Blue-chip stocks are large, established businesses that you can count on for predictable stock performance and often attractive dividend income. These may not be flashy companies with ultra-innovative products. However, they tend to provide essential products/services that have regular and growing demand.
Every portfolio would benefit from having some modest exposure to blue-chip stocks. If you have $7,000 of capital to deploy, here are three blue-chip Canadian stocks that look like bargains right now.
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This railway stock is the ultimate blue chip
With a market cap of $95 billion, Canadian Pacific Kansas City (TSX: CP) is the largest railroad stock in Canada. Its recent acquisition of Kansas City Southern railroad vastly expanded its network across North America.
While recent returns have been modest, it has delivered 10% compounded annualized returns over the past 10 years. CP has used precision scheduled railroading to build a best-in-class railway.
With its new outsized network, it has been delivering above-average growth for the industry. The company continues to maintain its double-digit adjusted earnings-per-share growth guidance for the year.
Recently, quarterly results continue to demonstrate the strength and versatility of its network, even in the face of tariffs and a slow freight environment. After its shares have fallen 8% in the past six months, its valuation is starting to look attractive at the $100 level.
A pipeline for income and value
Another blue-chip stock worth buying now is Pembina Pipeline (TSX: PPL). It has a market cap of $29 billion. To date, this stock has underperformed expectations and underperformed pipeline peers. Its stock is down 3% this year.
Pembina recently renegotiated the tolling agreement for its major Alliance pipeline to the United States. Unfortunately, rates came in lower than anticipated, and it will have an impact on the next few quarters’ results.
However, if you can look beyond that, there are reasons to like Pembina. It has a great mix of assets that provide energy producers with everything they need to get their production to market.
It has a market-leading balance sheet, so it has ample flexibility to keep investing in growth projects. The Cedar LNG project continues to look very promising from a long-term return perspective.
Lastly, Pembina’s dividend is attractive with a 5.7% yield. It has a low payout ratio, and its dividend is very sustainable given its strong free cash flow profile. Pembina trades at an attractive valuation if you don’t mind waiting for some of the negative sentiment to dissipate.
A blue-chip software stock every Canadian should own
Constellation Software (TSX: CSU) may not be a traditional blue-chip stock. However, with a market cap of $95 billion, it is one of the largest listed companies in Canada.
Recently, the company’s share price has come under pressure. It is down 14% in the past month. The market is worried about competition from artificial intelligence and perhaps moderating growth.
Yet, the company just delivered a strong quarter. Revenues increased 15%, including 5% organic growth. It deployed nearly $400 million of capital. While net income decreased 68%, cash from operations increased 63% to $433 million.
The company keeps delivering strong results. While it is not the cheapest stock, its valuation is starting to look very attractive in the $4,200 range. It’s a great blue-chip stock to buy for growth in the years ahead.
