Stocks have gotten off to a strong start this year as the bulls bet on cooler inflation, more moderate interest rate hikes, and a soft landing for the economy. However, many investors are likely still reluctant to get back into the market after its steep declines last year. Sitting on the sidelines might seem safer, but investors could also miss out on some big, potential gains.
So today, I'll take a look at three resilient blue-chip stocks -- Apple (AAPL -0.35%), LVMH (LVMUY 0.82%), and PepsiCo (PEP -0.62%) -- and explain why they're still no-brainer buys for conservative investors.
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1. Apple
Apple recently posted a messy earnings report that fell short of analysts' expectations and featured its steepest revenue drop since 2016. That big miss was caused by declining sales of iPhones and Macs as well as tough currency headwinds, which offset the stronger growth of its iPad and services segments. The COVID-19 lockdowns in China, which sparked protests at a major iPhone plant, exacerbated that slowdown.
Yet those temporary headwinds masked Apple's strengths. On a constant currency basis, its revenue still rose year over year. It also ended the quarter with 935 million paid subscribers across all of its services, equaling 19% growth versus a year ago and granting it a captive audience for launching new hardware and software products. And with $165 billion in cash and marketable securities on its balance sheet, Apple can still easily expand through acquisitions or buy back more shares.
Analysts expect the tech titan's revenue and earnings to both dip 2% this year, but that dim outlook doesn't account for the launches of any new devices (including its long-rumored mixed reality headset) or services. Apple's stock might not seem cheap at 25 times forward earnings, but its stability, liquidity, and long-term growth potential all justify that higher valuation. It also has plenty of room to raise its forward dividend yield of 0.6% to attract more income investors.
2. LVMH
LVMH, the world's largest luxury goods company, is an evergreen stock for two reasons: It's well-diversified across 75 houses (including Louis Vuitton, Dior, Loewe, Fendi, Tiffany, Bulgari, and Sephora), and it targets high-end consumers who are resistant to macro headwinds. That's why its revenue rose 23% (17% organically) in 2022, even as inflation and other geopolitical headwinds broadly curbed consumer spending on discretionary goods. Its net profit also increased 17%.
All five of LVMH's business units (wines and spirits, fashion and leather, perfumes and cosmetics, watches and jewelry, and selective retailing) generated double-digit organic sales expansion during the year. Its robust growth in the United States, Europe, and Japan offset its softness in China, which was repeatedly disrupted by COVID lockdowns. It ended the year with 7.3 billion euros ($7.8 billion) in cash and equivalents, giving it ample room for more acquisitions and dividend hikes.
LVMH pays a forward yield of 1.5% and trades at 25 times forward earnings. Analysts expect it to grow its revenue and earnings by 8% and 15%, respectively, in 2023. The bears will claim LVMH isn't cheap at these levels, but it's still cheaper than many of its industry peers. Hermès, for example, still trades at 50 times next year's earnings. LVMH also deserves a premium valuation because it's one of the few retailers that has repeatedly grown through economic downturns.
3. PepsiCo
PepsiCo is a good defensive stock for investors who expect the bear market to drag on for a few more months. In addition to its namesake soda, PepsiCo sells a wide range of fruit juices, teas, sports drinks, bottled water, and other non-carbonated drinks. It also distributes packaged foods through its Frito-Lay, Quaker Foods, and Pioneer Foods subsidiaries.
PepsiCo's brand recognition, scale, and diversification enables it to generate stable growth through economic downturns. In 2022, its organic sales and constant currency core earnings per share (EPS) rose 14% and 11%, respectively, even as inflation crimped consumer spending and drove up its costs. PepsiCo countered that pressure by repeatedly raising its prices, but it will halt those price hikes in 2023 as inflation cools off and the spending power of the average consumer improves. For the full year, it expects its organic sales to rise 6% and for its constant currency core EPS to increase 8%.
Those steady growth rates, along with its 51 consecutive years of dividend hikes, make PepsiCo a no-brainer stock to own over the long term. It's not a value stock at 24 times forward earnings, and its forward yield of 2.6% is still lower than the 10-year Treasury's 3.7% yield, but this is a well-rounded, blue-chip stalwart that can help even the most cautious investor sleep soundly at night.
