The Nasdaq website defines blue-chip stocks as “Common stock[s] of well-known companies with a history of growth and dividend payments.”
If you’re talking about Nasdaq-listed stocks to buy, there are almost 3,100 to choose from at the moment. However, if you’re looking to get blue-chip stocks, it makes sense to opt for stocks from the Nasdaq-100 Index, a collection of 102 of the largest non-financial companies listed on Nasdaq.
Compared to the Nasdaq Composite Index, there are many more ETF options, should you be interested in going that route. The largest of the ETFs would be Invesco QQQ (NASDAQ:QQQ), with assets of more than $165 billion.
The QQQ was launched in March 1999. Its performance on an annualized basis since inception is 9.58% through the end of March, higher than both the Nasdaq Composite and the Russell 3000.
To narrow the list to a manageable 10, I’ll only pick stocks I think my 87-year-old mother might have heard of. Oh, and they ought to have a market capitalization of at least $25 billion to qualify.
- Apple (NASDAQ:AAPL)
- Amazon (NASDAQ:AMZN)
- Facebook (NASDAQ:FB)
- Netflix (NASDAQ:NFLX)
- PepsiCo (NASDAQ:PEP)
- Costco (NASDAQ:COST)
- Starbucks (NASDAQ:SBUX)
- Moderna (NASDAQ:MRNA)
- Kraft Heinz (NASDAQ:KHC)
- Marriott International (NASDAQ:MAR)
Blue-Chip Stocks to Buy: Apple (AAPL)
You can’t get much more blue-chip than the world’s largest company by market capitalization at $2.26 trillion. It’s one of four companies worth a trillion or more. Microsoft (NASDAQ:MSFT) could soon join it as only the second company in the U.S. to go over $2 trillion.
On April 26, Apple announced that it would commit more than $430 billion and 20,000 new jobs to its U.S. operations over the next five years. In 2018, Apple set out to invest $350 billion over five years but is now accelerating that goal.
“At this moment of recovery and rebuilding, Apple is doubling down on our commitment to US innovation and manufacturing with a generational investment reaching communities across all 50 states,” said Tim Cook, Apple’s CEO.
While its three-year revenue growth of 6.2% annually might not seem all that great, it’s led to a 25% growth in free cash flow (FCF) over the past two-and-a-half years. It won’t have any trouble continuing to pay its dividend and repurchase its shares in the years to come.
You’re probably wondering why a non-dividend payer like Amazon would end up on a list of blue-chip stocks. It’s simple. Although the traditional definition includes a history of dividend payments, I believe a blue-chip stock is really any business that consistently crushes it.
Amazon has come under scrutiny numerous times for its treatment of employees, whether cruel or just plain unusual, but there is no doubt the company has a single focus on innovation and growth.
It recently opened a hair salon in the U.K. No, Amazon isn’t getting into the salon business. It’s using the salon to test out technology and products that will make their way into the Amazon ecosystem and platform in the future, including augmented reality.
The company has several different revenue streams other than its e-commerce business to continue growing its top, something that’s not lost on Jefferies analyst Brent Thill, who’s got a 12-month price target of $4,000 on Amazon stock.
I believe it’s got even more potential. In May 2020, I suggested AMZN could hit $10,000 by January 2023. If it keeps growing its advertising business — Cowen analysts estimate $85.2 billion in ad sales by 2026 — it could meet this ridiculously ambitious goal of mine.
Blue-Chip Stocks to Buy: Facebook (FB)
If you haven’t got the picture by now, I could care less about the dividend payment. I’m looking for stocks that are in the Nasdaq 100 because they make people money. In my opinion, it’s all about total return.
Unless, of course, you’re Warren Buffett. Berkshire Hathaway’s (NYSE:BRK.A, NYSE:BRK.B) annual dividend payments from its equity positions run into the billions.
As for Facebook, it reported its quarterly numbers on April 28. In it’s first-quarter earnings report, it boasted a massive 48% revenue increase year-over-year, beating the Zacks Consensus Estimate by nearly 10%.
Facebook’s trailing 12-month (TTM) FCF is $23.63 billion. That’s up from $15.4 billion just two years ago. It’s likely to boost FCF to $30 billion or more over the next two years.
It could pay a dividend, but why bother when it’s delivered a total return of 23.2% on an annualized basis over the past three years through April 27.
As I write this, Netflix stock has lost about 9% of its value since reporting its Q1 2021 results on April 20. Investors freaked out over the video streamer’s major miss on subscriber growth during the quarter.
Netflix grew global paid subscribers by 3.98 million in the first quarter. Analysts were expecting 6.2 million. Netflix explained that some of its major content it planned to release in Q1 2021 got pushed back to subsequent quarters, providing less incentive for newbies to sign up.
Some will point to increased competition as the reason for the decline. I don’t buy it and neither does the company.
“We don’t believe competitive intensity materially changed in the quarter or was a material factor in the variance as the over-forecast was across all of our regions,” stated the company’s press release.
Over the past 12 months, Netflix had operating income of $5.6 billion. In Q1 2021, it had 207.64 million global paid members. That’s $26.91 operating income per paid subscriber. In Q4 2020, it had TTM operating income of $4.6 billion and 203.66 million global paid members for $22.51 operating income per paid subscriber.
As long as that number continues to move higher, investors shouldn’t worry about the occasional blip in subscriber growth.
Blue-Chip Stocks to Buy: PepsiCo (PEP)
PepsiCo yields 2.9%. That’s double the current S&P 500 dividend yield of 1.45%. However, over the past five years, PEP has an annualized total return of 6.5%.
Both it and Coca-Cola (NYSE:KO) have had difficulty growing in a world where soda pop is no longer the drink of choice for many Americans. Luckily for PepsiCo, Americans still like chips and snacks.
However, if you’re looking for a company that underpromises and over-delivers, PepsiCo is it.
That’s why UBS analyst Sean King recently upgraded PEP to a “buy” rating from “neutral” while also bumping up the price target by 18% to $165. That’s 15% upside over the next 12 months.
“We believe PepsiCo is only at the mid- point of an investment cycle that will yield a sustainable improvement to top and bottom line growth,” King said. “While absolute valuation stands near the upper- bound of its historical range, relative valuation remains below its 3-year average discount.”
In the latest quarter, all three of its segments saw revenue growth in the quarter: Frito-Lay (4% growth over last year), Quaker Oats (2%), and Beverages (5%).
You won’t get rich off Costco’s $3.16 annual dividend payment. It currently yields less than 1%. However, if you invested $10,000 in COST stock 10 years ago, you would have $51,458. That’s an annualized total return of 16.3%, 420 basis points higher than the U.S. markets as a whole.
I’ve always been a fan of Costco, both as a company and as a place to shop.
In 2020, Costco paid its Canadian frontline hourly employees an extra 2 CAD ($1.62) an hour as part of its efforts to cope with the pandemic. After almost a year, it ended the temporary $2 increase, replacing it with a permanent $1 per hour raise. As a result, a new Costco hourly employee starts at 16 CAD ($12.94). Within six years, a cashier’s earning more than 60,000 CAD ($48,530) plus benefits and paid sick leave.
The average hourly wage for Costco employees is 23.71 CAD ($19.18). That might not seem like much to InvestorPlace readers, but compared to what some other companies’ pay in Canada, it’s a breath of fresh air.
Over the past five fiscal years, Costco grew its revenue from membership fees by 34%, from $2.64 billion in 2016 to $3.54 billion in 2020. As long as this keeps moving higher, COST stock will keep moving higher.
Blue-Chip Stocks to Buy: Starbucks (SBUX)
Starbucks comes with a dividend yield that’s only slightly higher than the average dividend yield for the S&P 500–and that’s okay. It remains a growth vehicle despite the fact it has 32,943 stores worldwide.
The company reported Q2 2021 results on April 27. Despite raising its guidance for the full year for both sales and earnings, SBUX stock dropped on the news.
Sometimes it’s hard to know why investors run from a particular stock. In the case of Starbucks, investors seem to be concerned about the speed of recovery for some of its international markets.
Personally, I don’t see it.
In the second quarter, its International segment had same-store sales growth of 35%, revenue growth of 42%, and a $251.5 million operating profit, up from a $15.4 million loss in the same period a year earlier.
In 2021, it expects global same-store sales growth of at least 18%, with 2,150 store openings throughout the fiscal year. On the bottom line, it expects earnings per share of at least $2.80, which excludes 10 cents for an extra 53rd week.
It’s all good.
The only reason my 87-year-old mother is familiar with Moderna is because of the vaccine she got in Toronto, where she lives. Otherwise, I wouldn’t have included the biotech company. And, it doesn’t pay a dividend.
But who cares. If you bought it a year ago, you’re sitting on a total return of almost 267%. No dividend on this planet could make up for this realized or unrealized gain.
From a selfish standpoint, the fact that a new study from the U.S. Centers for Disease Control and Prevention shows that the Moderna vaccine is 94% effective in keeping people aged 65 or older out of the hospital is a revelation.
On that alone, I’m a Moderna fan.
It’s important to remember that even though the U.S. and the U.K. are making great progress in getting their citizens vaccinated, there are plenty more around the world that are waiting patiently for their turn.
The company estimates that it’s got purchase agreements worth $18.4 billion, and that’s probably grown since February when it made the statement. Remember, it only had $60.2 million in sales in 2019 and $803.4 million in 2020.
The big money’s only just started to flow.
Blue-Chip Stocks to Buy: Kraft Heinz (KHC)
Once upon a time, Kraft Heinz’s stock was struggling and investors wondered if its best days were behind it. A $15.4 billion non-cash impairment in February 2019 prompted me to argue seven reasons KHC stock was a contrarian buy.
Fast forward to today. It’s up 27% over the past 26 months. More importantly, it’s a company that’s looking forward, not backward.
As part of this forward-thinking, the company’s Oscar Mayer hot dog brand has gotten a major overhaul. It announced recently that there will be a new logo, packaging, and even the Oscar Mayer Wienermobile is getting a redo.
Not only is it revising some of its oldest brands, but it’s streamlining its business to compete more effectively with other consumer packaged foods companies. There will be one-fifth of the products and fewer divisions, saving the company more than $2 billion in the process.
Currently yielding a healthy 3.99%, I can assure you Warren Buffett is far more confident about his KHC investment today than he was in 2019.
Marriott International (MAR)
I can’t imagine being a hotel executive during the pandemic. Even if you could keep your hotels open, no one was traveling to them, so revenues were going to be lower regardless of your open/close status.
Despite the difficulties facing Marriott and the rest of the hotel industry as they try to lure customers back to its hotels, CEO Anthony Capuano is optimistic about its future.
“I’m optimistic because I look at our data and I see strong week-over-week improvement in demand in many areas of the world. I hear from our customers every day and they are really anxious to get on the road. They’re thoughtful and they’re cautious, but the volume of pent-up demand is pretty extraordinary,” Hotel Interactive reports Capuano saying recently.
If I’m considering buying shares of Marriott, I wouldn’t be worried about people not traveling. They will come in droves. My concern would be how many of them opt for rental properties through Airbnb (NASDAQ:ABNB) and all the other players in the industry.
While analysts see Marriott’s efforts from its Homes & Villas platform to be too little to move the needle, I believe the company will make the investments necessary to compete with Airbnb et al.
Its stock has come a long way over the past year. As it continues to grow its Homes & Villas platform, I expect its share price to move even higher to record levels.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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