Safe stocks continue to lead the market in what seems like an unstable economy. That's why most investors need to have a few powerhouse safe stocks in their portfolios at any time. The Dow Jones Industrial Average (^DJI -1.14%) is an index of 30 blue-chip stocks that are secure, established leaders in their fields.
That makes for an excellent place to start when looking for great stocks to buy. Currently from that elite group, American Express (AXP -1.38%) and Coca-Cola (KO -0.83%) are two top choices -- and they also happen to be Warren Buffett's longest-held stocks.
1. American Express
After serious declines at the beginning of the pandemic that eclipsed similar companies' sales decreases, American Express has been having a blowout year. The same factors that made it susceptible to problems earlier have now been redeeming features that are bringing it back to life.
Second-quarter earnings released last week were outstanding and demonstrated a sustained recovery. There was record revenue, record cardmember spending, and record acquisitions of U.S. consumer platinum, gold, and Delta co-branded cards.
An important element of American Express' growth engine is its shift in focus toward younger customers. The company targets an affluent customer base, but as its core customers age out, it has heavily invested to capture millennial and Gen Z customers. This has been an extremely successful initiative, and this group makes up 60% of all new cardholders as well as 75% of new U.S. gold and platinum cardholders. This group also has a massive growth opportunity, since it spends more than other cohorts out of the gate. In the second quarter, younger cardmember spending increased 48% over last year, higher than all other age groups.
Travel and entertainment is a significant portion of American Express cardholder spending. That's what tanked it at the beginning of the pandemic, but as this reemerges, it is benefiting the company considerably -- and in April this category outpaced pre-pandemic levels for the first time. Management doesn't see that letting up soon, as future bookings with partner companies like Delta are robust.
Inflation contributed to some of the increased spending, but it also weighed on the bottom line. Sales of $13.4 billion increased 31% over last year and were well ahead of average analyst estimates of $12.5 billion, but earnings per share (EPS) came in at $2.57, 8% lower than last year. They still beat the average analyst forecast of $2.42.
American Express has invested wisely in its business, and its customer base gives it a strong cushion against inflation. It has huge growth opportunities, and it continued paying and raising its dividend throughout the pandemic. Shares trade at only 15 times trailing 12-month earnings, and this top stock can shield your portfolio during challenging times as well as provide opportunities for growth.
Coca-Cola has also rebounded from pandemic declines and is climbing forward with record sales and enormous brand power. With its away-from-home segment back in business, it's posting double-digit sales growth despite inflation and rising costs.
In the second quarter, revenue increased 12% year over year and organic revenue, or sales from existing brands, increased 16%. EPS slid 28% to $0.44, but comparable EPS increased 4% to $0.70.
If you've bought a can or a case of Coke recently, which millions of customers keep doing, you probably noticed the increase in price. Coca-Cola has successfully raised its prices since many customers are willing to pay up the slight increase as opposed to splurging on more expensive items that have gone up in price.
This is where Coca-Cola is a star company. More than that, it's keeping its eye on the ball. Management expects that demand can change despite the affordable luxury of a bottle of branded cola, and it's acutely observing data and carefully allocating resources to follow demand patterns and make appropriate changes accordingly.
That's not stopping Coca-Cola from aggressively growing its brand. It has more than 1,500 initiatives planned for 2022, and it's using data to inform everything from its newly launched digital campaign to scaling up and becoming more efficient.
It sees tremendous opportunity across its operating segments. The company says it has 14% of the market share in developed markets (which account for 20% of global population) and only 6% of developing markets (which account for the remaining 80% of the world). Coca-Cola also says that its drink categories are growing at a compound annual rate of 4% to 5%, providing it with organic growth probability within its current market share.
The shares currently trade at 27 times trailing 12-month earnings, which isn't cheap for a mature company. But investors are confident right now as they flock to value stocks. Coca-Cola is a Dividend King with a legendary dividend that yields 2.9% at the current price, and this is an excellent stock pick to shore up your portfolio.