In general, blue-chip stocks can be associated with steady returns. My view is underscored by the fact that the S&P 500 index has delivered total returns at a CAGR of 13.75% in the last ten years. However, there are times when blue-chip stocks go ballistic. This is followed by a period of price or time correction. Nvidia (NASDAQ:NVDA) stock is a good example with returns of 191.85% for year-to-date. I personally don’t see any other blue-chip stock replicating NVDA stock performance anytime soon.
However, there are quality blue-chip stocks to buy that can deliver total returns of 100% by the end of 2025. It goes without saying that the stocks discussed represent companies with good fundamentals. While one blue-chip stock is a deleveraging story, business metrics point to positive fundamental developments.
Let’s discuss the reasons to be bullish on these blue-chip stocks.
Barrick Gold (GOLD)
There has been a renewed surge in gold with the precious metal trading near $2,000 an ounce. With factors of inflation, geopolitical tensions and potential rate cuts in 2024, I expect a big breakout rally to new highs. Barrick Gold (NYSE:GOLD) is among the blue-chip stocks under $20 that looks attractive from the gold mining sector. The stock trades at an attractive forward price-earnings ratio of 20 and offers a dividend yield of 2.42%.
Barrick is a quality gold miner with reserves of 76 million ounces as of 2022. Further, the company has copper reserves with ownership in three copper mines. An important point to note is that Barrick has reported reserve replacement of 125% in the last three years. This provides clear cash flow visibility beyond the decade.
It’s worth noting that Barrick reported operating cash flow of $1.6 billion for the first half of 2023. With gold trending higher, the annual OCF visibility is likely to be more than $4 billion in 2024. This provides headroom for dividend growth in addition to pursuing aggressive investments.
Industrial commodities are the most undervalued asset class if we look at the returns CAGR in the last 20 years. Being undervalued has also implied under-investment. I believe that there is a meaningful rally that’s impending for commodities. With global growth decelerating, there is a strong case for monetary and fiscal stimulus in the next 24 months. This is likely to be a catalyst for industrial commodities surging higher.
Vale (NYSE:VALE) stock is an undervalued blue-chip stock that’s poised for a breakout rally. Currently, VALE stock trades at an attractive forward price-earnings ratio of 6.1. Further, the stock offers a dividend yield of 6.36%.
An important point to note is that iron ore remain the cash flow driver for Vale. However, the company is increasingly investing in metals positioned to benefit from global energy transition. This includes copper, nickel, among others. Focus on the energy transition metal business will deliver long term value.
AT&T (NYSE:T) stock has remained depressed for an extended period. I believe that T stock trades at a deep valuation gap at a forward price-earnings ratio of 6.4. Further, a 7.42% dividend yield makes the stock attractive and I believe that 100% total returns are likely by 2025.
An important point to note is that for year-to-date Q3 2023, AT&T has reported free cash flow of $10.4 billion. Besides dividends being secure, AT&T has been pursuing continued deleveraging. As credit metrics continue to improve, T stock is likely to trend higher.
I must also mention that between 2018 and 2022, AT&T has invested $140 billion in its U.S. wireless and wireline networks. The company claims to have the most reliable 5G network with a reach of 290 million people. Backed by these investments, I expect the steady growth in subscribers to sustain. This will ensure revenue and cash flow upside.
This article was originally published on this site