Investing

5 Blue Chip Stocks in Wall Street's Penalty Box Have Massive Upside Potential

In an overbought and frothy stock market, sometimes the hardest thing for dedicated stock investors to do is to head to the sideline, and with good reason. While the longest peacetime expansion and the corresponding almost 11-year bull market have been outstanding for those who were in the whole time, there is always a chance there is another 5% upside before a blow-off top.

The question is, given all the current financial jitters and with the potential for the coronavirus to explode, what stocks make sense now? Using a somewhat contrarian stance, but acknowledging that it’s always darkest before the dawn, we found five top companies that are rated Buy at major firms, are very well known, and have been tossed into the Wall Street penalty box. Like in the National Hockey League, they will not be let out until the penalty time is served.

While not suitable for very conservative accounts, they all make sense for investors who have a long-term view on the markets and can wait out the current issues in an effort to see some big-time returns.

Boeing

This company has had a public relations nightmare due to the 737 Max issues. Boeing Co. (NYSE: BA) is the world’s leading aerospace company and the largest manufacturer of commercial jetliners and military aircraft combined. It is also one of the most valuable brands in the world.

The different segments in the company are Commercial Airplanes, Boeing Defense, Space & Security and Boeing Capital. The latter provides financial solutions facilitating sale and delivery of Boeing commercial and military aircraft, satellites and launch vehicles.

In 2018, Boeing and Embraer signed a nonbinding memorandum of understanding to create a new strategic partnership for commercial aviation. The new joint venture is valued at $4.75 billion, which values Boeing’s 80% share at $3.8 billion.

With the 737 Max expected to come back into service in the summer, it may still take a couple of months of safe air travel for nervous investors to enjoy the ride again.

Shareholders receive a 2.40% dividend. Jefferies has a $390 price objective on the shares, while the Wall Street consensus target price is $344. Boeing stock closed Thursday at $342.82 a share.

Exxon

This is a safer long-term play for conservative investors, and the energy giant is trading at stunning 10-year lows. Exxon Mobil Corp. (NYSE: XOM) is the world’s largest international integrated oil and gas company. It explores for and produces crude oil and natural gas in the United States, Canada, South America, Europe, Africa and elsewhere.

Exxon also manufactures and markets commodity petrochemicals, including olefins, aromatics, polyethylene and polypropylene plastics, and specialty products, and it transports and sells crude oil, natural gas and petroleum products. Note that Exxon has one of the highest paid American CEOs.

The company reported mixed fourth-quarter results that did have some positive trends, and while earnings came in slightly below estimates, revenues exceeded them. One issue that has kept some pressure on the shares is concerns that the long-standing dividend may be cut. Merrill Lynch doesn’t agree and noted this earlier this week:

Suggestions that Exxon’s dividend is at risk misunderstands a decade long strategy of investing at the low end of the cycle. Its sector leading balance sheet is considered strategic and stands best in class despite any borrowings to fund future growth. The company remains the only major with line of sight for a material expansion in cash/flow and dividend growth through the decade.

The company raised the dividend last year by a nickel per share to $0.87. That translates to a massive 5.71% dividend. The Merrill Lynch price objective is $100, while the consensus price target is just $74.10. Exxon Mobil stock closed at $60.93 on Thursday.