8 Blue-Chip Stocks to Weather a Bear Market

Blue-chip value stocks are good buys.

Volatile trading in December has the S&P 500 index on the brink of a bear market entering 2019. If the 2018 sell-off continues, investors will soon be looking to get defensive with their portfolios. One of the best ways to weather a bear market is to buy blue-chip value stocks -- large companies with long-term track records of success and attractive valuations. Here's a look at eight large-cap value stocks with price-earnings ratios less than 10 that Bank of America says are excellent defensive buys for long-term investors concerned about the market downturn.

Allstate Corp. (ticker: ALL)

Allstate is the largest public personal lines insurance company, with more than a 12 percent share of the U.S. personal lines market. Bank of America analyst Alison Jacobowitz says Allstate suffered a net loss of $670 million from the Camp and Woosley Fires in California once reinsurance payments are factored in. While that number was higher than initially expected, Jacobowitz says long-term investors should be focused on improvements Allstate is making to its property and casualty underwriting margins. Bank of America has a "buy" rating and $110 price target for ALL stock.

Citigroup (C)

Citigroup investors were disappointed with the big bank stock's 30 percent loss in 2018 given the environment of rising interest rates, corporate tax cuts and financial deregulation. However, analyst Erika Najarian says Citigroup has been improving operating efficiency throughout the year and is on track to hit its 2020 financial targets. Najarian says the bank is holding around $3.1 billion in excess capital, and investors don't appreciate the company's U.S. earnings potential. Bank of America has a "buy" rating and $84 price target for C stock.

Delta Air Lines (DAL)

Analyst Andrew Didora says Delta should generate at least $5 billion in pre-tax income in 2019 for the fifth consecutive year, and the company's $20 billion in free cash flow since 2014 set it apart from its U.S. airline peers. Didora says Delta hasn't reported any weakness in its corporate revenues, even during the recent market volatility. He says Delta's free cash flow and strong balance sheet make it a relatively safe play in the historically cyclical airline group. Bank of America has a "buy" rating and $62 price target for DAL stock.

General Motors Co. (GM)

This may be a difficult year for auto companies given a cyclical slowdown in global auto sales, but analyst John Murphy says General Motors investors have already paid their dues. In fact, Bank of America recently named GM as its top consumer discretionary stock pick for 2019. Murphy says the restructuring and cost-cutting plan GM announced in November makes sense, and President Donald Trump's threats to cut subsidies if GM closes U.S. plants is not a material risk to the company. Bank of America has a "buy" rating and $60 price target for GM stock.

IBM (IBM)

Analyst Wamsi Mohan says IBM and its stock are finally turning the corner. Mohan says IBM's acquisition of Red Hat (RHT) will provide a 2 percent incremental boost to IBM's five-year compound annual revenue growth rate. He says the deal will immediately increase revenue, cash flow and margins and will be earnings accretive by the end of 2020. In the meantime, IBM investors can enjoy the stock's 5.7 percent dividend and the relative safety of IBM's stable margins and pristine balance sheet. Bank of America has a "buy" rating and $200 price target for IBM stock.

Morgan Stanley (MS)

Analyst Michael Carrier says Morgan Stanley should continue to gain market share in investment banking and is executing well in international markets. Despite concerns about the trade war, Brexit and other international risks, Carrier says Morgan Stanley's healthy revenue trends, impressive return on equity and attractive valuation make the stock a compelling long-term investment. He says rising net interest income, a favorable merger and acquisition climate, further cost-cutting opportunities and steadily increasing capital returns should provide upside for the stock. Bank of America has a "buy" rating and $58 price target for MS stock.

Micron Technology (MU)

Micron Technology stock is down more than 50 percent from its 52-week high, but analyst Simon Woo says investors are being too short-sighted. Woo says the latest company guidance suggests a lackluster start to 2019 for Micron, but memory market conditions should stabilize by the second half of the year. For now, MU's earnings multiple is at an all-time low of around 2.5, and Woo says the market is being overly pessimistic about near-term cyclical earnings declines. Bank of America has a "buy" rating and $50 price target for MU stock.

Prudential Financial (PRU)

Analyst Jay Cohen recently reduced his 2019 earnings outlook for Prudential due to potential softening of the company's equity market-sensitive businesses. However, Cohen says Prudential should complete $2 billion in share buybacks and pay out $1.5 billion in dividends in 2019 and 2020. While Cohen says a valuation discount relative to insurance peers is warranted given the company's relatively high market sensitivity, Prudential's long-term track record of success suggests the stock's current discount is a bit extreme. Bank of America has a "buy" rating and $110 price target for PRU stock.

Blue-chip stocks recommended by Bank of America

These eight blue-chip stocks are top picks by Bank of America to weather a volatile market:

-- Allstate Corp. (ALL)

-- Citigroup (C)

-- Delta Air Lines (DAL)

-- General Motors Co. (GM)

-- IBM (IBM)

-- Morgan Stanley (MS)

-- Micron Technology (MU)

-- Prudential Financial (PRU)