Blue Chip Stocks
The root of the term “blue chip” stems from the game of poker, as the blue chips represent the highest value. Investing in blue chip stocks can give you an additional measure of safety in today’s turbulent markets.
Pat McKeough believes investors will profit most, and with the least amount of risk, by putting the bulk of your stock portfolio in shares of blue chip companies—those that are well-established, with strong balance sheets and steady earnings and cash flow. These are companies that have bright prospects in healthy and growing industries.
The best blue chips offer both capital gains growth potential and regular dividend income. The dividend yield is certainly one of the most concrete indicators of a sound investment. It is the percentage you get when you divide the current yearly dividend payment by the share or unit price of the investment. It’s an indicator we pay especially close attention to when we select stocks to recommend in our investment newsletters.
We feel most investors should hold the largest part of their investment portfolios in securities from blue chip companies. All 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 in expanding markets.
Meanwhile, when investing in any type of stock, at TSI Network we recommend using our three-part Successful Investor strategy:
1-Invest mainly in well-established companies;
2-Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; Utilities);
3-Downplay or avoid stocks in the broker/media limelight.
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Campbell Soup Co., symbol CPB on New York, is the world’s largest maker of canned soups. It also makes Prego canned pasta and sauces, Pepperidge Farm cookies and V8 vegetable juices. In the three months ended May 1, 2011, the large cap stock’s earnings rose 11.3%, to $187 million from $168 million a year earlier. Earnings per share rose 16.3%, to $0.57 from $0.49, on fewer shares outstanding. That beat the consensus earnings estimate of $0.52 a share. If you exclude one-time charges in the year-earlier period related to a restructuring and changes in the new U.S. health-care law, earnings per share would have risen 5.6%. Revenue rose just 0.6%, to $1.81 billion from $1.80 billion. Sales at the large cap stock’s U.S. Soups, Sauces and Beverages division (43% of total revenue) fell 8%. That’s mainly because the company raised its prices to offset higher ingredient costs. This business is also facing stronger competition from other ready-to-eat foods, such as frozen pizza....
Companies in the highly competitive and fickle fast-food market are always looking for new ways to grow. Sometimes this involves introducing new products to try to take advantage of changing customer tastes. For instance, yesterday Yum! Brands (symbol YUM on New York) announced that it will reintroduce its KFC “Double Down” sandwich in Canada on June 1. The Double Down clearly aims to, shall we say, “press the buttons” of those who disapprove of fast food and the North American diet. Instead of bread or a bun, the Double Down uses two slices of breaded, deep-fried chicken filets, stuffed with bacon and processed cheese, and drowned in a “secret sauce.”
Large cap stocks: Yum is a Chinese trailblazer
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Xerox Corp., symbol XRX on New York, makes copiers, laser printers and other publishing equipment. Xerox is one of the large cap stocks we analyze in our Wall Street Stock Forecaster newsletter. In February 2010, Xerox paid $6.5 billion for Affiliated Computer Services (ACS), which sells computer outsourcing services. Xerox now gets 80% of its revenue from long-term service contracts and recurring payments for supplies. That cut its risk....
International Business Machines Corp., symbol IBM on New York, reported higher-than-expected earnings in the latest quarter. In the three months ended March 31, 2011, the large cap stock’s earnings rose 10.1%, to $2.9 billion from $2.6 billion a year earlier. Earnings per share rose 17.3%, to $2.31 from $1.97, on fewer shares outstanding. Excluding one-time items, such as costs related to acquisitions, IBM earned $2.41 a share. On that basis, the latest earnings beat the consensus estimate of $2.29. Revenue rose 7.7%, to $24.6 billion from $22.9 billion a year earlier. That was higher than the consensus revenue estimate of $24.0 billion. Revenue from Brazil, Russia, India and China (which together account for 21% of IBM’s overall revenue), jumped 26%. The company is also seeing strong demand for its new System Z mainframe computer....
FedEx Corp., symbol FDX on New York, delivers packages and documents in the U.S. and over 220 other countries and territories. Its fleet of 80,000 trucks and 684 aircraft delivers over eight million packages a day. In its fiscal 2011 third quarter, which ended February 28, 2011, FedEx earned $231 million or $0.73 a share. That’s down 3.3% from $239 million, or $0.76 a share, a year earlier. The decline was mainly the result of $43 million in one-time costs associated with the combination of the blue chip stock’s FedEx Freight and FedEx National LTL (less than truckload) divisions into a single business unit. The company also paid more for fuel and reinstated merit salary increases. As well, bad winter weather in the U.S. increased its aircraft-maintenance costs. Revenue rose 11.0%, to $9.7 billion from $8.7 billion, as the improving economy continues to spur demand for delivery services....
Campbell Soup Co., symbol CBB on New York, is the world’s largest maker of canned soups. It also makes Prego canned pasta and sauces, Pepperidge Farm cookies and V8 vegetable juices. The company gets 19.8% of its sales from international markets. Its biggest foreign markets are Australia and Europe. In the three months ended January 30, 2011, company’s sales fell 1.2%, to $2.13 billion from $2.15 billion. Soup sales fell 4.0% in the U.S. The company continues to face strong competition from generic brands. In response, it ran promotions that discounted the prices of some of its brands, particularly ready-to-serve soups. Earnings fell 7.7%, to $239.0 million from $259.0 million a year earlier. The company spent $417 million on share buybacks in the latest quarter. Due to fewer shares outstanding, earnings per share fell 4.1% to $0.71 from $0.74. The lower sales and higher advertising spending were the main reasons for the decline....
Kraft Foods Inc., symbol KFT on New York, is the world’s second-largest food company, after Switzerland-based Nestle. Kraft has 11 brands that generate over $1 billion each in yearly sales. Aside from Kraft (cheeses, pasta and salad dressings), the large cap stock’s brands include Philadelphia (cream cheese), Maxwell House (coffee), Nabisco (biscuits), Oreo (cookies), Trident (gum) and Oscar Meyer (meats). In April 2010, Kraft paid $18.5 billion in cash and stock for U.K.-based Cadbury plc, a leading maker of confectioneries, including chocolate, candy and gum. Cadbury’s well-known brands include Dentyne and Clorets (gum), Dairy Milk (chocolate bars) and Halls (cough drops)....
Blue chip stocks in Canada’s telephone industry continue to face rising competition. Along with wireless and cable companies, Internet-based phone services, such as Skype, continue to gain popularity. As well, three new wireless providers (Globalive’s WIND Mobile, Mobilicity and Public Mobile) entered the Canadian market in 2010. More new wireless firms are likely to follow. This rising competition will continue to put pressure on BCE Inc. (symbol BCE on Toronto), Canada’s largest telephone-service provider. In light of this and other developments surrounding the stock, we’ve updated our buy/sell/hold advice on BCE in the latest Canadian Wealth Advisor, our newsletter for safety-conscious conservative investing....
Apple Inc. (symbol AAPL on Nasdaq) makes computers and a variety of other electronic devices. Portable devices, such as the iPod music player, the iPhone smartphone and the iPad tablet computer, dominate Apple’s overall sales. Users of these products also buy music, movie and video-game downloads at Apple’s iTunes online store. Apple is one of the large cap stocks we analyze in our Wall Street Stock Forecaster newsletter. In its fiscal 2011 first quarter, which ended December 25, 2010, Apple sales rose 70.5%, to $26.7 billion from $15.7 billion a year earlier. Earnings jumped 77.7%, to $6.0 billion, or $6.43 a share. A year earlier, the company earned $3.4 billion, or $3.67 a share....
Alcoa Inc. (New York symbol AA) is one of the world’s largest aluminum producers. The company is one of the blue chip stocks we analyze in our Wall Street Stock Forecaster newsletter. In 2010, Alcoa’s sales rose 14.0%, $21.0 billion from $18.4 billion in 2009. The company saw higher demand in most of its markets. In 2010, overall aluminum demand rebounded 13%, the biggest increase in 14 years. The company earned $262 million, or $0.25 a share, compared to a net loss of $985 million, or $1.06 a share, in 2009. The higher sales and higher aluminum prices were the main reasons for the improved earnings. The company also improved its productivity during the year....