Blue-chip stocks: are they the best bet?
Blue-chip stocks are back in vogue as the stock market experiences unprecedented levels of volatility. Here’s how they can form a part of your investment strategy
Blue-chip stocks have traditionally been seen as rather boring. These companies are often market leaders in their respective sectors, with consistently solid earnings and dividends. Because of their reliability, they don’t tend to rock the boat too much – meaning that there’s little chance of capitalising on a massive uptick in share prices.
So why invest in blue-chip stocks? The answer is simple: everything has changed in the age of Covid-19. With so much volatility rocking the markets, stability has become an extremely valuable commodity. These days, many investors are constantly on the lookout for blue-chip stocks with high dividends – companies that are well prepared to weather this financial storm and deliver income in return. This guide explores the history of blue-chip stocks, and offers top tips on how to find the best investment opportunities.
Why are blue-chip stocks called that?
Let’s begin with a common question that’s asked whenever blue-chip stocks are mentioned in newspapers or on financial news channels: where do they get their name from?
A common misconception is that companies in this category are all based in the technology sector. Blue-chip stocks actually get their name from poker – as traditionally, this is the colour reserved for chips with the highest value in this card game.
Some of the most common blue-chip stocks to invest in include big brands that we all know and love. Apple, Microsoft, Intel and IBM are some classic examples of blue-chip stocks in technology. In the consumer space, you’ll find the likes of Walmart, McDonald’s and Coca-Cola. Finance is represented thanks to Goldman Sachs – and if you want to look good with your blue-chip shares, you can always splash out on a pair of new trainers from Nike.
All of these companies operate in entirely different sectors, markets and geographies. Despite this, blue-chip stocks are united by certain characteristics that separate these equities from all others. They include:
Solid financials. The best blue-chip stocks to invest in will have a long and storied track record of growing their business – and better still, they won’t rest on their laurels. Companies in this elite tier have excellent prospects for the future, meaning that there’s little chance of them being usurped by a smaller competitor.
A big market capitalisation. Most blue-chip stocks are for companies with a valuation that exceeds $10 billion. As a result of this, they’re exclusively found in major stock indices such as the FTSE, Nasdaq, S&P 500 and Dow Jones.
They pay out to investors. When you’re a company as big as Visa or Starbucks, you don’t need to plough as much of your earnings back into the business to unlock further growth. Blue-chip stocks with high dividends make regular payouts to their shareholders – and for those who are in retirement, this can result in a healthy income.
Naturally, the challenging financial landscape right now means that even the most famous blue-chip stocks might not tick all of these boxes. Many companies have had their financials seriously undermined after they were forced to close their stores and restaurants, while others have cut dividends or suspended them altogether until they’re on a firmer footing. As an investor, it’s important not to be spooked by these short-term bumps in the road. Instead, you need to determine whether the company’s foundations are still strong, meaning they’ll bounce back as the economy tentatively begins its fightback.
Blue-chip stocks for long-term investment
Let’s take a look at some of the top blue-chip stocks to watch right now. If you were keeping an eye on the news early on in the pandemic, you will have seen the frenzied scenes in Costco branches in the UK, the US and beyond as people stocked up on toilet paper and other essentials. Costco’s wholesale, bulk-buying approach has proven a boon during Covid-19, as shown by the strong sales it enjoyed in May.
Some analysts, such as Telsey Advisory Group’s Joseph Feldman, believes Costco could be a solid blue-chip investment – and predicts the stock is going to outperform the wider market. He wrote:
“Costco's May sales were significantly better-than-anticipated – a strong rebound after a soft April that reflects value and high member loyalty in a tough retail environment.”
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For those who are on the lookout for blue-chip stocks with dividends, PepsiCo is another consumer discretionary stock that should feature high on your list. People aren’t buying as many fizzy drinks as they once were, but the company had the foresight to diversify into a range of healthier beverages to protect its bottom line. Although the stock is down from the start of the year, Credit Suisse says it’s impressed with how the company is navigating Covid-19, writing:
“Fight, not flight. Companies able and willing to invest through crises are more likely to outperform peers at exit. PepsiCo is one of those companies – upping investment in people, capabilities, and retailer execution.”
PepsiCo has also cemented its reputation among the top blue-chip dividend stocks thanks to how it has managed to increase payouts to investors consistently since the 1970s.
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Other blue-chip stocks to keep track of include Visa. Although levels of consumer spending are down at the moment, Covid-19 is likely to have a lasting impact on how we spend money – hastening the decline of cash. Given how the company boasts the world’s largest payments network, complete with cutting-edge technologies and mobile-based solutions that could represent the future of commerce, many analysts believe this is a blue-chip investment that has a chance to flourish.
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How to buy blue-chip stocks
Blue-chip stocks are being brought into the 21st century thanks to tokenisation – and through websites such as Currency.com, you also have the opportunity to get involved in blue-chip shares using cryptocurrencies such as Bitcoin and Ethereum if you should so wish.
At a glance on our website, you can see the blue-chip stocks that are most traded right now — including the top risers, top fallers and which equities are the most volatile. The platform features some of the world’s best-known stocks – everything from Apple and Netflix to Walt Disney and Tesla. And, if you prefer, you can also gain exposure to blue-chip stocks by investing in an ETF.
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