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What Are Blue Chip Stocks? Should I Invest in Them?

Sebencapital

Published
02/10/23
What Are Blue Chip Stocks? Should I Invest in Them?

Blue chip stocks are shares of well-established, top-tier companies that are superiors in their respective industries. These companies have a history of success and enjoy a strong reputation among customers and investors.

Blue chip companies are known for their sound business practices and a consistent track record of delivering returns to their shareholders. They often provide regular and increasing dividend payments to their investors.

Investing in blue chip stocks is attractive for conservative investors due to their favorable risk-reward profiles. However, even investors willing to take on more risk should consider adding blue chip stocks to their portfolios to enhance diversification and introduce stability, particularly during stock market volatility.

What is a blue chip stock?

Blue chip stocks are like the rock stars of the stock market. They're stocks of big, well-established companies that have some special traits:

  • They're industry leaders and are super reliable in how they do business.
  • People love them – both customers and the folks who own their stock.
  • They've been successful for a long time and have a great track record of making money for investors.
  • They share their profits with their stockholders through regular payments, called dividends, and often increase them over time.

Blue chip stocks are popular, trusted, and successful stocks that make their investors happy.

What is a blue chip stock?

Best blue chip stocks to purchase right now

If you have never funded in the stock market, you'll determine the names of many top blue chip stocks. These are big companies that offer products and services used by billions of people all around the world every day.

Best blue chip stocks to buy right now

1. Apple

Apple

Apple (AAPL -0.07%) is one of the world's most profitable companies. It has been a leader in the technology sector for a long time. Apple introduced the Macintosh computer in the 1980s, and later, it revolutionized portable media with its iPods in the early 2000s. Today, Apple's iPhones, iPads, and Apple Watches are everywhere, and the company has a very loyal customer base.

Apple also makes money from its services, like iTunes, the App Store, and its streaming television services. 2018, Apple became a trillion-dollar company; in 2020, it reached an incredible two trillion dollars in market value. At times, it has even been valued at over three trillion dollars.

Revenue

Apple's valuation dipped due to a bearish market trend but has since recovered and remains the largest publicly traded company. Apple has many opportunities for growth in the long run.

2. Berkshire Hathaway

Berkshire Hathaway

Berkshire Hathaway is a significant player in the insurance industry and owns a diverse portfolio of businesses, including restaurant chain Dairy Queen, railroad giant BNSF, and a utility company. While it doesn't pay dividends like other blue chip stocks, its CEO, Warren Buffett, has a strong track record of generating market-beating returns and prefers investing in the company's cash rather than paying dividends, which has been successful for shareholders.

3. Coca-Cola

Coca-Cola

Coca-Cola has been a leader in the beverage industry for over 100 years, known for its iconic soft drink. Its product offerings have diversified to include juices, sports drinks, and bottled water to cater to health-conscious consumers. Coca-Cola is also renowned for consistently increasing its dividend payments, with a track record dating back to the early 1960s, making it one of the top dividend stocks in the market.

4. Johnson & Johnson

Johnson & Johnson

Johnson & Johnson (JNJ 0.43%) is widely recognized for its popular consumer products, including baby shampoo, Band-Aids, and Tylenol pain relievers. However, it's important to note that J&J is a major player in the healthcare industry, where it manufactures a wide range of medical devices essential for medical professionals to perform life-saving procedures.

In addition to its medical devices, Johnson & Johnson boasts an extensive pharmaceutical business. This includes producing drugs like Remicade, used to treat arthritis, Zytiga for prostate cancer, and Stelara for psoriasis.

Notably, Johnson & Johnson is undergoing a significant corporate change, with plans to split into two companies by November 2023. This development is noteworthy for investors, as one company will primarily focus on consumer health products, considered the weaker segment of J&J's business. The other entity will house the highly regarded pharmaceuticals and medical devices segment, which adds an intriguing element to J&J's prospects.

5. American Express

American Express

American Express (AXP 1.05%) is a major player in the financial industry and another noteworthy blue chip stock to consider. The company operates as both a credit card provider and a payment network. Its primary revenue sources stem from credit card fees and transaction processing fees.

American Express can boost its revenue from these sources by acquiring new users and increasing transaction volumes. Despite over 170 years old, the company remains relevant in the modern financial landscape. In 2022, millennials and Gen Z consumers opened over 60% of new card accounts, a positive indicator of its ongoing appeal to younger generations.

Furthermore, American Express's management is confident in its ability to expand profits in the coming years significantly. The company also commits to its shareholders by distributing roughly 25% of its profits as dividends. As of April 2023, American Express had already increased its dividend by 15%, and with continued earnings growth, investors can anticipate further dividend increases in the future.

Gen Z

A bigger list of blue chips

Certainly, here are 20 additional top blue chip stocks:

  • AbbVie (ABBV 1.32%)
  • Nike (NKE 0.95%)
  • Lockheed Martin (LMT 0.16%)
  • Honeywell International (HON 0.05%)
  • Procter & Gamble (PG 0.13%)
  • Mastercard (MA 0.15%)
  • JPMorgan Chase (JPM -0.22%)
  • Walmart (WMT 0.13%)
  • Microsoft (MSFT -0.17%)
  • Caterpillar (CAT 0.69%)
  • UnitedHealth Group (UNH -0.26%)
  • Starbucks (SBUX 0.57%)
  • Oracle (ORCL 0.3%)
  • Northrop Grumman (NOC -0.01%)
  • McDonald's (MCD 0.48%)
  • Home Depot (HD -0.47%)
  • Kroger (KR 0.45%)
  • Merck (MRK 0.03%)
  • Intel (INTC -1.37%)
  • Goldman Sachs (GS -1.6%)
A bigger list of blue chips

Investing in Blue-Chip Companies

Blue chip stocks are excellent choices for all kinds of investors. If you're starting, you probably know these companies well because of their popular products. Investing in companies you're familiar with can be exciting.

On the other hand, experienced investors have seen blue-chip stocks succeed over many years. They've outperformed their competitors and adapted to changes in their industries.

No matter your experience level, blue-chip companies offer stability and dependability. Many pay regular dividends; some have increased these payments for a long, making them attractive choices for investors seeking income.

Hands-off investing with blue-chip funds.

Investors might consider exchange-traded funds (ETFs) and mutual funds as well. These funds focus on blue chip stocks and bundle them into a single investment. This way, you can easily spread your money across many top-quality stocks from various industries, like technology, pharmaceuticals, and utilities.

These investment options are often less risky than investing in individual stocks. This can be especially attractive to retirees or those nearing retirement who want more stability. Younger investors can also benefit from these funds. They get the diversification advantage without the need to research individual stocks extensively.

On the other hand, blue-chip ETFs might concentrate on high-quality stocks but offer fewer choices compared to broader ETFs that track indices like the S&P 500 or Nasdaq.

Blue chips in a well-balanced portfolio

Exploring small-cap stocks from innovative young companies is a good idea if you want to grow your investments as much as possible. These businesses aim to disrupt bigger competitors and become future blue-chip stocks.

However, blue chip stocks are beneficial for almost all investors. You don't need to allocate a specific percentage. It depends on your risk tolerance. The more you want to safeguard your investment and work towards your long-term financial objectives, the more appealing blue chip stocks become.

FAQs

1. What is a blue chip stock?

Blue chip stocks are shares in big, well-established companies that are highly regarded. Many of these companies pay dividends to their shareholders and have been profitable for many years.

2. What are the blue-chip stocks in the U.S.?

The United States has the highest number of blue chip companies compared to any other country. Companies like Apple, Berkshire Hathaway, Coca-Cola, Johnson & Johnson, and American Express are all considered blue-chip stocks primarily based in the U.S.

There are more examples of American blue chip companies, including AbbVie, Nike, Lockheed Martin, Honeywell, and Procter & Gamble. While many of these companies do business in international markets, most of the companies on lists of blue chip stocks are headquartered in the United States.

3. Are blue chip stocks worth it?

Investing in blue chip stocks is a smart choice for many investors. These stocks are backed by reliable, high-quality companies, making them attractive for long-term investments.

Blue chip companies usually have strong competitive advantages and a long history of profitability. While their growth rates might be slower compared to younger companies, which are still in the early stages of exploring market opportunities, blue chips come with lower risk and still provide the potential for solid returns.

Written by Sauravsingh

Techpreneur and adept trader, Sauravsingh Tomar seamlessly blends the worlds of technology and finance. With rich experience in Forex and Stock markets, he's not only a trading maven but also a pioneer in innovative digital solutions. Beyond charts and code, Sauravsingh is a passionate mentor, guiding many towards financial and technological success. In his downtime, he's often found exploring new places or immersed in a compelling read.

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