The term ‘blue-chip stock' typically refers to a company with a large market capitalisation. You'll often find it's a big brand or household name.
Given their size, blue-chip businesses tend to be well established. They're often mature businesses with scale, and sustained growth rather than rapid. This means profits can be paid out as dividends to investors instead of fully reinvested into the business.
And, while blue-chip companies tend to have a more regular dividend history than smaller or younger companies, no dividend is ever guaranteed as Covid-19 showed us.
Unfortunately, there's no one size fits all when it comes to blue-chip stocks, they can be found in a whole host of sectors.
Here's a rundown of some of the common characteristics of blue-chip stocks and what makes them tick:
Given their size, you'll often find blue-chip stocks on the main stock exchanges across the globe.
Unfortunately, there's no clear-cut answer to this. Unlike in poker, where each chip is fungible and represents the same thing, each blue-chip stock is different.
As with any stock, the return you might see depends on a whole host of factors, from the underlying company itself, to the wider industry and economic environment.
If you pick a blue-chip stock that pays a dividend, you can dig into previous records to get an idea about the stability and consistent performance of historic dividend payments.
But remember, past performance isn't a reliable indicator of future returns. Your investments, and the income you receive from them, may go down as well as up so you may get back less than you invest.
However, delving into a stock's past will give you some ideas to work with. Our guide on how to buy stocks and shares walks you through some of the steps to do this.
While the blue-chip label is more of nickname than an official definition. Keeping in mind the business characteristics we mentioned above you can start to build a picture of potential advantages and disadvantages of investing in these companies.
We've included a few potential advantages below but whether these exist or not will be specific to the stock and company in question:
Some of disadvantages to consider are:
Here's a quick overview of 20 of the most popular blue-chip stocks from the Freetrade app in 2021 that we'll be discussing in the next section.
Before we get stuck in, it's important to highlight that this is a wrap-up, not a suggestion or recommendation that you buy or sell any of the securities mentioned.
Remember that everyone has their own goals and unique financial circumstances. These, along with your tolerance for investment risk time horizon , should inform the mix of assets in your portfolio.
Our resource hub for investing in the stock market might be able to help make that blend a bit clearer for you and our guide on how to invest in stocks is a great start for first-time investors. And if you are still unsure of how to pick investments , speak to a qualified financial advisor.
As one of the biggest and best-known companies in the world, in some respects it's difficult to get more blue-chip than Apple Inc.
Although this NASDAQ blue chip stock's dividend yield tends to be lower than some other US blue-chip stocks, this tech giant makes up for it with its strong record of growth. The dividend itself has actually been increasing, but because of Apple's rapid growth, the yield remains quite low.
Powering this performance is Apple's loyal customer base. And, the group's latest results suggest Apple's products and services are still in favour. Q2 revenue was $97.3bn, up 9% year-over-year. The company's $25bn net profit was also up 6% from the previous year.
But, it's rarely the case that a business' growth continues forever. In Apple's case, if we enter a recession and start tightening our purse strings, Apple may suffer. Will Apple's products (which are by no means essential) still be in demand? We might see many hesitating before buying that next iPhone model.
AfterIBM, this was one of the first major blue-chip tech stocks in the US.
Microsoft's fiscal year ended in June, and full results will be available at the end of July. But they continue to show resilience, with an 18% growth in revenue for Q3 of the fiscal year, at a time when the global outlook is unsteady and many companies are finding it tough to grow.
Software is Microsoft's bread and butter. Yet, expansion into cloud computing with Azure, and the acquisition of Activision Blizzard earlier this year, show there is no plan to rest on its laurels.
However, Microsoft isn't immune to challenges or market drops and that was clear amid the tech sector sell off this year.
Mickey Mouse's parent company has been a US blue-chip mainstay for years.
And like Microsoft, the company has managed to move with the times, gobbling up giant franchises like Marvel. And, taking on streaming superstars like Netflix head-on by launching Disney+.
In 2020, it was no surprise to see revenue fall by 6.1% as the pandemic meant no sales for an extended period from its lucrative theme parks, hotels, and cruise ships.
The good news is a return to normality has re-opened these revenue streams, whilst the streaming services (including Disney+, ESPN+, and Hulu) has attracted over 200 million subscribers, diversifying how Disney makes money.
But, inflation and in turn the cost of living crisis in the US and around the world might hinder Disney as the bulk of its business is made up of nonessential elements. Time will tell if consumers decide Walt Disney still deserves a slice of a restricted budget.
The ‘Oracle of Omaha', Warren Buffett could also easily be deserving of the title - ‘the godfather of blue chips'.
Berkshire Hathaway is somewhat of a homage to the very definition of what it means to be a blue-chip stock.
The company owns significant chunks of some of the bluest chips on the market. This includes the likes of Apple, American Express, GEICO, National Indemnity, and Kraft Heinz. The holdings are a who's who of blue-chip stocks, with some potential future contenders sprinkled in.
Investors looking to add a blue-chip drink maker to their portfolio often consider Coca-Cola.
It's earned a reputation as a US dividend-paying stock, thanks to relatively reliable revenue streams. After all, your soft drink of choice is perhaps not the first thing to go when consumers face tougher times.
The firm's pricing power has also allowed them to survive past periods of inflation pretty well.
Coca-Cola has raised its annual dividend for six consecutive decades, which is impressive. But, the dividend yield offered is nowhere near the current levels of inflation, so while reliable it may not be deemed rewarding. On top of this, Coca-Cola has seen limited revenue growth in recent years. So, it's not a bulletproof pick.
Lloyds Bank is often a top UK shares pick for investors looking for a blue-chip with a track record when it comes to dividends.
Lloyds has had a strong past year, displaying a healthy balance sheet, solid cash position, and a business model that has historically coped well with rising interest rates.
But, Lloyds are in a position where a dragged-out economic downturn could harm future performance. As the UK's largest mortgage provider, a lack of international diversification means a drop or crash in the UK housing market could leave this blue-chip stock exposed to some tough years.
BP ticks a number of blue-chip investors' boxes.
Energy is always in demand, allowing BP to develop a sturdy business infrastructure. And, BP is an industry leader that also pays a dividend. Tick, tick, tick on the blue-chip checklist.
But, current demand for energy and fossil fuels might wane in the coming years. If the UK puts its money where its mouth is, the green transformation could leave this blue-chip oil stock left out in the cold.
This is the type of blue-chip stock that's often consistently popular, especially when there's a potential recession on the cards.
It's one of the world's biggest healthcare businesses, an industry that tends to hold up and remain robust even during economic uncertainty. So, you might see GSK sitting amongst the portfolios of investors attempting to ‘recession-proof' their holdings.
However, GSK is not immune to the rising costs and supply chain issues that other stocks face. And,the recent demerger of its consumer healthcare business to focus entirely on biopharma may mean it takes some time before the business is operating smoothly.
This is a UK blue-chip stock that owns a huge number of big-name household brands.
Unilever has a strong and well-established consumer foothold. The business is made up of over 400 brands, including Lynx, Dove, Hellmann's, Persil, and Ben and Jerry's.
Although many brands will be able to use pricing power if inflation refuses to ebb, some parts of the business will likely struggle as customers cut their spending and look for cheaper alternatives.
This UK business has been around for a long time and was one of the most popular British stocks on Freetrade last year.
With a heavy focus on insurance, pensions, and investments, the nature of these long-term products has built a strong, long-term customer base. That can make them an attractive pick for long-term investors too. Predictable revenue streams have historically allowed L&G to reward investors with one of the more generous dividends on offer from a UK blue-chip stock.
Yet, a weakening economy and the possibility of a recession has, like with any business, the potential to take the shine off the business. Poor performance from the investment arm of the business could cause a drag, stunting the growth of L&G if a recession does take hold.
Mining is the name of the game for this UK blue-chip stock.
Mining stocks have done relatively well over the last few years. The raw materials they dig up such as cobalt, nickel, and copper are now being used in a huge array of industries, including tech and the EV market.
This refreshed demand for mining has also tied in well with a general commodity boom. So, with prices rising, miners' profits have surged as they've been able to keep costs stable. And, RIO has a good relationship with China, supplying the bulk of its iron-ore to the world's largest manufacturing region.
This means Rio has been able to be quite generous with its dividend payments, giving it one of the higher yields you'll have seen at the moment.
Now, a high dividend yield doesn't make it a great investment or mean it's guaranteed to be one of the top dividend stocks for 2022 . But, it's definitely a popular choice for investors looking to take advantage of the recent commodity boom.
However, China caused drop in iron ore prices and wider global economic pressures may start to squeeze this major blue-chip mining stock.
Meta, previously Facebook, is technically a relatively new company and so only quite recently achieved blue-chip status in the eyes of many investors.
But, what the investing lords giveth, they also taketh away and the US blue-chip tech stock has struggled lately.
Its pivot to the Metaverse hasn't gone down well with all investors. And that's coupled with tougher times.
Meta announced its first-ever drop in new customers, and lacklustre earnings, right at the beginning of the recent tech sell-off.
But, as the dominant force in social media with a thriving digital ad business there's a case to say the story isn't over for Meta.
Amazon's played a big role in the US stock market for a while now.
And like Meta, amid the recent tech sell off, it's feeling the heat. But it's important to question whether the change in stock price is actually reflective of what's going on under the hood.
how to value individual stocks is a useful skill, but is not an exact science.
While comparison against peers is an important consideration in the process, the bulk of the process involves judging and comparing Amazon against itself.
With strong estimates for profit growth ahead, despite inflationary pressures, there are reasons to be cheerful. But inflationary pressures are likely to take a hit and the big question the market is asking is can Amazon grow profits at the speed it used to?
As we've just spoken about, it's not the share price itself that really matters, there actually really isn't any such thing as a ‘low price blue-chip' stock.
What matters the most is what you re getting in return for that price, how reflective (or not) is the share price of the businesses future prospects. Will that value increase or decrease over time?
Low priced things are often low for a reason, so it's important to keep this front of mind.
Using this approach, we've had a think about which blue-chip shares are currently trading at prices low by historical standards and dig into why.
Aviva is an insurance blue-chip stock that's known mostly amongst investors for its dividends. It's regularly one of the most traded stocks on the Freetrade app.
After a few years of restructuring and slimming down, the firm has managed to reduce its cost burden. The insurance company also has a low p/e ratio, smaller than the average amongst the top 100 UK companies.This low price-to-earnings could signal that the current share price is undervalued compared to how much money Aviva is making.
But, it could highlight that the market thinks Aviva won't do as well as some of its peers. With rising interest rates, soaring inflation, and plenty of economic uncertainty, this refreshed company is going to have some sticky challenges to overcome.
This telecommunications firm is another UK blue-chip stock known for its dividends. And with its share price sitting in unloved territory, Vodafone currently offers a relatively high dividend yield.
And while inflation could reduce some consumer spending, mobile phones and broadband access have become an essential part of our lives. Ones that are unlikely to be the first cut from budgets.
Operating globally means the firm isn't reliant on the UK market either, and investors get exposure to Vodafone's wide geographic presence. Including, being a leading fintech provider in Africa.
One thing that could be turning investors off Vodafone is its fairly high level of debt, around $41bn. This isn't necessarily that unusual for companies that have big infrastructure spending. But compared to past examples in stock market history, this could hold back growth or impact its ability to pay dividends down the road.
BMW was the top German stock on Freetrade in 2021. This manufacturer is a well-known and well-established brand targeting the mid-range car market, it also owns major car brands Mini and Rolls-Royce.
It's a hugely recognisable car company renowned for its quality whilst also being affordable for middle-class earners, allowing BMW to grow its market cap to roughly $50bn.
The business is always looking forward and is ramping up its EV manufacturing in an attempt to compete with big players like Tesla. But, this transition to electric will be expensive, and it's an area that will present new challenges for BMW in the years to come.
This European blue-chip stock is also based in Germany, but brings with it global operations and a brand name that's recognised just about everywhere.
It's one of the most valuable sports brands in the world. And this is reflected in the stock, with strong fundamentals but also opportunities for growth.
However, inflation and rising costs are likely to present obstacles and challenges for Adidas. And, with a big part of the business reliant on China for both sales and supplies, the recent lockdowns have caused a lot of pain. So much so that Adidas had to cut its guidance and saw its latest fiscal quarter's sales slide, yet it's previously faced and overcome plenty of tests throughout its over 70 years of business.
Investing in the whole S&P 500 index via ETFs (or, exchange-traded funds) could be a useful way to get exposure to many of the top US blue-chip stocks in one go. This is why broad ETFs are often considered one the best investments for beginners By investing in this whole index, part of your investment will be going straight into the pockets of major blue-chips such as Johnson & Johnson, Exxon Mobil, and Procter & Gamble.
However, by investing in the whole index with this ETF, you'll also be putting money into stocks that don't qualify as blue chips.
There are plenty of companies in the UK that qualify as blue-chip stocks, and many have historically had a strong commitment to paying dividends.
If you're looking for UK blue-chip stocks, this ETF which invests in the biggest 100 companies in the UK, is worth a look. It includes the likes of AstraZeneca, Diageo, and British American Tobacco.
Remember though, that the market-cap weighting means the top holdings will get the majority of your investment. And, with a UK ETF you won't necessarily get much international diversification, apart from the UK firms that operate in other countries.
If you want an ETF that invests in European blue-chip stocks, this was a popular option on Freetrade last year.
It contains roughly 50 companies, which is comparatively smaller than some other major indices. But, what it lacks in numbers, it makes up for in style, including huge names like AB InBev, Airbus, and Allianz.
You will get some international diversification from within the Eurozone. But, it's still worth making sure your portfolio is diversified elsewhere, and not reliant on a single region.
To show you some more popular examples from the Freetrade app that haven't been covered, here's a list of some additional major blue-chip stocks from the US, UK, and Europe:
Remember this is a wrap-up, not a suggestion or recommendation that you buy or sell any of the securities mentioned.
Blue-chip stocks and penny stocks, the world of investing sure loves a catchy name.
An important thing to consider is that while blue-chip companies tend to be well-established with a firm footing in its respective market or industry, penny stocks are usually at a different level of maturity.
Both blue-chip stocks and penny stocks can have a place in a healthy investment strategy, providing the businesses underneath these labels are up to scratch.
But, it’s important to keep in mind that, generally speaking, investing in penny stocks can be a riskier affair.
This is a common question for investors.
But the reality is that, some blue-chips will help bolster your portfolio against a recession, others won’t. It’s a company specific thing.
By including some blue-chip stocks, you’re not guaranteed to recession-proof your portfolio. It will still matter which firms you choose to back, and how they cope with a downturn in economic activity.
It’s often hard to predict how companies will fare during these periods. History won’t repeat but it often rhymes, so looking back at past performance during turbulent times may give you an initial idea.
So, when building any portfolio, it’s worth using a mixture of blue-chip stocks from various sectors and countries to give yourself the best chance of recession-proofing your portfolio.
All stocks still carry a degree of risk, and blue-chip stocks are no different.
These stocks tend to be market leaders, which can make them a more steady investment pick than companies that are growing and trying to establish themselves.
But, as times change and technology advances with new ideas, no company stays on top forever. So, it’s important to be realistic when you’re assessing how safe a blue-chip stock is.
They can be, but it’s important to ensure the blue-chip stock in question fits in with your investing strategy, time horizon, and risk appetite.
Investing in blue-chip stocks can play a useful role in your portfolio. But, simply selecting a stock because of its blue-chip status won’t guarantee investment success.
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