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2 blue-chip shares to buy in May!

Jabran Khan — Fri, 29 Apr 2022 15:21:00 +0000

Blue-chip shares are the largest and most reputable, mature and financially sound companies. These firms are usually leaders in their respective industries and have an established track record of success and performance. In addition to this, they are usually included in a recognised index. In the UK, companies that are part of the FTSE 100 are often referred to as blue-chip shares.

It is worth noting that while all these stocks are large caps, not all large-cap stocks are blue-chips. The constituents of the FTSE 100 change on a quarterly basis.

Here are two blue-chip stocks I’d add to my holdings.

Stock #1

Consumer goods giant Unilever (LSE:ULVR) has a powerhouse portfolio of brands that span food and drink, home care, and beauty, and it has a worldwide reach.

As I write, Uniliever shares are trading for 3,717p. At this time last year, the shares were trading for 4,231p, which is a 12% drop over a 12-month period of time. The shares look good value for money currently, on a price-to-earnings ratio of 17. This is slightly above the FTSE 100 average of 15, but paying a premium for a top-quality company with sound fundamentals is a no-brainer for me.

Unilever has an excellent track record of performance. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see that revenue and gross profit have been consistently £50bn and £22bn for the past four years.

Another aspect I like about Unilever is that it is a dividend stock that would boost my passive income stream. The shares currently offer a dividend yield of just over 4%. This is very close to the FTSE 100 average yield of between 3% and 4%. Unilever has paid a consistent dividend since 1990!

The bad news? Even blue-chip shares have risks. Recent macroeconomic headwinds could have a material impact on sales, revenue, and profit. Soaring inflation and rising cost of raw materials could impact all these aspects. This could affect the bottom line and investor payout.

Stock #2

Diageo (LSE:DGE) is one of the biggest alcoholic drinks companies in the world with a brand portfolio including Johnnie Walker, Smirnoff, and Guinness. It operates in 180 countries with North America being its largest region, accounting for most of its sales.

Alcohol giants are often regarded as resilient businesses because people will choose to drink whether they are celebrating or drowning their sorrows.

Diageo shares are currently up 23% over a 12-month period. Currently trading for 4,007p, they were trading for 3,251p at this time last year.

The bad news is that Diageo shares are trading close to all-time highs. This means any bad news or trading issues could send the shares tumbling. Diageo also currently faces macroeconomic headwinds such as increased costs that could affect performance and investor payout.

Diageo also has a good track record of performance and paying a dividend. Looking back, I can see revenue has hit the £12bn mark for three of the past four years. In 2020, revenue dropped just below this mark due to the pandemic. Diageo’s dividend yield currently stands at 2%. This may not be the highest among blue-chip shares, however, it has a good record of consistently paying and increasing dividends.

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Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Diageo and Unilever. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

3 blue-chip shares I’d buy in May

John Choong — Tue, 26 Apr 2022 14:56:00 +0000

Blue-chip shares refer to companies that have mature operations, stable performance, and healthy balance sheets. This usually brings their shares steady growth without too many downside risks. So, here are three blue-chip shares I’d buy in May.

Going b(A)ck to (B)asi(C)s

Google’s parent company, Alphabet (NASDAQ: GOOGL) is one blue-chip that cannot be ignored. The conglomerate has a track record of beating the S&P 500, and produces stellar returns with a 30.2% return on equity. Alphabet earns the bulk of its revenue from advertising and search.

Its cloud segment is also starting to gain momentum as it races towards profitability. Given the firm’s dominance in these rather monopolistic industries, I believe Alphabet has what it takes to continue growing while holding a defensive position in my portfolio.

The blue-chip boasts an extraordinary balance sheet with close to zero debt and huge sums of cash. Its profit margins are that of a mining company, currently standing at close to 30%. With such an excellent track record and a forward price-to-earnings (P/E) ratio of 22, I’ll definitely be buying more shares. Although this evening’s earnings report could disappoint, I’m confident in Alphabet’s ability to generate long-term returns.

Dune forget Dunelm

One of Britain’s biggest homeware retailers, Dunelm (LSE: DNLM) has been largely overlooked since Covid restrictions were lifted. Many thought that the stock would dip as consumers opt to spend money outside of their homes. However, the blue-chip continues to impress. Its most recent earnings report showed a a 25% increase in its earnings, and total sales were up 10.6% year over year.

Even though recent GDP and retail sales numbers were lacklustre, Dunelm remains strongly positioned. The fine print within the retail sales figures showed that household goods stores saw a 2.6% increase in sales. With Dunelm’s 8.5% increase in active customer growth to go with that, the firm has strong pricing power to battle the inflationary storm. A forward P/E ratio of 13 and a decent dividend yield of 3% makes this stock an intriguing one to look out for, once the next set of retail sales data is released.

A saucy dip for this blue-chip

Rio Tinto (LSE: RIO) is one of the world’s largest iron ore miners. Its share price has taken a tumble due to recent disappointing Q1 production numbers and lockdowns in China. While I do expect the share price to continue dipping, I reckon there may be a buying opportunity sometime in May and beyond.

Mining companies are notorious for, “Using windfalls to dig more materials out of the ground. And the opposite is true when prices hit rock bottom. Production is reigned in and cash is conserved. These are the supply forces that self-regulate commodity cycles”, as FreeTrade analyst Paul Allison states.

Therefore, the blue-chip will eventually have an influx of demand for iron again, driving iron prices back up. This should happen once China eases its Covid restrictions. Buying shares before this occurs could possibly see my portfolio getting a bumper gain. Moreover, a 10% dividend yield could see me earning a little bit of passive income while waiting for iron ore prices to climb.

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John Choong owns shares of Alphabet (Class A Shares) at the time of writing. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares) and Alphabet (C shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.