Blue Chip Stocks for Long Term Investment: The term “blue chip” has been adopted from the world of poker, where blue chips typically represent more value than the other colors. While blue chip companies don’t have a universal definition, these are some of the characteristics you can count on:
- Leaders in their respective industries
- Particularly high market caps
- Strong financials, as evidenced by income statements and balance sheets
- Several decades’ worth of stable earnings
- A long history of reliable dividend payments
- Dividend payments that keep pace with inflation
- Included in the S&P 500 – and in some cases, more impressive indexes like the Dow Jones Industrial Average
In short, blue chip companies can be relied upon to spare you the wild roller coaster rides of other stocks, making them a stabilizing component of any portfolio. These are seven of the best blue chip stocks for long-term investment:
Berkshire Hathaway Beats The Market Long-term
Warren Buffett is arguably one of the most gifted investors in the world. His holding company, Berkshire Hathaway, is a massive conglomerate that boasts such assets as McLane Company, a wholesale distributor, and Geico, a popular insurer.
That’s just the beginning. Berkshire Hathaway is diversified across numerous industries, and as of March 2019, it had a market capitalization of around $500 billion.
Not only is it one of the largest companies in the world – it is also extremely profitable. From 1965 to 2018, total returns came to 2,472,627 percent.
Compare that to S&P 500 returns for the same period – 15,000 percent – and you can see why Berkshire Hathaway is a blue chip.
AbbVie Is Diversified Through Recessions
It’s a well-accepted fact that the healthcare industry is poised for growth. The world’s population is aging, and medical advancements have made it possible for people to enjoy more healthy years.
With that said, a variety of medical conditions go hand in hand with aging, and the healthcare industry is preparing to offer the necessary treatments. AbbVie, a biopharmaceutical company, has a long history of capitalizing on global health trends, and many consider it to be a must-have in any well-diversified stock portfolio.
One of the most important benefits of investing in AbbVie is its ability to ride out market downturns with minimal loss of value.
While no company is truly recession-proof, the healthcare industry in general and AbbVie in particular typically do well. Need for healthcare services doesn’t decline when the economy is struggling, and AbbVie has built a model that resists recession, unlike many of its peers.
One of the biggest benefits of buying AbbVie now, is that by many measures it remains undervalued. Many analysts project returns ranging from 16 percent to 27 percent in the next five years, but stock prices simply don’t reflect that potential.
It’s actually something of a mystery, considering the company beats estimates quarter after quarter. In the recent announcement of fourth quarter 2019 results, AbbVie leaders reported two percent revenue growth totaling $8.7 billion – a full $20 million over consensus estimates.
AbbVie’s biggest claim to fame is its blockbuster drug Humira, which may not keep its leadership position much longer.
Biosimilars are coming to market, presenting significant competition. However, AbbVie’s leaders indicated that they aren’t worried about declining Humira sales, because the company has a new and potentially groundbreaking arthritis treatment on the way.
Walgreens Boots Alliance Is Virtually Recession-Proof
It’s true that retail pharmacies are having a tough time competing with online services. Over the past five years, Walgreens stock lost more than 20 percent of its value, as consumers are turning to more convenient home delivery options for their medications.
However, that’s not to say the company is on its way out. In fact, it has an entirely new strategic plan designed to offset the impact of e-commerce.
Walgreens is working to expand its list of services to include opportunities that can’t be matched by digital competitors. For example, it recently announced a partnership with weight-loss company Jenny Craig to offer one-on-one meal planning at locations across the chain.
In another effort to meet or exceed the options available from online retailers, Walgreens is experimenting with delivery services that are more convenient for customers. It announced that it plans to be the first retailer in the nation to try out delivery by drones.
If successful, this will exceed Amazon’s same-day or next-day delivery promise, as consumers will receive orders in a matter of minutes.
Perhaps the most important point is that despite the challenges facing traditional pharmacies, Walgreens has still managed to generate profit.
In 2019, the bottom line was nearly $4 billion. Shareholders enjoyed a dividend yield of 3.1 percent, which outshines that of its closest retail pharmacy rival, CVS.
Better yet, Walgreens is a recognized Dividend Aristocrat, having increased its dividend for more than 40 consecutive years. That’s a club most companies don’t qualify for.
The obstacles facing Walgreens don’t appear to be insurmountable, and there is every indication the company will continue to reward shareholders over time. With stock prices relatively low, this is an excellent opportunity to add a valuable blue chip to your portfolio.
Nucor Corporation Has A Phenomenal Track Record
As a whole, the US steel industry is facing some challenges, and a number of investors are rethinking their reliance on related stocks to keep portfolios stable. However, steel giant Nucor may be the exception to that trend.
Nucor is a leader in the steel industry, and while its stock has dropped in the past two years, most shareholders aren’t abandoning ship. Nucor, along with industry peers, showed a loss during the 2009 recession. For Nucor, that was the first and only loss in the company’s history.
It was able to turn things around quickly, unlike other US steelmakers, and it showed a profit by 2010. While competitors were selling off assets, Nucor was buying, cementing its position as leader of the pack.
One of Nucor’s most successful strategies is a system of profit sharing that protects its margins. When the company is profitable, employees are paid more, and when times are tough, they share in the downturn. As a result, margins stay stable, as expenses match profits.
Finally, Nucor outshines its competitors in the area of shareholder dividends. The company has increased its dividend every year since the 1980s, and there was no reduction in 2009 despite the economic challenges.
Today, the dividend stands at 3.3 percent. That record sets Nucor apart from every other steel business.
There are a couple of factors that will affect Nucor’s profits in coming years, and they are entirely outside of the company’s control. Decisions made around steel tariffs will determine how well Nucor can compete on a global scale.
More importantly, whether or not the US decides to focus on repairing and replacing crumbling infrastructure is critical to Nucor’s long-term success. If, as promised, legislation with significant infrastructure spending passes, Nucor is likely to be one of the biggest beneficiaries.
The recent decline in stock price is good news for those who are looking to buy blue chips, because it is an amazing value. Analysts forecast a 14 percent upside based on valuation analysis using discounted cash flow, but share prices don’t reflect that figure – yet.
Starbucks Is A Global Play & Growing
When a coffeehouse has locations on nearly every street corner, approximately 30,000 total, it must be doing something right.
Actually, over the years, Starbucks has done better than every street corner. It had or has shops in remarkable spots like CIA headquarters, China’s Forbidden City, and aboard US Navy warships.
In short, you can find Starbucks in some of the world’s most far-flung and remote locations, thanks to its strategy of staying up-to-date on every global consumer trend. Based on data from its popular loyalty program, the company has shown that its patrons choose Starbucks over the competition nearly every time, even if alternatives are more convenient or less expensive.
As of August 2019, Starbucks offered shareholders a cumulative ten-year return of 1,150 percent. For perspective, Berkshire Hathaway returned 223 percent over the same period.
Starbucks’ fiscal 2020 first quarter results were announced in January 2020, and they proved that the company is still leading the industry.
Comparable store sales were up five percent worldwide, with a six percent increase in the United States and a three percent increase in China.
Global net store growth came in at six percent higher year-over-year, thanks in part to a 16 percent net store growth in China.
One of the most telling figures in predictions for future growth was a 16 percent increase in loyalty program membership across the US, totaling 18.9 million unique consumers.
Analysts project a 20 percent upside based on valuation analysis, and the 1.9 percent dividend is an appealing prospect for income investors looking for reliable additions to their portfolios.
Universal Corporation, Mouth-Watering Dividend
Tobacco companies have historically been top performers, and Universal Corporation is no exception. However, as the number of smokers decreases and anti-tobacco legislation gains traction, some investors have questioned the industry’s long-term viability.
The good news for current shareholders – and the critical response to potential investors’ concerns – is that tobacco companies are changing with the times.
In fact, many are actively looking to leave the market altogether. Instead, they are focusing on products that present lower health risks, and they are testing out ways to enter the blossoming marijuana market.
Universal is in a particularly solid position to generate profits, as it was never in the business of producing cigarettes. It has always been a leaf tobacco seller, supplying manufacturers like Philip Morris, Altria, and British American.
As consumer habits have changed, Universal has entered the liquid nicotine market, meeting demand for the increasingly popular vaping and e-cigarette products.
Its strong relationship with tobacco-producing farmers puts Universal in an excellent position to transition to the cannabis market when legal use of recreational marijuana becomes the rule, rather than the exception. That means investors will continue to enjoy high dividends, like the current 5.7 percent.
Overall, analysts project a 21 percent upside for Universal stock based on valuation analysis.
Old Republic International, Blue Chip Heaven
It’s no surprise that some of the strongest blue chips fall in the financial services category. Old Republic International Corporation is an insurance holding company that works exclusively in the insurance underwriting business.
The January 2020 announcement of fourth quarter 2019 results demonstrated the company is holding its own in the industry. Fourth quarter net income excluding investment gains and losses came in at $143.5 million or $0.47 per share – a year-over-year increase of 4.9 percent.
For the year, Old Republic International produced a 10.8 percent return over the course of the year, which translated to an 8 percent dividend yield for shareholders. Analysts project a 24 percent upside based on discounted cash flow forecast, but current share prices don’t show that investors have caught on. If you are considering blue chip financial services stock, now could be the best time to buy Old Republic International.
Some people like to play the stock market because of the volatility. After all, it’s exciting to bet on the next big company, and when you are right, it’s a big win. However, most investors are looking for reliable income and earnings that can keep up with the cost of living. Blue chip stocks, while perhaps not as thrilling as other options that come in and out of fashion, have a long, established history of consistent growth and strong returns for shareholders.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.