2 High-Yield Blue-Chips Set To Soar And Too Cheap To Ignore

2022 is a great example of how it’s always and forever a market of stocks, not a stock market.

While rising rates and the Fed tightening have caused the market to sell off modestly and tech to fall into a correction, value is having a great year.

That’s what generally happens when the Fed starts to tighten because current cash flows become relatively more valuable than future cash flows.

• all else being equal, the faster a company grows, the more sensitive its valuation is to interest rates

Does this mean that investors should sell all growth stocks and pile 100% into deep value high-yield blue-chips?

No, because historical market data only tells us what MIGHT happen, not what’s going to happen.

But in case 2022 does turn out to be the year value roared, and deep value Ultra SWANs soared, let me highlight why British American Tobacco (BTI) and Magellan Midstream (MMP) might be two of the best high-yield blue-chips you can buy today.

In fact, if these high-yield Ultra SWANs were to grow as expected this year and return to fair value in 2022, they could deliver 50% total returns or more.

Momentum funds and ETFs rebalance on a quarterly or bi-quarterly basis.

• so if the value rally continues, these funds might start selling tech and buying value
• driving an epic great rotation that could make 2022 the year value investors have been dreaming of

How To Find Blue-Chips With The Highest Fundamentally Justified Upside Potential

We have 12 specialty watchlists in the Dividend Kings Research Terminal, for any kind of investing style, risk profile, or time horizon.

Let me show you how to quickly and easily find the blue-chips with the most upside potential in the short term.

• green = potentially good buy or better
• blue = potentially reasonable buy
• yellow = hold
• red = potential trim/sell

The Phoenix list was started in the pandemic, targeting the highest quality companies in the world.

• most likely to rise like a Phoenix from the ashes of the recession to soar to new heights

It’s basically an almost 100% blue-chip watchlist of the world’s highest quality companies.

And you can sort any of our watchlists by 16 fundamentals including yield, discount to fair value, various quality metrics, as well as short and long-term total return potential.

• 12-month consensus total return potential: analyst 12-month consensus price target + dividend
• 12-month fundamentally justified total return potential: 12-month forward fair value + dividend (total return if a company grows as expected and returns to fair value)
• long-term consensus return potential: yield + long-term growth consensus

Once you sort by return potential, you can select for any fundamental you want, such as highest yield.

And that’s how you can find, in just seconds, red hot high-yield Ultra SWANs like BTI and MMP that have become Wall Street darlings, and for good reason.

British American Tobacco: Up 41% And Set To Soar So Much More

Full Deep Dive (Including Complete Risk Profile)

Can you believe that BTI is beating tech by 50% since December 1st? That’s because BTI on December 1st, 2021 was trading at the best valuations in over 20 years!

That’s also what happened during the tech crash when BTI was similarly undervalued and then went on to deliver sensational returns during the market’s lost decade.

• 68% in 2000 vs -9% for the S&P 500

Rule number one: most things will prove to be cyclical. Rule number two: some of the greatest opportunities for gain and loss come when other people forget rule number one.” – Howard Marks (emphasis original)

BTI Total Returns 2000 To 2010 (Last Decade For Stocks)

During the last decade, BTI delivered 13X returns while the market went nowhere.

Adjusted for inflation, BTI investors saw 900% total returns, while S&P investors lost 20%.

In fact, when you buy an Ultra SWAN aristocrat like BTI at the best valuation in two decades, you can achieve Buffett-like returns from a blue-chip bargain hiding in plain sight.

Not just for a few years, but for decades.

• 25% CAGR for 15 years = 2742% or 28X returns

Why am I still bullish and buying BTI today, after an epic 41% gain in just 9 weeks?

Reasons To Potentially Buy BTI

• Very safe 6.3% yield (83% safety score)
• 83% low-risk 13/13 Ultra SWAN quality global aristocrat
• 23-year dividend growth streak (at least)
• 34% historically undervalued (potentially very strong buy) even after a 41% rally!
• Fair value: $70.51
• 9.7X earnings vs 13.5 to 14.5 historical
• BBB+ stable credit rating = 5% 30-year bankruptcy risk
• Risk management consensus 82nd industry percentile = very good
• 4% to 11% CAGR margin-of-error growth consensus range
• 8.7% CAGR median growth consensus (up from 4% a few months ago)
• 5-year consensus total return potential range: 15% to 20% CAGR
• 5-year consensus total return potential (base case): 18% CAGR
• 12-month total return consensus: 20%
• Fundamentally justified 12-month total returns: 58%

(Source: Morningstar, FactSet, YCharts)

BTI still offers a very safe 6.3% yield that analysts expect to now grow at almost 9% over time (4X the expected rate of inflation).

It’s also now expected to beat the S&P, aristocrats, Nasdaq, and pretty much every major investing strategy on Wall Street.

• 15.0% CAGR long-term returns are on par with the greatest investors in history
• just as John Templeton’s 15.6%

BTI 2023 Consensus Total Return Potential

One that has 60% fundamentally justified total return potential left…in 2022 alone!

Magellan Midstream (Uses K1 Tax Form): The Highest Yielding Blue-Chip On Wall Street

Full Deep Dive (Including Complete Risk Profile)

MMP is up 6% since early December, beating the Nasdaq by an impressive 17%. Yet its rally could be just getting started.

Earnings Update

Magellan Reports Good Q4 Results; Continues to Be Among Midstream Leaders in Unit Repurchases…

Magellan’s fourth-quarter results were solid, as the partnership continued to benefit from a recovery in refined product volumes off depressed 2020 levels…

The core refined products business is projected to do a bit better than we expected, with 4% higher product shipments, and a 6% tariff increase, no doubt due to inflationary pressures…

Magellan continues to be among the more aggressive purchasers of its own units at prices below our fair value estimate, demonstrating management’s Exemplary capital allocation rating.

The partnership added another $50 million in purchases during the fourth quarter, bringing the total 2021 buyback to $523 million, and $800 million since inception…we would expect the incremental cash to be spent on further buybacks, so the cash will be put to good use.” – Morningstar

Reasons To Potentially Buy MMP

• Very safe 8.7% yield (85% safety score)
• 83% low-risk 13/13 Ultra SWAN quality dividend champion
• 20-year dividend growth streak
• 35% historically undervalued (potentially Ultra Value buy)
• Fair value: $72.97
• 8.8X cash flow vs 11.5 to 14 historical
• BBB+ stable credit rating = 5% 30-year bankruptcy risk
• Risk management consensus 70th industry percentile = good
• 2% to 7% CAGR margin-of-error growth consensus range
• 2.3% CAGR median growth consensus (down from 5.6% pre-earnings)
• 5-year consensus total return potential range: 13% to 20% CAGR
• 5-year consensus total return potential (base case): 14% CAGR
• 12-month total return consensus: 20%
• Fundamentally justified 12-month total returns: 62%

(Source: Morningstar, FactSet, YCharts)

MMP’s growth outlook has fallen after earnings, but it’s still offering the highest blue-chip yield on Wall Street and is still expected to beat the S&P 500 over time.

MMP 2023 Consensus Total Return Potential

Over the next two years, MMP growing as expected and returning to historical fair value (100% midstream bear market average P/OCF) could deliver 29% annualized total returns.