The Blue Chip stocks, the well-known companies that have built up long-term records of solid performance, are essential components of any investment portfolio. They’re are among the most reliable, offering the prospect of steady gains over the long haul.
That holds true even if times turn hard, or if the stocks themselves turn down. Blue chip shares have a reputation for long-term growth, and for recovery from transient losses – a reputation that makes them solid options to buy on the dip.
However – not every share price decline in the blue chips is a buying signal, and some of these stocks will present better opportunities than others. That’s where the analysts at J.P. Morgan come in, picking out the superior blue-chip stocks to buy.
Recently, the analysts at JPM have shifted their focus to two industry giants: Apple (NASDAQ:AAPL) and Tesla (NASDAQ:TSLA). Both are recognized as Blue Chips and ‘Magnificent 7’ tech behemoths, yet currently trade at lower values. While both companies boast compelling attractions for investors, JPM’s analysis indicates that one is clearly superior. Let’s take a closer look.
Apple
Let’s start with Apple, a truly iconic brand. Apple’s success in building the tech that people wanted made it the first trillion-dollar company on Wall Street back in 2018, the first two-trillion-dollar company in 2020, and led it to break the three-trillion-dollar mark in early 2022. Since then, Apple shares have pared back, and the company currently boasts a market cap, as noted, of $2.6 trillion. Apple generated an impressive $383 billion in sales during its fiscal year 2023 and saw a net income for that fiscal year of $97 billion. Nevertheless, the shares are down 11% so far in calendar year 2024.
The share decline brings our attention to headwinds that Apple has faced in recent years. The company has become heavily dependent on iPhone sales to boost the bottom line, which can be clearly seen in the last earnings report. Covering fiscal 1Q24, that report showed that Apple generated 58% of its sales from the iPhone lines. While the iconic smartphone remains highly popular, that same quarter also saw Samsung displace Apple as the leading smartphone maker on the global market. Increased competition is only pressure on Apple; the company is also highly dependent on China as both a component supplier and an end market – and China has been moving to prioritize its own domestic smartphone makers. Apple’s overall sales in China fell by almost 13% during fiscal Q1.
The company can still fall back on plenty of strength, however. Apple finished 2023 with just over $73 billion in cash and liquid assets, a powerful advantage for any company. In addition, its Mac and iPad product lines consistently generate over $7 billion in quarterly revenue each, and the company’s Services segment saw 11% year-over-year growth in fiscal Q1, to reach more than $23 billion in sales.
In addition, there is one further advantage to Apple’s business model – its products and software form a self-contained ecosystem. Apple’s iOS, and the Apple Store apps, are only compatible with Apple products, a feature that acts to lock in customer loyalty. As of February of this year, it was estimated that Apple had 2.2 billion active devices worldwide. This is a solid customer base, and as new technologies enter the smart device market – think AI, and its constantly growing impact on tech – those 2-billion-plus customers will need to upgrade. This bodes well for Apple’s future sales, in devices and services.
We’ll see Apple results for fiscal 2Q24 today after market closes. Expectations are for $90.6 billion in revenue, with earnings per share of approximately $1.50. This would represent relatively flat earnings year-over-year, although a 4.2% revenue drop from fiscal 2Q23.
For J.P. Morgan analyst Samik Chatterjee, Apple remains a sound choice for investors. He sees potential in the near-term, as customers move to upgrade their devices.
“The sentiment has improved despite tough datapoints as the focus has shifted to owning the potential AI upgrade cycle; however, the upcoming earnings print will still matter for investors in offering insights into the magnitude of the cyclical challenges on account of pressured consumer spending as well as the headwinds in relation to market share moderation in China. We expect investors will look to size the magnitude of downside risks to consensus estimates from the upcoming earnings print and the set up for the shares could be positive from the print if earnings downgrades are considered to be modest and better-than-feared,” Chatterjee opined.
Getting to the bottom line, the 5-star analyst adds, “We expect investors to view the shares trading at 27x JPMe FY24E and 25x JPMe FY25E as offering an attractive entry point into a potential re-rating associated with the AI-led replacement cycle.”
In Chatterjee’s view, AAPL shares pull an Overweight (i.e. Buy) rating, and his price target of $210 implies a one-year upside potential of more than 22%. (To watch Chatterjee’s track record, click here)
Overall, Apple has attracted a lot of interest from the Street’s analysts and has 31 recent reviews on record. These include 18 Buys, 11 Holds, and 2 Sells, for a Moderate Buy consensus rating. Apple stock is currently priced at $171.50, and its $200.37 average price target points toward a gain of ~17% on the one-year horizon. (See AAPL stock forecast)
Tesla
Next up is Tesla, Elon Musk’s electric car company. Musk has made a notable achievement with Tesla, pulling the company up from start-up status to become, by market cap, the world’s largest automaker of any type. Tesla was the first pure-play electric vehicle manufacturer to move from concept to startup to development to full-scale production.
That’s an impressive record for any firm, and Tesla has rounded it out by becoming consistently profitable. The company has been running full-year profits since 2020, and more recently has seen seven quarters in a row with greater than $20 billion in revenue. The company has managed that by developing a network of high-tech factories, supporting production of high-quality vehicles with the styling and performance that the customer base wants. That’s the basic challenge that any auto company must meet – be it an EV maker or a Detroit legacy name – and Tesla has cleared it with room to spare.
At the same time, Tesla’s stock has lost 26% for the year-to-date, a significant blow to the company and to Musk’s prestige. Pressure on Tesla has taken the form of slowing demand. There are indications that the EV market is approaching saturation with the well-heeled buyers most likely to both want and pay for a battery-powered electric car. Sales of EVs generally are slowing down, and this can be seen in Tesla’s 1Q24 production and delivery numbers.
Those figures, released at the beginning of April, showed a decline from Q4. Production in Q1 came to more than 433,000 vehicles, compared to ~495,000 in Q4, while deliveries were listed as 387,000 for Q1 compared to 484,000 in Q4. The company attributed the volume declines to several factors, including an arson attack at the Berlin Gigafactory, shipping diversions due to the Red Sea conflict, and idiosyncratic factory production ramps and/or shutdowns.
At the end of April, the company released its 1Q24 results, and showed the financial results of the quarterly production and delivery slowdown. Automotive revenue fell from $19.96 billion in 1Q23 to $17.38 billion in 1Q24, a year-over-year drop of 13%. Total revenues saw a smaller year-over-year decline, of 9%, to $21.3 billion. This figure, however, was $950 million less than had been anticipated. On earnings, Tesla brought in 45 cents per share by non-GAAP measures, a quarterly bottom line that was down 47% y/y and missed the forecast by 5 cents per share.
For Ryan Brinkman, covering Tesla for JPM, the key point to consider is that the earnings may still be revised downward. In fact, Brinkman believes that Tesla stock is overvalued, noting: “We see the risk of further negative earnings revisions and continued multiple compression after 1Q24 results tracked softer even than estimates that had recently been significantly reined in… We expect Tesla shares may be rescued near term from the effect of lower near-term earnings expectations, on account of efforts to refocus attention on autonomous robo-taxis and the proclamation that certain new product introductions previously planned for 2H25 would be accelerated in an effort to rekindle growth; however, we do not think the shares can sustain long term their current still lofty valuation as investors increasingly incorporate the implications of the near-term expectations reset for long-term growth.”
This adds up to an Underweight (i.e. Sell) rating from the JPM automotive expert, whose $115 price target on Tesla implies a downside of 35% in the next 12 months. (To watch Brinkman’s track record, click here)
Overall, TSLA has a Hold (i.e. Neutral) rating from the Street’s consensus, based on 32 recent analyst reviews that break down to 7 Buys, 16 Holds, and 9 Sells. The stock has a trading price of $178 and an average target price of $171.99, together indicating a potential loss of 3% this year. (See TSLA stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
