3 Top Blue Chip Stocks For Growth And Expected Returns

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The S&P 500 has shed 18% this year due to the surge of inflation to a 40-year high and fears of an upcoming recession. Some analysts are forecasting an additional 25% plunge for the stock market benchmark in the upcoming months. During such tumultuous periods, some Blue Chip Stocks can provide a relatively safe haven to income-oriented investors. Blue Chip Stocks are established safe dividend stocks. They are often business leaders and thus they enjoy unique competitive advantages. In this article, we will analyze the prospects of three Blue Chip Stocks, namely V.F. Corporation (VFC), Parker-Hannifin (PH), and Williams-Sonoma (WSM).

V.F. Corporation

V.F. Corporation, which was founded in 1899, is one of the largest apparel, footwear, and accessories companies in the world. Its brands include The North Face, Vans, Timberland, and Dickies.

Thanks to the popularity of its premium brands, V.F. Corp has always enjoyed strong pricing power. It also proved remarkably resilient during the Great Recession, when it incurred a minor 7% decrease in its earnings per share, whereas some of its peers incurred a collapse in their earnings.

On the other hand, V.F. Corp is currently facing a strong headwind due to the surge of inflation to a 40-year high. In the most recent quarter, the company grew its revenue and organic revenue by 3% and 7%, respectively, over the prior year’s quarter, thanks to positive performance in the EMEA and North American regions, which experienced a negative impact from the pandemic in the prior year’s period. However, its adjusted earnings per share declined from $0.28 to $0.09 and missed the analysts’ consensus by $0.05, primarily due to high-cost inflation and lockdowns in China. Due to the impact of inflation on its margins, V.F. Corp lowered its guidance for its annual earnings per share from $3.30-$3.40 to $3.05- $3.15.

Notably, the stock of V.F. Corp has plunged 45% this year, to a nearly 9-year low, due to high inflation and fears of an upcoming recession. We view this plunge as exaggerated and expect the stock to recover strongly as soon as inflation begins to subside.

V.F. Corp is currently offering a 10-year high dividend yield of 4.9%. Moreover, the company has raised its dividend for 49 consecutive years, and hence it is a Dividend Aristocrat, which is about to become a Dividend King at the end of this year. Furthermore, V.F. Corp has a somewhat elevated payout ratio of 65% but a rock-solid balance sheet, which is essentially debt-free. Overall, investors can lock in a 4.9% dividend yield and rest assured that the dividend is likely to remain safe for the foreseeable future.


Parker-Hannifin is a diversified industrial manufacturer that specializes in motion and control technologies. It manufactures components that are relatively obscure but absolutely critical to the operations of heavy machinery, factory equipment, aircraft, and other large industrial devices. As a result, the company operates in a profitable niche, and thus it enjoys strong pricing power. Another competitive advantage of Parker-Hannifin is its immense global distribution network, which achieves significant economies of scale.

The strength of the business model of Parker-Hannifin is clearly reflected in its exceptional growth record. Thanks to its global expansion and a long series of acquisitions of smaller companies, Parker-Hannifin has essentially tripled its earnings per share over the last nine years.

Even better, despite the headwind of high cost inflation, the company enjoys markedly strong business momentum, partly thanks to its ability to offset cost inflation with material price hikes. In the most recent quarter, it grew its sales by 6% over the prior year’s quarter and its adjusted earnings per share by 18%, from $4.38 to $5.16, thanks to strong demand in most markets, which more than offset the headwind of cost inflation. Parker-Hannifin exceeded the analysts’ estimates by an impressive $0.46 and posted record sales and earnings per share.

It is also in the process of acquiring Meggitt, a global leader in aerospace and defense motion and control technologies, for $8.8 billion in a cash deal. Meggitt offers technology and products on every major aircraft platform and has annual revenues of $2.3 billion. As the deal value is 26% of the market cap of Parker-Hannifin, it is likely to prove a major growth driver in the upcoming years. The deal is expected to close before the end of 2022.

Thanks to its sustained business momentum, Parker-Hannifin raised its dividend by 29% in April and is now offering a 2.0% dividend yield. The dividend raise is impressive, as it would be natural for the company to preserve cash to fund its imminent major acquisition. Moreover, Parker-Hannifin is a Dividend King, with 66 consecutive years of dividend growth. Given its solid payout ratio of 28% and its strong balance sheet, the company is likely to continue raising its dividend meaningfully for many more years.


Williams-Sonoma is a specialty retailer that operates home furnishing and houseware brands, such as Williams-Sonoma, Pottery Barn, West Elm, Rejuvenation, Mark and Graham, and others. The company operates traditional retail locations but also sells its products through e-commerce and direct-mail catalogs.

Williams-Sonoma is vulnerable to recessions as evidenced by the Great Recession when the company saw its earnings collapse. However, it has proved much more resilient throughout the coronavirus crisis, primarily thanks to the unprecedented fiscal stimulus packages offered by the government.

It is also important to note that Williams-Sonoma has an exceptional growth record, as it has grown its earnings per share every single year over the last nine years. During this period, the retailer has grown its earnings per share more than 5-fold, from $2.54 in 2012 to $14.85 in 2021.

Due to fears of an upcoming recession, the stock of Williams-Sonoma has shed 17% this year, despite its nearly all-time high expected earnings per share. As a result, the stock is trading at a nearly 10-year low price-to-earnings ratio of 9.9. We view the current valuation level of the stock as exceptionally cheap, especially given the promising growth prospects of the company, which is strengthening its digital sales at a fast clip. Whenever inflation subsides and the economy accelerates, the market will probably reward the stock of Williams-Sonoma with a much higher price-to-earnings ratio.

Final Thoughts

Bear markets are painful for most investors. They are also critical for the investing success of most investors, as they determine to a great extent the long-term performance of their portfolios. The above three Blue Chip Stocks have exceptionally strong business models and are attractively valued right now. As a result, they are likely to highly reward patient investors, who can maintain a long-term perspective during this painful period.

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Disclosure: The author does not own any of the stocks mentioned in the article.

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