Two Blue Chips with Excellent Upside

September 15th, 2014 by Mitchell Clark, B.Comm.
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Two Blue Chips with Excellent Upside

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There’s good resilience to this market. On most days, the NASDAQ Composite is still beating both the S&P 500 and Dow Jones Industrial Average comparatively, which is bullish. Lots of stocks are pushing new highs and many seem to be breaking out of their previous near-term trends.

NIKE, Inc. (NKE) is a large-cap, dividend-paying company that I view as attractive for long-term investors.

The stock has been in consolidation, trading range-bound since the beginning of the year but is finally breaking out and pushing through the $80.00-per-share level.

This position went up tremendously last year and has been due for a break. The company has experienced solid revenue and earnings growth over the last several quarters.

The stock’s reacceleration looks meaningful, and I suspect the position is in for a new uptrend.

The other company that I feel is a good example of the kind of stock that could make for a great holding in any long-term equity market portfolio is The Walt Disney Company (DIS). (See “Why This Is Still My Favorite Entertainment Stock.”)

I’m not surprised this position is still ticking higher. But it has been moving up very consistently since October of 2011.

The stock just broke the $90.00-per-share level. This time two years ago, the company was trading for $30.00 a share, which is incredible capital appreciation for such a mature large-cap enterprise.

Institutional investors are still buying earnings reliability, and I think this trend will hold right through 2015.

Both NIKE and Disney offer earnings reliability and the fact of the matter is that it’s difficult for any company to generate double-digit growth.

Disney’s been experiencing some solid revenue and earnings growth the last several years. While the company’s media networks business is mature and slow-growth, theme parks and studio entertainment are raking in the profits.

A lot of investors want the latest hot stock or technology share, but you really can do well owning the right large-caps, especially those that pay dividends, as Disney and NIKE well illustrate.

Within a portfolio context, I’d certainly recommend dividend reinvestment as a wealth-creating tool among blue chips.

More shares equal more dividends; it’s a great retirement fund–building strategy in companies like NIKE or Disney, where investment risk is much lower than that of pure-play hot stocks.

Earnings estimates for Disney have been going up across the board for the company’s upcoming quarters, this fiscal year, and next fiscal year.

The company is fully valued, but it has been this way for a number of years now, because it is delivering the goods and institutional investors feel confident owning this business.

As history has proven, the stock isn’t typically down for long. I view a stock like this as attractive on any major price retrenchments.

Blue chips were the breakout stocks in 2013 as the NASDAQ Composite played catch-up. The bull market breakout has matured with better-performing technology issues now, but the right dividend-paying blue chips are still being bid. Trading action for a lot of these stocks remains robust.

 

 

 

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