A Guide To The Best Blue Chip Stocks To Trade
Are you unsure how blue-chip companies and their stocks could impact your investments? This guide offers the overview that you are looking for, as it discusses the best blue-chip stocks to trade. This guide also outlines the top European and UK blue-chip stocks, the highest dividends for blue-chip stocks, and general investments in blue-chip stocks.
'Blue Chip' Companies: Why and When?
Only a handful of companies can be considered as a proper "blue-chip" company or stock, but before we explain when they "qualify", let us first address the meaning itself. Whether a stock is considered blue chip may vary from investor to investor, as it depends on their own individual assessment. That being said, there are a couple of criteria that experts agree on.
Here are the three main aspects for analysing whether a company can be considered to be a blue-chip stock:
- Well-known: these companies are (relatively) well-known with the general public or investor, and often considered to be a "household" name.
- Secure: these stocks are relatively safe investments because they tend to perform relatively well during periods of economic booms and busts. The company's finances are also stable.
- Established: these stocks are often included in the major stock market indexes, either in the US, or with other world wide indexes. It goes without saying that these companies have operated for years and often decades.
The overall main feature of a blue-chip company is its dominance in a particular sector via its large market share, and a well recognized brand. There is no formal list of companies that are recognised as blue-chip stocks, but the 30 stocks in the Dow Jones Industrial Average (DJIA) are often seen as proper examples. Some of the better known companies in the DJIA that are mostly considered to be blue-chip stocks include: Apple, Boeing, Caterpillar, Coca-Cola, IBM, Goldman Sachs, Exxon Mobil, Intel, McDonald's, Microsoft, Nike, Visa, Walmart, Walt Disney.
These Blue-chip companies have very high market capitalization levels, which indicate the total value of the company (number of stocks multiplied by current stock price). Market cap levels run into the billions, and may even reach the trillions. Apple in fact was the very first company to reach a trillion Dollar value in 2018, causing major headlines in various news outlets across the world.
Investing in Blue-Chip Stocks
Making investments in blue-chip stocks is considered to be (one of) the safest options for investors, due to the companies' dominant market positions, market cap, size, financial position, and solid reputation. Those stocks also often offer stable earnings, stable earning growth (rate of change), stable dividend payments, and sometimes even stable dividend growth.
The best blue-chip stocks have a long track record of paying out dividends to investors. Some investors, such as Ben Graham in his book "The Intelligent Investor", prefer a 20 year payout track record. All of these advantages make blue-chip stock very appealing for small, medium, and large investors a-like. But that does not mean that these are immune to economic downtrends and recessions.
WYATT investment research made a comprehensive evaluation of the stock performance of three large and well-known companies from the US: AT&T, General Electric (GE), and E.I. DuPont (DP). WYATT compared the performance of these three companies with the overall stock market during the two most famous and largest market crashes in the 20th century, which took place in 1929 and 1987.
DJI +/- -40.0%
Source: Historical stock performance: WYATT Investment Research
As you can see from the table above, the main advantage is that blue-chip stocks are historically more resilient (their losses were smaller) and can recover quicker. For the three stocks mentioned above, it took only two years for them to return back to their initial values after the crash in 1987.
Source: Business Insider This graph depicts the stock market development between 1927 to 1932, including the stock market crash between 1929 to 1932 - Please Note: Past performance does not indicate future results, nor is it a reliable indicator of future performance.
Although blue-chip stocks are more resilient, this does not exclude some companies from exiting the Dow Jones Industrial Average (DJIA) or from new companies entering the list. Additionally, there are not official publicly known criteria for making this choice. The only available guideline offered by the DJIA committee is that a stock is added when a company has an "Excellent reputation, demonstration of sustained growth, and interest to a larger number of investors."
Some of the most reputable and well-known changes that have occurred in the last 5 years include:
- When Walgreens Boots Alliance replaced General Electric in 2018.
- When Apple replaced AT&T in 2015.
- When Goldman Sachs, Nike and Visa replaced Alcoa, Bank of America, and Hewlett-Packard in 2013.
Top European Blue-Chip Stocks
The European equivalent of Dow Jones Industrial Average could be considered the Dow Jones EURO STOXX 50 index. This list could represent the most well-known European blue-chip stocks. The index covers Europe in general, the Euro zone, and Eastern Europe. If you are interested in trading with blue chip stocks, why not try trading Share CFDs with Admiral Markets? You can trade CFDs on the world's most famous blue chip stocks, and benefit from moves in any direction. Trade with all sorts of companies from around the world, including: Apple, BT, CitiGroup, Google, Facebook and many more!
The top 15 companies of the Dow Jones EURO STOXX 50 are listed here. The sequence is decided by the weight it has in the index:
- Total (TOTAL SA) from France with 5.22%
- SAP (SAP) from Germany with 5.16%
- Linde (LIN) from Germany with 3.98%
- LVMH (MOH) from France with 3.96%
- Allianz (ALV) from Germany with 3.63%
- Sanofi-Aventis from France with 3.53%
- Siemens (SIE) from Germany with 3.42%
- Unilever (UNI2) from Netherlands with 3.17%
- ASML (ASME) from Netherlands with 3.06%
- Airbus Group (AIR) from Netherlands with 2.82%
- Anheuser-Busch InBev from Belgium with 2.74%
- Banco Santander (BSD2) from Spain with 2.61%
- L'Oréal (LOR) from France with 2.51%
- BASF (BAS) from Germany with 2.32%
- Iberdrola (IBE1) from Spain with 2.15%Nobody knows for sure whether these companies will remain in the top 15 a few years from now, or whether all of these firms will manage to sail through rough financial and economic storms without damage. But what can be said is that these European blue-chip stocks are mature, well-known, and industry leaders. As an investor, it is worth considering these stocks in one's portfolio. Also as a trader, these stocks tend to have lower volumes and greater price volatility, which in turn opens up the door for more trading opportunities.
Top UK Blue-Chip Stocks
The UK blue-chip stocks are listed on the FTSE 100 Index, which is an abbreviation for the Financial Times Stock Exchange. It consists of 100 companies and is based on the highest capitalised firms within the UK.
Here is a list of ten companies that are typical examples of blue-chip stocks from the UK:
- Royal Dutch Shell (RDSA)
- BP (BP)
- HSBC (HSBC)
- Vodafone Group (VOD)
- GlaxoSmithKline (GSK)
- Rio Tinto Group (RIO)
- Royal Bank Of Scotland Group (RBS)
- Anglo American (AAL)
- British American Tobacco (BATS)
- Genel Energy PLC (GENL)
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Best Blue-Chip Stocks for 2020
There is no shortage of advice when you search for the best blue-chip stocks. Although these lists are interesting pieces of information, and offer valid starting points for your research, it is certainly not recommended to blindly follow the advice of a top five or ten list. The best course of action is always to conduct your own thorough research. In addition, it is best if this research is based on a list of criteria that you deem critical for a well-balanced investment portfolio or trading approach. That being said, there are plenty of ways to find recommendations when searching the internet.
Here is a list of 3 blue-chips companies that might be worth considering:
- Cisco Systems (NASDAQ:CSCO). Over the last years Cisco continued to add new capabilities to its services platform and recently unveiled new conversational Artificial Intelligence to its interfaces. Adding in continued data center demand as well as the pending 5G upgrades, makes Cisco an interesting look.
- Merck (NYSE:MRK). After a few years ago, Merck focussed more on newer biotech and advanced cancer-fighting medications, this move turns now out to have been the right one. Merck's Keytruda became one of the go-to medicine for a variety of lung cancers with significant growth rates.
- American Express (NYSE:AXP). Amex is interesting due to its focus on the higher end of the credit spectrum which removes many of the uncertainty and issues with offering loans and where reducing default rates could play a significant role over the midterm with debt significantly increasing, especially in the US.
Highest Dividend Blue-Chip Stocks
There is also plenty of advice that can be found on the internet for this topic, however, it is always important to conduct proper analyses for each blue-chip stock, especially when looking for higher returns on dividends. Often a higher dividend rate indicates a lower stock price growth, but there are a few blue-chip stocks that manage to offer an interesting combination, whereby decent dividend rates are paired with decent growth rates. Here are four blue-chip stocks that managed to beat the odds.
- Zoetis (ZTS)
An animal drug and vaccine producer:
Dividend yield: 0.6%
Dividend growth rate: 49.4%
Year to date gain: 20.0%
- UnitedHealth (UNH)
A health insurance provider:
Dividend yield: 1.4%
Dividend growth rate: 28.0%
Year to date gain: 14.9%
- Mastercard Inc. (MA)
A payment processor:
Dividend yield: 0.5%
Dividend growth rate: 40.1%
Year to date gain: 30.8%
- Nvidia (NVDA)
A semiconductor manufacturer:
Dividend yield: 0.2%
Dividend growth rate: 21.3%
Year to date gain: 26.5%
Source: Dividend growth rates and year to date price gains are up to 31 July 2018. Dividend growth rates are an average of annual increases over the past 5 years.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.