Investing in Blue Chip Stocks

Updated: Oct. 8, 2020, 3:50 p.m.

Blue chip stocks are the stocks of well-known, high-quality companies that are leaders in their industries. These companies have stood the test of time and have gained the respect of their customers and their shareholders. They often make regular and growing dividend payments. With solid business models, blue chip stocks have produced long records of attractive returns, and that's made them among the most popular individual stocks in the stock market for conservative investors looking for places to put their money to work.

Best blue chip stocks

Even if you've never invested before, you'll recognize many of the names of the top blue chip stocks. That's because the products and services that these large-cap stocks provide are part of everyday life for billions of people across the globe. Some of the best blue chip companies you can buy are the following:

  • Apple (NASDAQ:AAPL) is one of the largest companies in the world, and it's been a pioneer in the technology sector throughout its history. With an array of products from its innovative Macintosh computers in the 1980s and the iPod portable media player in 2001 to its ubiquitous iPhones, iPads, and Apple Watches today, Apple has won a core following of customers around the world who flock to buy its latest products. Apple also earns recurring revenue through its services, which include its groundbreaking iTunes, App Store, and streaming television businesses. Apple's market capitalization climbed above the $1 trillion mark in 2018, and it's still growing.
  • Berkshire Hathaway (NYSE:BRK.A) (NYSE:BRK.B) is a major player in the insurance industry, offering various lines of commercial and personal insurance through subsidiaries like GEICO and Gen Re. But Berkshire owns a diverse set of businesses, ranging from Dairy Queen and Fruit of the Loom to railroad giant BNSF and its Berkshire Hathaway Energy utility company. CEO Warren Buffett has amassed one of the most impressive track records of market-beating returns in history, and Berkshire Hathaway has a reputation for safety and security as well as fine performance.
  • Coca-Cola (NYSE:KO) has been a leader in the beverage industry for more than a century, as its namesake sugary soft drink has spawned a global empire. Yet Coca-Cola has also proven that it can change with the times, and now the beverage leader has a much broader array of products including juices, sports drinks, bottled water, and soft drinks tailored for more health-conscious consumers. Rising dividends also make Coca-Cola stand out, with a streak of consecutive annual dividend payment increases that dates back to the early 1960s and has put it among the top 10 dividend stocks in the market.
  • Johnson & Johnson (NYSE:JNJ) is well known for its popular consumer products, including baby shampoo, Band-Aids, and Tylenol pain reliever. But J&J is a true healthcare giant, making a wide array of medical devices to help doctors and other medical professionals perform life-saving procedures. Moreover, Johnson & Johnson has a vast pharmaceutical business, producing drugs like the arthritis treatment Remicade, prostate cancer fighter Zytiga, and psoriasis drug Stelara. With its huge scope, Johnson & Johnson makes a difference in the lives of millions of people worldwide.
  • Walt Disney (NYSE:DIS) has an illustrious history, starting with its namesake creator’s disruptive innovations in the animation industry. Since the early 20th century, Disney has transformed itself into an overarching media and entertainment titan. Its movie studios have made massive acquisitions to become a driving force in Hollywood, but it has also built out its television business, which includes key assets like the ABC broadcast network and the ESPN sports franchise. Disney also has huge exposure to the travel industry, with its theme parks being landmark destinations for many vacationers and its cruise ships helping to introduce Disney fans to the seas. Add to that an extensive network of retail stores, and it's clear how Disney has mastered the art of touching its customers' lives in many different ways.
Blue poker chips on stock market background

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Investing in blue chip stocks

Blue chip stocks are smart investments for investors of all kinds. Even if you're just starting out with investing, you're likely to be familiar with blue chip companies and the products and services they offer to their customers. Knowing something about the companies whose stocks you're buying makes it more comfortable to be an investor and partial owner of their businesses.

More experienced investors can also appreciate many of the attractive features blue chip stocks offer. The longer you've invested, the more you've seen how blue chip stocks rise to the top over the long haul, outlasting their weaker rivals and finding ways to stay relevant and keep growing even as their industries change.

No matter how long you've invested, if you're a conservative investor, you can appreciate the stability and reliability that blue chip businesses give to their shareholders. Blue chip stocks often hold up better during dramatic downturns than their smaller rivals, and their investors tend to remain more confident about their long-term prospects than less well-established businesses.

If you're looking for maximum growth in your stock investments, you'll want to make sure you go beyond blue chip stocks to look at some up-and-coming small-cap stocks of innovative young companies that are seeking to disrupt their larger rivals. These high-growth upstarts aim to be the blue chip stocks of tomorrow.

However, just about every investor can benefit from having a portion of their portfolio invested in blue chip stocks. It doesn't have to be a set percentage, as different investors will have different viewpoints about how much risk they want to assume. The more you want to preserve and protect the money you have invested in the stock market, however, the more attractive blue chip stocks will be as you try to meet your objectives and reach your long-term financial goals.

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