Investing in profitable blue chip stocks will become a lot easier after learning these tips!
You can look at blue chips as among the strongest and most secure stocks in the market.
Blue chip stocks are generally well-established, dividend-paying corporations with strong business prospects. These are companies that also have strong management that will tend to make the right moves to compete in a changing marketplace.
Investing in blue chip stocks can provide an additional measure of safety in today’s turbulent markets. And the best ones offer an attractive combination of low p/e’s (price-to-earnings ratio), steady or rising dividend yields (annual dividend divided by the share price), and promising growth prospects.
Find the True Blue Chips
Blue chip stocks give investors an extra measure of safety in today’s volatile markets. But not all stocks with a blue chip “reputation” deserve to be considered as true blue chips.
True blue chip stocks are well-established, dividend-paying companies with strong positions in their industries—and management that makes the right moves in a changing marketplace. Pat McKeough shows you how to identify these long-term winners in “Finding the Real Blue Chips Stocks: The Power and Security of Canada’s Best Dividend Stocks.”
3 tips for investing in blue chip stocks
We recommend blue chip stocks in The Successful Investor and Wall Street Stock Forecaster. These blue chip stocks have a history of earnings and, in most cases, dividends. They have established their value over the long term. Like all stocks, they can fluctuate widely and many suffer in a long-term market downturn, but they offer a higher probability of long-term gains.
We feel most investors should hold a substantial portion of their investment portfolios in securities from blue chip companies. These stocks should offer good “value”—that is, they should trade at reasonable multiples of earnings, cash flow, book value and so on. Ideally, they should also have above-average growth prospects, compared to alternative investments.
Here’s how we suggest investing in blue chip stocks:
- Invest mainly in high quality stocks.
- Spread your stocks over the five main sectors.
- Avoid or downplay stocks in the broker/media limelight.
It’s essential to invest in stocks that have some history of sales, if not profits. If you break this rule and invest in, say, junior mines or tech startups, you should only do so if you have a high opinion of the value of the junior’s assets and/or business plan, and you buy with money you can afford to lose. After all, you could very well be mistaken about their value. Your low-quality buys might eventually wind up worthless.
If you diversify across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities), and stick mainly to high quality blue chip stocks—then you can be almost certain of long-term gains in excess of what you’d get with any other investment approach.
Investors can build up unrealistic expectations when blue chip stocks spend time in that limelight. When broker/media favourites fail to live up to those expectations, they drop much further than they would have if they had been less widely followed.
Also, “holding for the long term” usually only pays off with investments in high-quality stocks. If you buy low-quality or speculative stocks, time tends to work against you. The longer you hold them, the likelier you are to lose money.
Are you currently investing in blue chip stocks? What are some of your tips?