There has been a lot of opportunity in the markets this year alone, from extended drops to rallies. We may be gearing up for yet another down wave on the overall US market, so what are the best Blue-chip stocks you can acquire in 2020 and 2021?  There are many big names that are expected to hold out the downside of the market and could be amazing pickups in the coming year for extended gains.

Blue-chip stocks are typically stocks that you can rely on even throughout the downturns in markets. We should identify what Bluechip stocks are first.

 

What are Blue Chip Stocks?

 The Blue chip stock is considered the top of its kind, the best of the best stock. Named after the blue-chip in a casino, the most expensive chip out there. The characteristics associated with the Blue Chip stocks are:

  • Good track record
  • Long-term growth and value
  • Dividends
  • Financial stability (low probability of a bust)

These companies have typically been around for quite some time, holding their prestige. Theoretically, any large, strong company can be a Blue Chip stock, however, it is typically referred to as the stocks on the Dow Jones Industrial Average.

As described above most blue chips should have all of those traits but they don’t necessarily have to have them to be considered a blue-chip. Even throughout a recession that’s on its way, the best of stocks can struggle. It’s not like they’re impenetrable, but they do perform well throughout the long term.

  • Good track record; a strong business model and economics, the company generates good cash flow. The management of the company and executive team is usually strong and holds up a good track record.
  • Long-term growth and value; companies typically have had strong consistent growth and show promise for the future.
  • Dividends; Usually pay a heavy dividend as there is not much volatility and spikes in price.
  • Financial stability (low probability of a bust); lower debt than most companies, strong credit rating, and a lot of cash on hand. The company typically has a huge market capitalization.

 

Blue Chips & Dow Jones

 In theory, the definition of the Blue Chip is the Dow Jones Industrial Average, filled with large-cap stocks. They’re chosen as such because they’re supposed to represent the large American companies as a whole. Some of these large-cap companies include Apple, Walmart, and Coca Cola. It doesn’t mean that these are the cornerstone companies that will forever be Blue Chips. Companies get taken off the Dow Jones.

There are adjustments to the Index by Index managers every few years. The only time changes occur, whether it’s removing a company or adding a company is when the index manager decides that a different asset mix would better reflect the top American companies. For example, throughout 2011-2018 the Index replaced only 6 companies.

 

Blue Chip stock performance.

 Overall, blue-chip companies have performed well, perpetually moving to the upside and tracking well with the S&P 500. The S&P 500 combines the Dow’s 30 companies and adds its own 470 to the mix of large companies. While many investors and analysts consider the S&P 500 to be a better gauge of America’s top large companies and the American economy as well.

Typically, blue-chip companies perform well overall and throughout the long term. However, if a blue chip is consecutively doing poorly it does risk getting booted from the Dow Jones.

 

It’s said that blue chips outperform smaller companies for the following reasons:

  • Large caps have better financing edges; Large companies have better access to capital through cheaper debt and easily accessible equity. Investors are willing to lend them money due to stability and growth potential.
  • Large caps have better operational efficiency; The large scale allows companies to be a lot more efficient than smaller companies with their returns and profits.
  • Large caps have a strategic advantage; Blue chips are large, they have power and money backing them. They have the ability to acquire competitors throughout tougher times for other smaller companies. Such as economic downturns and recessions. There are other advantages size offers for blue-chip companies, to leverage in their industry even to push competitors away.

On average blue chips have returned 10% annually, which is a good return for investors. This is an average, some blue chips underperform and others overperform. For example, the Dow Jones dropped about 6% in 2018, but its stocks did well! Just like in the S&P 500, that may go up 10% one year, but companies listed on the Index may be up 20% that year.

 

What are the top 10 Blue Chip stocks for 2020/21?

The list is lengthy and is not necessarily on the Dow Jones Industrial Index. All of these stocks are strong companies that have really good potential for future growth in the coming years. In no particular order, here is the list of the top 10 blue-chip stocks we have analyzed.

   1. Apple (AAPL)

Apple is a giant in the tech industry, with over $1 trillion in market cap. Apple is going to be around for a very long time. Not only that but it’s growth potential and upward trajectory make it one of the best companies out. The company started off with PC’s and their Mac line and has made its way to the most popular cellular phone in the world arguably. Constant coming out with new innovation and spreading to the software.

   2019 Return: 98%

Take a look at the chart. The economy is in turmoil, a recession is upon us, yet Apple is at all-time highs. It’s shown great growth for years now.

turmoil flow chart

 2. Microsoft (MSFT)

Microsoft is another big name in tech, that has been around for a while. With a market cap of over $1.42 Trillion. This giant in the business has a strong business model and longevity supporting the company and its innovation. From software to hardware, Bill Gates’ hard work is continuing to push the company to greatness and growth in-stock pricing. If you’re a trader you probably have a Windows machine and about 36% of the world uses Windows, compared to the 15% that use iOS.

  2019 return: 57%

Look at how well the company’s stock has done over the years, along with this recent comeback from the strong downside earlier in 2020, replicating what looks like a v-bottom rally.

2019 return: 57% Chart

3. Amazon (AMZN)

Amazon is the e-commerce conglomerate, that has now been around for a while, a leader in the FAANG index which encompasses the large tech companies. From selling books online to everything you can imagine, Bezos has built an empire that is worth over $1 Trillion as well. Amazon has had amazing earnings for years and the stock price seems extremely resilient, being an online company that gives you fast access to any good you can imagine, Amazon withstood the COVID-19 economic shutdown fairly easily. There is more growth potential for the company as they are innovating online servers and their business models.

   2019 return: 24%

The chart below reflects Amazon stock price, recently hitting new highs and shows little sign of slowing down. Worth over $2,500 a share the stock can continue pressing without the potential of a stock split. From the start of 2020, Amazon has gained 36%. Amazon stock price chart

 

4. McDonald’s (MCD)

We all know McDonald’s, we’ve all eaten there at one time or another, and its fame and name is what puts it on this list. The company is huge and worldwide, with a cheaper product, the business model is the epitome of fast food. A massive food chain that we can see extend for decades to come, good earning, good returns, and a massive market cap of $140 Billion. The stock weathered through the 2008/09 financial crisis really well and has done well throughout this COVID-19 crisis.

2019 return: 13.5%

The stock took a tumble throughout the COVID19 pandemic but is showing really good signs of recovery. It was to be expected because even fast-food restaurants are suffering throughout this quarantine.

McDonald’s Stocks Flow Chart

    5. Walmart (WMT)

Walmart is a huge staple in a lot of people’s lives, the department store stretches throughout North America, providing clothing, food, toys, accessories, household goods, you name it. With a business model that plays on sheer volume for cheap, they have been able to continue throughout the decades and are projected to keep going in the same fashion. With a market cap of $333 Billion and continued strong earnings, we can comfortably put this stock on the Blue Chip list.

2019 return: 30%

With a slight dip throughout COVID but for the most part, holding a really wide range, shoppers continued to visit the store and get their necessities. The stock’s growth potential is not insane but it’s stable for the longer term. So far in 2020, including COVID damages the stock was up 14% in April.

Walmart's Stock Flow Chart

6. Visa or Mastercard (V)

The two companies are very similar, that is why we included them together. If you overlay a chart of one over the other you will see the same movement, with very little divergences. The largest two credit card companies in the world (Visa being the first). Together the companies have 500 million holders worldwide. They’re powerful and strong credit card companies that are going to be used for ages to come and will continue to grow the more people use them.

   Visa: 2019 return: 46%
   MasterCard: 2019 return: 61%

Below is an overlaid chart of the two credit card companies, try and find the divergences… There is a lot of potential for these companies, especially after we get further quarantine restrictions lifted.  MasterCard managed to have a more impressive return last year, slightly expected, it’s a touch more volatile and more expensive of a stock. Year to date Visa is up 1.2% and MasterCard down 0.85%. The chart below, green is MasterCard, red is Visa.

Visa or Mastercard Stock Flow Chart

 7. ExxonMobil (XOM)

Exxon is an oil and gas company after merging Exxon and Mobil they created a larger company with a market cap of $200 Billion. They have a foot in every aspect of the energy industry. In which their exploration and production portions are worldwide and continue to stretch. The company is a huge energy company that has continued the potential to grow as demand in gas and oil increases. Over the past few months, we’ve seen it suffer with the drastic drop in demand for oil. However, with the anticipation of oil demand coming back to the market, the stock has a lot of upside potential.

 2019 return: 3.4%

Look at the chart below, XOM has been on a steady decline and dropped off into the COVID times well with the fall in oil prices and decreased demand in oil.  XOM would want to see oil demand start rising in order to get a pop in the stock.

ExxonMobil Stock Flow Chart

 

8. Berkshire Hathaway (BRK.B)

Berkshire is another interesting stock that made the list based on its size and who’s behind the stock. Warren Buffet himself has been the face of the company and with his reputation in the industry and success, we’ve seen the stock hold out well and increase tremendously. With a market cap of $440 Billion, this insurance giant is here to stay and grow. CEO Warren Buffet has spread his wings and acquired different companies such as Dairy Queen and Geico under Berkshire which adds to the reputation and future potential.

2019 return: 12.8%

The stock price took a beating this year under COVID, but considering its worth and potential this becomes like a sale on the stock for the new investors to get in.

Berkshire Hathaway Stock Flow Chart

 9. Alphabet (GOOGL)

Google is yet another tech conglomerate, worth about $1 Trillion, however, it is not on the Dow but still considered a Blue Chip. Google has not been around for that long but it did not waste time becoming a leader in its industry. A pioneer of internet search and collecting data to personalize a user’s experience based on their taste and searches. Google has billions of users that take advantage of the ease of the search engine to find things they want, further their business, or make their lives easier. Pretty hard to imagine life without Google. So there is big potential in the company’s growth for years to come.

2019 return: 32.8%

Take a look at the stock chart below, significant growth in the price with a lot of upsides to going in the coming years.

Alphabet (GOOGL) Stocks Flow Chart

10. Johnson & Johnson (JNJ)

Lastly, Johnson & Johnson, a massive company that nearly monopolizes consumer products. From baby products to pain relief like Tylenol. This company is a healthcare giant that has made medical devices throughout the years and continues to innovate. There is a pharma side to the company which makes it that much stronger. There is more upside in this stock and its reputation and strength will continue to push earnings to outperform.

2019 return: 15%

Johnson & Johnson Stocks Flow Chart

 

Should you buy Blue-Chip stocks?

The final question is, should you invest in Blue Chips? This a multi-level question, should you buy any blue-chip at any time? Probably not. Should you buy all of the Blue Chips on this list? Again the answer is probably not. There is a lot that comes into picking stocks and investing. Blue Chips are a great place to start. Find the value in them and if they fit your portfolio. Blue Chips are long term growth stocks that have a lot of value to give, but buying their potential top is never the answer, find an area that makes sense for you to get in.

 

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The information contained in this post is solely for educational purposes and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable for your own financial situation. TRADEPRO Academy is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.