What are the most profitable stocks to buy? Blue chip stocks are included in that group—and here are the key characteristics you need to target for maximum success

What are the most profitable stocks to buy? Well, let’s start with blue chips. A company with a long-term record of paying dividends is generally one that is most deserving of the “blue chip” label in its traditional sense. Dividends, after all, are much more stable than earnings projections. More importantly, dividends are impossible to fake—either the company has the cash to pay them, or it doesn’t.

Meantime, instead of familiarity, aim for investment quality and diversification in your investment decisions. At any given time, lots of prosperous, well-established companies—the best blue-chip stocks included—are out of investor fashion. Some of the biggest profits you ever make will come from buying these stocks before they find their way into the limelight.

True Blue Chips pay off Learn everything you need to know in 'The Best Blue Chips for Canadian Investors' for FREE from The Successful Investor. Canadian Blue Chip Stocks: Bank of Nova Scotia Stock, CP Rail Stock, CAE Inc. Stock and more.  I consent to receiving information from The Successful Investor via email. I understand I can unsubscribe from these updates at any time.

What are the most profitable stocks to buy? Take a broad view when looking for the most profitable stocks to invest in

When we’re looking for the best investments to recommend in our newsletters and investment services, we start by putting all the important information we know about a company into perspective.

But things are never entirely simple. Your stock pick’s latest earnings may reflect unusually favourable or unfavourable conditions. This can make the company look safer or riskier than it really is. In addition, the company may put the funds it borrows to immediate profitable use, increasing its earnings and its ability to pay interest. It may plan to sell assets to reduce debt, or cut costs to increase earnings.

In the end, there are many ways to try to put the facts about a company into perspective. None are perfect, since all involve a mental balancing act between high and low estimates, history and the future, and faith versus skepticism.

What are the most profitable stocks to buy? Canadian bank stocks have always been some of the best—and they give you regular income

Banks remain key lower-risk investments for a portfolio. As well, the Big Five Canadian bank stocks all have long histories of annual dividend increases.

We believe Canadian bank stocks are still well-positioned to weather downturns in the Canadian economy.

If you’ve decided to start by investing in just one Canadian bank, one key question remains: which Canadian bank is best to invest in today?

We’ve long recommended that all Canadian investors own two or more of the Big Five Canadian bank stocks — Bank of Nova Scotia, Bank of Montreal, CIBC, TD Bank and Royal Bank. That’s mainly because of their importance to Canada’s economy. We still think that’s true, and meanwhile, all five stocks trade at attractive multiples to earnings and have solid dividend yields.

When you find the best Canadian stocks to buy and hold, here are some tips on what price you should pay 

For many investors, buying stocks involves a two-part decision. First, they decide which ones to buy, then they decide what price they want to pay. Most want to buy, say, 5% to 10% below current prices.

These investors often explain that they are simply looking to buy stocks like a smart consumer buys a car. However, the stock market is more efficient than the car market, as an economist would put it. To get a lower price on a stock, you have to wait for its price to come down.

If you always try to buy below the market, you’ll always get a “fill” on stocks with hidden flaws. They’ll always come down into your buying range…and they’ll keep on falling.

But you’ll never get to buy the other kind of stock—the kind that keeps going up. They’ll always seem too expensive, and they’ll go on to get even more expensive. But you need a few of these ever-more expensive stocks to offset the losses from those that get cheaper and cheaper.

What are the most profitable stocks to buy? Use our three-part Successful Investor approach to find the best blue-chip stocks to invest in.

You will have a strong selection of blue-chip stocks in your portfolio when you follow our three-part investing philosophy 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. Invest mainly in well-established, mostly dividend-paying companies.
2. Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities).
3. Avoid or downplay stocks in the broker/media limelight.

Using these three value-investing principles will help protect your money during periods of market turbulence, and help you profit when the market rises.

What industry do you target when you’re looking for the most profitable stocks to buy?

What characteristics do you look for to identify a profitable stock investment?