Blue Chips at Fire Sale Prices

02/02/2016 8:00 am EST


Bret Jensen

Editor, Biotech Gems

I am not ready to go whole hog in buying the recent dip in the market but I am incrementally adding to some core recommendations, asserts Bret Jensen in Investor’s Alley.

I am primarily sticking with large-cap positions with cheap valuations, good balance sheets, and substantial dividend yields. Here are a few of these positions I think are safe and prudent to add to at the moment.

These four safe blue chips are trading at fire sale prices, with strong balance sheets, little exposure to the current market malaise, and substantial dividends; these are four smart buys to add to your portfolio.

JP Morgan Chase (JPM) reported better than expected quarterly results, beating both top and bottom line expectations. The bank continues to be considered among the best-run major financial institutions with top-flight risk management.

It should also benefit if interest rates do rise later in the year; this will improve the bank’s net interest rate margins, a key driver of profit. The shares are cheap at under 10 times 2015’s earnings and the stock also provides a 3% dividend yield.

Expect dividend payouts to increase significantly over the coming years as regulators loosen their reins now that capital ratios have been bolstered to meet new policies.

General Motors (GM) is cheap by any measure if one believes the US will avoid a recession. The company recently boosted earnings guidance to $5.25 to $5.75 a share in 2016.

GM also added $4 billion to its existing $5 billion stock buyback authorization. This would retire almost 20% of the outstanding float.

GM also bumped up its dividend payout and now yields 5%. Given that this automaker should see 10% to 15% profit growth in fiscal year 2016, it is much too cheap at under six times forward earnings.

Macy’s (M) offers a 4% dividend yield. Its sales were impacted by weak demand for winter apparel. Thanks to recent colder weather across much of the nation, sales should pick up.

And thanks to activists, the company has signaled a new openness into monetizing some of the retailer’s major real estate holdings.

The land under the company’s store portfolio might be worth at least as much as the current market value given to it by investors. The stock is cheap at nine times earnings.

Qualcomm (QCOM) is also being pushed by activists to become more efficient and announced a large restructuring that will significantly reduce annual operating costs.

The tech giant is also starting to make progress, signing licensees for its trove of 3G/4G patents in China, which should improve future royalties.

The shares—yielding 4%—are also cheap at under 10 times forward earnings, a big discount to its historical valuation and the overall market multiple.

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