If your portfolio is crammed with small companies such as DynaTechnoWizardry (ticker: ZOOOM) and BioLife TechMed Sciences (ticker: HUHHH), you may be taking on more risk than is prudent. You may want to offset your small-cap companies with some large-cap ones.
For you, I present a handful of blue-chip companies to consider. Even if you think your portfolio is doing just fine, you may want to give some of these firms a little thought, or perhaps just keep an eye on some. Let's back up a mite, though. In case you didn't know, "blue chip" is a term used to describe large and stable companies with established track records.
Note that this is not a list of "buy" recommendations. They're just companies that seem particularly interesting for one reason or another. There are probably some blue-chip companies on the list that will perform very well over the next few years, while others may be in for some tough times. Some are absolutely terrific companies, but their stock prices are not bargains at current levels -- you might add such firms to your watch list, in case a good buying opportunity develops in the future. (Meanwhile, if you want explicit recommendations, check out our suite of investment newsletters, which deliver several promising ideas each month -- we've got newsletters for income investors, small-cap investors, general investors, and mutual fund investors.)
Without further ado.
Automatic Data Processing
This company rakes in more than $7 billion annually from its 500,000-plus customers, cutting checks for more than 30 million people each day. In the words of Hoovers.com, "Although more than 60% of sales come from employer services, ADP also provides securities transaction processing to brokerage firms, and inventory and other computing and data services to more than 16,000 auto and truck dealers. Other offerings include accounting, auto-collision estimates for insurers, employment background checks, desktop applications support, and business development training services." Read more about it in this article, Paychecks from Paychecks.
Don't let the share price of more than $3,000 (for the less-expensive class of shares!) scare you. You can always buy just one share instead of 100 or 200. This company is run by none other than the world's most talented investor, Warren Buffett. It's a conglomerate most involved in insurance (owning GEICO and General Re, among other operations), but it also owns businesses as diverse as Dairy Queen and Nebraska Furniture Mart and sizable chunks of the Washington Post Company
Citigroup is a financial services giant, with profit margins and return on equity in the high teens in recent years. Operating in the fields of credit cards, retail banking, investment banking, brokerage services, asset management, consumer finance, and commercial lending, it makes nearly $100 billion annually. Its massive size may make it hard to grow quickly, but it's still extremely profitable, netting more than $15 billion in 2003.
With annual revenues topping $4 billion and net profit margins above 10%, this is a solid performer. The company may not be a fast grower (many big blue chips are not), but Clorox does offer a dividend yield of around 2%, and it routinely increases its dividend. The company's brands include Clorox germicidal bleach, Clorox toilet bowl cleanser, Combat insecticides, Formula 409 cleaners, Hidden Valley dressing, KC Masterpiece barbecue sauce, Liquid-Plumr drain opener, Pine-Sol cleaner, S.O.S pot and pan detergent, steel wool soap pads, and Tilex instant mildew remover.
The Walt Disney Co. is one that I couldn't bring myself to remove from this list, but truth be told, it currently has a heck of a lot of uncertainty surrounding it. Still, whether CEO Michael Eisner stays or goes, the company will still envelop a lot of compelling property, such as ABC, ESPN, theme parks and resorts, television and movie production businesses, and more. It's a leader in family entertainment. Longtime Disney fan TMF Edible recently examined the company's situation.
Disney discussion board
It's hard to find many larger companies than ExxonMobil, which raked in nearly a quarter of a trillion dollars in 2003, netting nearly $19 billion in earnings. Its return on equity has fluctuated in recent years, from the teens to low 20s, while its net profit margin has generally climbed to around 8%. Its P/E ratio of around 14 is near the low end of its five-year P/E range of between 10 and 40, and it offers a dividend yield above 2% to boot.
Exxon Mobil discussion board
These are the kinds of years when companies such as General Dynamics shine. During wartime, it is extra busy. Roughly half of its business comes from the Pentagon, with some other business coming from other nations' governments. The firm's revenues have been steadily growing over the past few years, topping $15 billion last year. But return on equity has slipped from the mid-20s to the teens, while net profit margins have slipped from near 10% to near 6%. The company will benefit from a prolonged war, but even without the war, there's always antiterrorism activities to supply and aging defense equipment to replace.
General Dynamics discussion board
This is the maker of my favorite cereal, Lucky Charms. It also has a few other brand names in its tent that you might have heard of: Cheerios, Wheaties, Betty Crocker, Old El Paso, Progresso, Green Giant, Helper casserole mixes, Pillsbury, Gold Medal flour, Chex, Fruit Roll-ups, Pop Secret, Nature Valley, Yoplait, Colombo, and Haagen-Dazs. The company makes more than $11 billion annually, with net profit margins around 9% and return on equity in the low 20s.
General Mills discussion board
Gillette's brands include Sensor, Venus and Mach3 razors; Right Guard, Soft & Dri and Dry Idea deodorants; Braun coffeemakers and electric shavers; Oral-B and Rembrandt dental care products; Duracell batteries; and Thermoscan thermometers. The firm has been in a bit of a slump lately, but its brand names are powerful and represent many repeat-purchase businesses. It has been working on turning itself around -- read Alyce Lomax's take on its latest acquisition.
Gillette discussion board
IBM revenue totals nearly $90 billion annually, making it the world's largest computer equipment and services company. In the last few years, return on equity and net profit margins foundered a bit, but they're moving back up, at around 22% and 7%, respectively. The company is focusing more on its services offerings these days, which provide thhe promise of higher profitability.
IBM discussion board
These are admittedly only a few of the many blue chips out there. Next week, I'll present 10 more, but in the meantime, I invite you to share some of your favorite blue-chip companies on our Commentary discussion board. Or just drop in to see what other Fools are saying.
Selena Maranjian produces the Fool's syndicated newspaper feature -- check it out . She owns shares of Berkshire Hathaway. For more about Selena, view her bio and her profile . You might also be interested in these books she has written or co-written: The Motley Fool Money Guide and The Motley Fool Investment Guide for Teens . The Motley Fool is Fools writing for Fools.