Stock Analysis & Ideas

These Blue-Chip Stocks Seem Attractive at Current Levels

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Given the ongoing macro uncertainty, several analysts are looking at blue-chip stocks with attractive long-term growth prospects. This article will focus on three blue-chip stocks — a leading biopharma company, a well-established industrial giant, and a software behemoth.

Despite the strong recovery in the U.S. stock market in July, investors remain wary of sky-high inflation and macro uncertainty. During these challenging times, several investors consider blue-chip stocks to be safer bets. Blue-chip stocks are stocks of large, well-established companies that have a solid track record, and generally offer steadily growing dividends. Using the TipRanks Stock Comparison Tool, we placed AbbVie, 3M, and Microsoft against each other to pick the blue-chip stock that Wall Street analysts find more favorable at current levels.

AbbVie (NYSE: ABBV)

Biopharma company AbbVie recently reported better-than-anticipated adjusted earnings of $3.37 per share (up 11.2% year-over-year) for the second quarter. Revenue increased 4.5% to $14.6 billion but fell short of expectations.

Abbvie’s blockbuster immunology drug Humira is losing its exclusivity in the U.S. next year. Investors are keenly looking for strength in other categories, which can offset the expected decline in Humira’s revenue when the drug faces competition from biosimilars. Humira’s Q2 revenue increased nearly 6% to $5.4 billion, but revenue from AbbVie’s hematologic oncology portfolio and aesthetics line fell 9.1% and 4.4%, respectively. Meanwhile, revenue from AbbVie’s neuroscience portfolio surged 14%.

Piper Sandler analyst Christopher Raymond noted that AbbVie missed revenue expectations for the second straight quarter, which doesn’t look good as the company is generally considered a safe haven stock both within the sector and in a recessionary backdrop. However, Raymond thinks that AbbVie should be given benefit of the doubt, as a “look under the hood” indicates a possible revenue reacceleration in the second half of the year.

Based on his investment thesis, Raymond lowered his price target for AbbVie to $155 from $160, but maintained a Buy rating.

With nine Buys, six Holds, and one Sell, the Street has a Moderate Buy consensus rating for AbbVie stock. The average price target of $160.94 implies 14.78% upside potential from current levels.

3M (NYSE: MMM)

Industrial conglomerate 3M’s second-quarter sales declined 3% to $8.7 billion. Adjusted EPS fell nearly 10% to $2.48 but still exceeded analysts’ expectations. The company lowered its full-year guidance due to currency headwinds and macro uncertainty.

3M’s Q2 results were overshadowed by certain key updates that it provided. The company announced its decision to spin off its Health Care business into a standalone company by the end of 2023. 3M intends to retain a 19.9% stake in the new company.

3M also announced that its subsidiary Aearo Technologies, which produces Combat Arms Earplugs, has filed for chapter 11 bankruptcy proceedings to establish a trust with the aim of resolving all legal claims related to the product. 3M stated that while it believes the earplugs are safe and effective when used properly, they face increasing litigation. The company recorded a $1.2 billion pre-tax charge in Q2 in connection with Combat Arms Earplugs litigations.

Citigroup analyst Andrew Kaplowitz increased his price target for 3M stock to $145 from $136, and maintained a Hold rating. The analyst believes that the company’s Q2 results reflect continued execution by the company, despite a tough operating backdrop. Kaplowitz opines that 3M is well placed to fight high inflation through price hikes and cost discipline.

Overall, 3M stock has a Moderate Sell consensus rating based on seven Holds and four Sells. The average price target of $139.36 suggests 2.79% downside potential from current levels.  

Microsoft (NASDAQ: MSFT)

Software giant Microsoft’s results for the fourth quarter of FY22 (ended June 30, 2022) lagged the Street’s expectations. Revenue grew 12% to $51.9 billion, while EPS increased 3% to $2.23. Unfavorable foreign exchange movements, lockdowns in China, continued weakness in personal computer market demand, and lower advertising spending hurt the company’s performance.

Revenue from Azure (Microsoft’s cloud computing platform) and other cloud services grew 40% but fell short of expectations. The company’s cloud business is considered to be one of its key growth engines.

However, MSFT stock rose as the company reaffirmed its double-digit revenue and operating income growth outlook for FY23. Microsoft expects its top-line growth to be fueled by continued momentum in its commercial business and efforts to gain market share across its portfolio.

Oppenheimer analyst Timothy Horan stated that while Microsoft is hit by macro challenges, it is gaining market share in information technology. Horan feels that despite an adverse business backdrop, Microsoft’s platform is benefiting from rapid digital transformation.

Horan added that Microsoft is taking advantage of the digital transformation trend by “adding security, advertising, communications, CRM [customer relationship management], etc. in a low-cost best-of-suite strategy, well suited for a recession, helped by scale advantages.” The analyst reiterated a Buy rating on Microsoft stock with a price target of $300.

Overall, the stock scores a Strong Buy consensus rating backed by an impressive 29 unanimous Buys. The average price target of $331 for Microsoft stock implies 19.06% upside potential from current levels.

Conclusion

AbbVie stock has outperformed 3M and Microsoft year-to-date and has an attractive forward dividend yield of 4%. That said, Wall Street analysts are very bullish on Microsoft stock and estimate a higher upside potential from current levels compared to the other two stocks.

Analysts covering Microsoft are optimistic about the company’s long-term growth potential, especially in the cloud market. The company’s cloud business has been growing rapidly, with its Intelligent Cloud segment accounting for nearly 38% of the overall FY22 revenue.

As per TipRanks Smart Score System, Microsoft scores an eight out of 10, indicating that the stock could outperform the broader market.  

Disclosure 

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