Companies that are multinational firms and have been in operation for a number of years are referred to as blue-chip companies. A blue-chip stock is a stock of a deep-rooted, financially stable, and historically secure corporation. Blue-chip stocks, also known as large cap stocks, are based on the companies’ high market capitalization of $1 billion or more.
Why Invest In Blue-Chip Stocks?
While markets fluctuate and all companies go through sporadic phases of downturns, blue chips are recognized for robust executive management teams that make intelligent growth decisions and smart choices for their high-quality products and services. Popular examples of blue-chip stocks are Coca-Cola, Disney, Intel, and IBM. Blue-chip stocks are often expensive and have a low dividend yield mainly because the return on blue-chip stocks is so close to a sure thing.
Investors entered 2019 with apprehension and uncertainty, following a particularly bearish fourth quarter. However, markets quickly reversed and of late the concern has changed from rising rates to declining rates as global growth loses speed and the Federal Reserve’s tools for dealing with another recession appear very slim.
In our opinion, proven blue-chip stocks with robust business models are a good option with a 10-year Treasury yielding just 1.6%, and conservative investors do not have much to choose from.
As per Inc.com,
“Recent examples of this phenomenon are Yahoo! and Google, two World Wide Web search engines which may eventually enter the ranks of blue chips. Yahoo! was the highest flyer among Web stocks in the late 1990s. Google is the current sensation (2006). Only time will tell if these companies will eventually take on the permanence and stature of an Intel or an IBM. Meanwhile once unquestionable pillars of the Blue Chip temple, like General Motors and Ford, are fighting battles of survival. Thus even in the world of blue chips, change is the only certainty.” 1
Top 5 Blue-Chip stocks
Here are a few of the top five blue-chip stocks you can invest in for the rest of 2019.
- Target Corp. (ticker: TGT)
Target is a big-box retailer with a robust business model that is often missed by investors. They are coming off a very successful second quarter which saw online sales soar to 34% and earnings per share (EPS) increased by 20%.
This massive jump in EPS is a result of a long-term strategy. Target has committed $7 billion to invest in store remodels, same-day order fulfillment, and e-commerce to compete against giants like Walmart (WMT) and Amazon.com (AMZN). It wasn’t until the 2nd quarter of 2019 that the emphatic outcome of the long term strategy was proved successful.
Currently, TGT pays a 2.5% dividend.
- Johnson & Johnson (JNJ)
Johnson & Johnson (JNJ) have been on the list of blue-chip companies and stocks for several years. They do not have fancy or innovative products, and the sales growth recorded by the company is essentially flat in 2019. Yet, Johnson & Johnson has been thought of as a reliable blue-chip stock for over a century.
Sales for JNJ would have been on the rise in the mid-single digits internationally right now if the dollar was stronger. The company also expects a 4% to 6% EPS growth this year. The company’s pharmaceutical division provides support for the long-term health of the underlying business.
- Berkshire Hathaway (BRK.B, BRK.A)
The company’s intrinsic value has been progressively improving over the last few years, nonetheless, shares have basically remained unchanged or increased over the last 20 months. This gives investors a great opportunity to buy Berkshire’s share at its cheapest valuations in that same time frame.
Market experts and investors believe that Berkshire’s earnings are extremely understated in today’s low-rate environment and that the company’s $100 billion of excess cash shown will be put to good use soon. In the past, this has proved to be true.
- Walmart (WMT)
Walmart is regarded as one of the best blue-chip stocks. The reason for this is because historically Walmart has been able to weather any potential recession with relative ease. In 2008, a year of financial upheaval to the economy and markets, Walmart sales increased by 7.2%. In the same year, the company also improved its dividend by 8%, and shares returned 20% – performing better than the S&P 500 by 58.5% points in a single year.
In spite of the rise of Amazon, Walmart is still leading 11 years later. It is showing-off the highest revenues of any company in the world at $514 billion last year.
As per Marketrealist.com explained,
“Walmart (WMT) stock is scaling new highs thanks to the continued momentum in its comparable sales and better-than-expected earnings performance in the past several quarters. Walmart stock is up 19.3% on a YTD basis and closed at $111.13 on June 21, which is a tad lower than its 52-week and all-time high of $112.19. Comparable sales for Walmart’s US business continued to impress markets and have grown in the past 19 consecutive quarters on the back of increased traffic. Moreover, its Walmex region (Mexico and Central America) has also posted stellar growth.” 3
- AT&T (T)
After several years of underperforming, AT&T’s shares are finally on the rise. Now, they are also on the road of what looks to be a more sustainable and longer-term pattern. The telecom and the entertainments sector are largely resilient to economic uncertainty and are fundamentally recession-proof. AT&T has managed to increase its exposure to these sectors after the $85 billion acquisition of Time Warner closed in 2018.
With this new move, the proud owner of networks like HBO, CNN, TNT, in addition to Warner Brothers, the company is primarily focused on paying off its debts.
Currently AT&T stocks are at 5.8% dividend which is second to Royal Dutch Shell (RDS.A), among large-cap stocks. The high dividend yield is becoming increasingly irresistibly and alluring to investors as the yield curve flattens and interest rates slowly fall again.
According to Lyn Alden Schwartzer,
“A company’s return on invested capital (ROIC) is its annual operating income with taxes removed, divided by its invested capital. This is a more accurate measure than return on equity (ROE), because it cannot be gamed with high leverage.” 2
In our opinion, the ideal time to buy blue chip stocks is after the company discloses an unsatisfactory earnings report or after a public relations blunder. The stock is will definitely dip then, making it possible to for you to buy low and sell high later.
Not interested in Blue-Chip Stocks? Check out our recent articles on the impact of the US-China Trade War on the economy.