5 Blue Chip Stocks To Buy On The Dip For A Stronger Portfolio

Wall Street rally, which was the second-best this year in November, faded in the last five trading sessions owing to uncertainty over the phase-one trade deal between the United States and China. All the major stock indexes are likely to finish the first week of December in negative territory.

As stock market volatility continues, the Dow 30 Index — popularly known as the market’s blue-chip index — is showing fluctuation. However, a closer look into the index reveals that not all stocks are erratic. Several blue-chip stocks have rallied more than the index itself and still have upside left.

No Abatement in U.S.-China Trade Conflict

The more than 18-month old trade war between the United States and China is not showing any sign of ending. Nothing concrete has appeared for the much-hyped phase-one interim trade deal between the two countries. Trade-related conflicting news feeds are almost regularly resulting in choppy trading.

It’s not yet clear whether the deal will be signed this year or postponed to the New Year or will materialize at all. Meanwhile, investors are keenly watching trade-related developments as the Dec 15 deadline is approaching.

President Trump set this deadline for signing the phase-one deal failing which his government will implement a fresh round of 15% tariffs on $160 billion of Chinese goods mostly used as inputs for consumer goods.

Moreover, on Dec 2, U.S. Commerce Secretary Wilbur Ross said that the government may also hike tariff rate on $250 billion of Chinese goods, which are already in the 25% tax bracket.

Dow Firmly in the Green Despite Fluctuations

Just like Wall Street, the Dow is feeling the weight of intensifying trade conflict between the United States and China this week. In the last five trading sessions the index has lost 1.75%. In the first four trading days of December, the Dow is down 1.3% and likely to finish the week in the red.

However, on Dec 5, the Dow closed at 27,677.79 well above its 50-day and 200-day moving averages of 27,229.61 and 26,506.24, respectively. In financial literature, the 50-day moving average line is generally recognized as the short-term trend setter, while the 200-day moving average is considered as the long-term trend setter.

It is widely recognized in the technical analysis space that whenever the 50-day moving average line surges ahead of the 200-day moving average line, a long-term uptrend for the index becomes a strong possibility.

Despite severe market volatility, the Dow is well in positive territory with a gain of 18.7% year to date. This is an excellent performance after a disappointing 2018 when the blue-chip index had lost nearly 6%. Moreover, the index is at present 1.8% away from its all-time high of 28,174.97, recorded on Nov 27.

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Our Top Picks

At this stage, it will be prudent to invest in Dow stocks with a favorable Zacks Rank and strong dividend yield, which will act as a regular income stream to investors. Therefore, these stocks will likely benefit from both market rally and attractive dividend.

We have narrowed down our search to five such stocks, each carrying a Zacks Rank #2 (Buy). You can see Zacks Investment Research