend, and found five that make good sense now.
This top mega-cap technology stock pick at Jefferies makes good sense for investors seeking tech exposure. Cisco Systems Inc. (NASDAQ: CSCO) designs, manufactures and sells internet protocol (IP) based networking products and services related to the communications and information technology industry worldwide.
It provides switching products, including fixed-configuration and modular switches, and storage products that provide connectivity to end users, workstations, IP phones, wireless access points and servers, as well as next-generation network routing products that interconnect public and private wireline and mobile networks for mobile, data, voice and video applications.
Wall Street likes the company’s stellar balance sheet, and the ability for the company’s gross margins to move close to the 65% range on a consistent basis as it moves away from the legacy products sold for switching and routing. Cisco is another company that could benefit from the tax on overseas money being lowered as it has a whopping $70 billion in cash, 90% of which is overseas.
With all the positives for the stock, Jefferies analysts did note this cautionary issue in a recent report:
We continue to believe the company understates the size of the revenue headwind associated with the move to subscription. We do acknowledge that the headwinds from the move to subscription will act as an overhang on shares. Execution remains key, but we believe Cisco’s expectations as it relates to federal spending may prove conservative. Shares currently trade at 10 times our base business, ex-cash, current year 2018 earnings-per-share and we continue to believe shares can re-rate.
Shareholders receive a 3.65% dividend. The Jefferies price target for the stock is $37. The Wall Street consensus target is $35.55. Shares closed last Friday at $31.84.
This iconic blue chip industrial has been a laggard and is offering a solid entry point. General Electric Co. (NYSE: GE) is a highly diversified, global industrial corporation. Its businesses are organized broadly under six segments: GE Capital, Energy Infrastructure, Aviation, Healthcare, Transportation and Home & Business Solutions. Its products and services include power generation equipment, aircraft engines, locomotives, medical equipment, appliances, commercial leasing and personal finance.
The company recently announced a huge deal to combine GE’s Oil & Gas business and Baker Hughes to create a leader in oil and gas equipment, technology and services with $32 billion in revenue. The analysts feel the new company can leverage GE’s digital and technology expertise and the domain knowledge, capabilities and presence of Baker Hughes in oilfield services.
GE investors receive a 3.71% dividend. The stock is rated Buy at UBS, which has a price objective of $35. The consensus price target is $30.54. Shares closed Friday at $25.91.