The best Canadian blue-chip stocks are well-established companies with a history of success that can lead you to a stronger portfolio

The best Canadian blue-chip stocks are well-established, dividend-paying corporations with strong business prospects.

Investing in blue-chip stocks can give you an additional measure of safety in today’s turbulent markets. As well, the best blue-chips offer both capital gains growth potential and regular dividend income.

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Look for these characteristics to find the best Canadian blue-chip stocks

• Good blue-chip companies have the freedom to serve (all) shareholders
• Geographic diversification
• Good blue-chips have manageable debt
• Most of the best blue-chip investments pay dividends
• Industry prominence if not dominance

The best stocks also have hidden assets that can, for example, come out of existing strong brand names and can help launch new products. They can also grow out of government obstacles to the entry of new competitors into a market.

Some blue-chip companies may have a hidden asset in their relationship with loyal customers. After a series of satisfactory dealings, long-time customers develop a level of trust that makes them receptive to related offerings from the company. For example, Apple Computer was able to move into the digital music player and smartphone businesses as quickly as it did because the established core of fans for its Mac computers.

The best Canadian blue-chip stocks may also have hidden assets in the form of real estate. For instance, when a company buys real estate, the purchase price goes on its balance sheet as the historical value of the asset. Over a period of years or decades, the market value of that real estate may climb substantially. But the purchase price remains unchanged on the balance sheet. You have to look closely to spot this hidden value. At times, the hidden value in a company’s real estate can come to exceed the market value of its stock. This hidden value may only become apparent to investors when the company upgrades the use of the real estate. For example, a merchandiser might repurpose a parking lot to build a shopping mall with a residential condo tower on higher floors, and a parking garage down below.

Hold your blue-chip stocks long enough to reap their benefits

It’s all too easy to sell a blue-chip investment that looks like it’s headed for a downturn, only to buy another that is headed for a collapse. For that matter, if you make a habit of selling whenever you feel the market’s risk has gone up, you will wind up selling your best stocks way too early.

You can always find a rationale for selling. Market commentators are continually thinking up new ones, based on recent market strength or weakness, historical market patterns, political or economic predictions, changes in tax policies—the list is endless. This is a good thing. After all, you can only sell a stock if somebody wants to buy it.

Before you act on a selling rationale, take a broader look. Consider facts about the blue-chip investment, and about your investment goals and temperament. If the selling rationale makes sense and you find additional good reasons to sell, then selling may be the right thing to do. But it’s always a bad idea to sell a good stock for trivial or transitory reasons.

Invest in the best Canadian blue-chip stocks and you can build a strong portfolio

Instead of moving between extremes of risk, we continue to think investors will profit most—and with the least risk—by buying shares of well-established companies that have strong business prospects and strong positions in healthy industries.

That’s not to say that there won’t be surprises that affect every company in a particular industry. But well-established, safety-conscious stocks have the asset size and the financial clout—including sound balance sheets and strong cash flow—to weather market downturns or changing industry conditions.

We still feel that investors will profit the most with a well-balanced portfolio of high-quality individual stocks that follows our Successful Investor approach.

Use our three-part strategy for building a portfolio that includes the best Canadian blue-chip stocks 

You will have a strong selection of blue-chip stocks in your portfolio when you follow our three-part investing program, which forms the core of all the advice you get in our newsletters and investment services, and on TSI Network.

These three safeguards will tend to limit your losses at the worst of times. But over long periods, they also let you profit nearly automatically.

1. Spread your stocks over most if not all of the five main economic sectors.
2. Invest mainly in high quality, dividend-paying stocks.
3. Avoid or downplay stocks in the broker/media limelight.

How much do you consider the “Risk Factors” from a blue-chip company’s annual 10-K filing before making a decision to buy?

What goes into your decision to buy or sell blue-chip stocks?