There are thousands of stocks in the market, and it can be a huge challenge to choose from so many companies. Many investors find that concentrating on the leading companies in their industries that have long track records of strong business performance and competitive victories over their rivals can be highly rewarding. Over time, these stocks have come to be known as blue chip stocks, with the name coming from the poker world and the traditional use of blue-colored chips as the highest available denomination for betting purposes.
Exactly what makes a blue chip stock is open to debate. Some limit their consideration of blue chip stocks to the 30 companies chosen as components of the Dow Jones Industrial Average (DJINDICES: ^DJI). The selection process for that elite group of stocks certainly warrants treating its component stocks as blue chips. However, there are very good arguments that there are other blue chip stocks beyond what you'll find in the Dow.
Image source: Getty Images.
If you see blue chips as high-caliber companies with strong reputations for quality and reliable business models that work well regardless of the current state of the economic environment, then the following 10 stocks qualify. They have some of the highest market capitalizations of any company on Earth, and they not only have secure positions atop their industries, but also have plenty of opportunities for further growth.
The 10 biggest blue chip stocks
10-Year Total Return
Microsoft (NASDAQ: MSFT)
Amazon.com (NASDAQ: AMZN)
Apple (NASDAQ: AAPL)
Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG)
Facebook (NASDAQ: FB)
Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B)
Visa (NYSE: V)
Johnson & Johnson (NYSE: JNJ)
JPMorgan Chase (NYSE: JPM)
ExxonMobil (NYSE: XOM)
Data source: S&P Global Market Intelligence. *Return since 2012 IPO.
Let's take a closer look at these companies to see how they achieved their blue chip status and what lies ahead for them in their quest to remain industry leaders.
Microsoft is a colossus in the software industry. As one of the pioneers in operating system and office productivity software, Microsoft was an instrumental part of the PC revolution of the 1980s and 1990s. By giving users something of value to do with their computers, Microsoft not only built up huge demand for its software, but also played a key role in driving the success of the entire tech industry, including countless PC hardware providers. The partnerships that Microsoft built with these hardware companies led to agreements that involved Microsoft's operating systems -- most notably, its Windows platform -- getting installed almost automatically on the majority of new computers that customers bought during the period.
The 2000s were a turning point for Microsoft. Following the dot-com bust in the early 2000s, the company largely coasted on its past success, allowing competitors to use the power of the internet to come up with competing products that challenged Microsoft's dominance of the industry. The stock price languished throughout much of the decade, and many investors feared that the software giant had lost its spirit of innovation.
In the past decade, however, Microsoft has seen a renaissance. Reversing its prior attempts to hold off the inevitable rise of mobile devices, the company pivoted to embrace the power of cloud computing, making key products like Office available to users on a subscription basis on the cloud. With millions of customers willing to pay ongoing subscription fees rather than simply paying an up-front amount for a perpetual license, Microsoft has helped to boost its revenue and make its users more loyal to its software platforms. At the same time, Microsoft products that are geared more toward enterprise use have seen an explosion in demand, and acquisition-led forays into areas like the LinkedIn business social network, Surface mobile devices, and Skype video communications have given the company a depth of scope that's reinvigorated the overall business.
Going forward, Microsoft has the opportunity not only to defend its leadership position in software, but also to come up with new ways to profit from technology. With a renewed sense of purpose, Microsoft has great potential to defend its spot atop this list of blue chip stocks.
Amazon's history is a bit shorter than Microsoft's, but it's been one of the biggest success stories of the internet era. From its humble beginnings as an online bookseller, Amazon has expanded to become a colossus in the high-growth areas of cloud computing and e-commerce.
Image source: Amazon.
Amazon's current list of business ventures is extraordinarily impressive:
- The company's online marketplace has expanded to cover just about any type of product imaginable, and Amazon has brought on third-party sellers to use its platform in addition to providing direct retail services of its own.
- The purchase of Whole Foods Market brought Amazon squarely into the brick-and-mortar retail arena, and the company is still looking at ways to take full advantage of opportunities related to Whole Foods' customer base and store network. Initiatives like online food ordering and grocery service and delivery have taken off across the grocery store industry, forcing competitors to adapt quickly.
- Amazon has been at the cutting edge of consumer hardware for years, with devices like its Kindle reader and Echo virtual assistant becoming extremely popular and encouraging cross-selling with other Amazon products and services.
- Amazon Prime has not only given the company a foundation from which to build its shipping business, but also has served as a launch point for unrelated services like its video-streaming platform.
- On the other side of the spectrum, Amazon Web Services serves a wide array of business customers with the tools they need to adopt cloud computing capabilities as fully as possible.
Despite all this success, Amazon still has plenty of room to grow. International sales make up a relatively small portion of the company's overall revenue, and despite the many efforts it has made to encourage greater use of digital capabilities, areas like artificial intelligence, data analytics, blockchain, and advertising are largely untapped resources for Amazon to exploit. With few signs of slowing growth, Amazon fully deserves blue chip status despite not being a member of the Dow Jones Industrials.
Apple has had a massive influence on consumer electronics and technology in recent history. Its early computers offered a more user-friendly alternative to business-oriented PCs, and the rise of its Mac line of computers in the 1990s generated a level of loyalty among its customers that continues today and at times resembles a cult-like fervor. Even more influential has been its role in the mobile revolution, with its iPod changing the way people listened to music and podcasts and setting the stage for the successful rollouts of the iPhone, iPad, Apple Watch, and other consumer electronics products. Even after the death of co-founder Steve Jobs, Apple has found ways to retain its status atop the industry and keep its customers inside its growing ecosystem.
Image source: Apple.
Despite its huge success, Apple has caused some investors to fear that its best days are behind it. Without any launches of new products similar in scope to the iPhone in recent years, Apple has started to look more like it's coasting on its past success rather than investing toward coming out with new revolutionary products. The fact that the company has returned massive amounts to shareholders over the past several years only heightens those concerns, making some question whether Apple simply doesn't have anywhere to reinvest that capital into its own business.
Yet Apple supporters still see good times ahead. Just as many other companies in the tech industry have sought to go beyond hardware to cash in on higher-margin services, Apple has put more effort into building out its own service lineup. Established areas like iTunes and Apple Music have garnered considerable followings, and the company has been working on its Apple TV+ service to go up against some of the giants of the video-streaming industry. Apple has more work to do before it will be able to put naysayers' concerns to rest, but it has been able to overcome similar obstacles in the past, and shareholders are optimistic that the iPhone giant can find ways to restore its growth for years to come.
Alphabet is another stock on this list that isn't a member of the Dow Jones Industrials, but in its short history, it has quickly become a dominant player in its industry. As the pioneer of internet search with its Google search engine, Alphabet was one of the first companies to realize the value of collecting data in order to tailor each user's internet experience to their particular tastes. Over time, billions of users taking advantage of Google's capabilities have added to its functionality, and now the product is one that many people can hardly think about living without. The unit also provides the bulk of Alphabet's overall revenue, as the advertising that the company sells to those who want premium billings on popular search results puts billions of dollars each year in the tech giant's coffers.
Yet the adoption of the Alphabet name in 2015 was one sign of just how much broader the company's business is beyond the Google search engine. Within the Google division, the company provides cloud-related services, and its Android app store provides regular cash flow. Google also makes hardware products that help integrate its software and services capabilities.
Alphabet also has several businesses that are completely distinct from the Google corporate division. Although it shares the search engine's name, Google Fiber seeks to provide high-speed internet connectivity to customers in certain locations, mostly those with high population densities and demand for broadband service. The Waymo division has moved aggressively to promote autonomous vehicle technology, with the goal of transforming the way people get around from an ownership-driven model to a concept it refers to as "transportation as a service." Alphabet also has a start-up incubator, dubbed X, that has routinely supported tiny companies and then allowed them to launch independently once they've reached critical mass on their own.
Google's search business will remain an important part of Alphabet for the foreseeable future, but gradually Alphabet will work toward achieving its own identity. Recognized for its prowess, Alphabet has all the trappings of a blue chip stock that's poised to take advantage of whatever opportunities it finds in the future.
Within this list of stocks, Facebook is the one that's most likely to raise controversy about whether it deserves blue-chip status. The business is only 15 years old, and it only became a publicly traded stock back in 2012. Yet the pioneering social media giant has become the behemoth in its industry, counting a sizable fraction of the entire planet's population among its user base.
Immediately after its IPO, Facebook's stock suffered dramatic declines that had many investors questioning the viability of social media as a profitable industry. Yet it didn't take too long for the company's fundamental success to show up in the stock price as Facebook continued to attract users and found ways to tackle key challenges. By monetizing its user base through tailored advertising and by making a successful transition away from a PC-focused platform to mobile devices, Facebook was able to keep up with the times and solve a profitability problem that still plagues many of its peers in social media and throughout technology more broadly.
Image source: Facebook.
Looking ahead, Facebook still has plenty of directions in which it can evolve. Even as its namesake social media service has seemingly plateaued, Facebook has been able to pivot new users toward its Instagram application, which has a strong following among younger generations. So far, the company hasn't been able to generate a huge amount of revenue from its WhatsApp messaging service or its Oculus virtual reality business, but ongoing developments in both of those spaces suggest that future events could make those segments much more important to Facebook's overall results. Regulatory risks abound as many criticize the negative aspects of social media, but there's no disputing that Facebook is the clear leader in its field.
6. Berkshire Hathaway
Some of the most successful blue chip stocks in history have been conglomerates, and Berkshire Hathaway holds a special place in the hearts and minds of many investors. With legendary investor Warren Buffett still at the helm of the company, Berkshire has used a unique business model to generate vast success.
Berkshire Hathaway CEO Warren Buffett. Image source: The Motley Fool.
At the heart of Berkshire Hathaway's operations is its insurance business, which offers commercial coverage in a wide variety of policy lines. Yet rather than simply relying on its insurance operations to generate underwriting profits, Berkshire takes advantage of the ability to use the premiums it collects to invest until it has to make payments on claims. That float has been the source of many lucrative investments that have driven long-term returns for the company.
Berkshire Hathaway also has an extensive portfolio of wholly owned companies and publicly traded stocks. You'll find several blue chip stocks among Berkshire's top holdings, including Apple and JPMorgan Chase. Berkshire also benefits from its GEICO personal insurance subsidiary, as well as other big businesses like railroad giant BNSF, industrial company Precision Castparts, and the Dairy Queen restaurant chain.
Berkshire's high share price for its Class A stock -- currently above $300,000 per share -- is a key reason why the Buffett-led behemoth hasn't been seriously considered for membership in the Dow. But given its track record of long-term performance, it's a no-brainer to add Berkshire Hathaway to a list of top blue chip stocks.
Visa's time as a publicly traded stock isn't that much longer than Facebook's, but the credit card giant has a long history that precedes its emergence on the New York Stock Exchange. Visa originally carried the name BankAmericard, having been formed by Bank of America (NYSE: BAC). Yet over time, hundreds of different financial institutions licensed the card system's name. In the 1970s, the company changed its name to Visa, and for decades prior to its IPO, it operated as a private corporation owned by its member financial institutions. In 2008, Visa finally moved forward with its initial public offering, allowing its financial institution owners to cash out.
Visa's status as a blue chip stock relies on its leadership role in the credit and debit card industry. With billions of cards outstanding, Visa does business across the globe, and it's been instrumental in driving the move away from cash transactions toward electronic payments. By maintaining a payment network, the company has opened the doors to a wide range of banks and other financial institutions to offer cards to customers, and Visa collects a small cut to facilitate transactions. Even though it bears no credit risk, Visa is able to produce huge profits from providing the infrastructure for payments around the world.
More recently, competition from alternative payment methods has risen, and that's forced Visa to be vigilant in defending its territory. Yet to a large extent, the card giant has been successful in doing so, forging partnerships with up-and-coming players in payment processing rather than trying to defeat them directly. Looking ahead, Visa intends to keep its leadership status by making it easier for customers to use mobile devices and other technological advances to move money more efficiently -- all the while keeping itself involved in the overall process. As long as it can keep participating in the industry's innovations, Visa should remain a blue chip player in the payments industry.
8. Johnson & Johnson
Johnson & Johnson started out as a consumer health products company in the late 19th century, and you can still find some of the things that made J&J famous early in its history, such as its namesake baby shampoo and baby powder products. However, since then, the company has become a giant healthcare conglomerate with operations in just about every area of the sector.
Johnson & Johnson's business is divided into three main parts. The consumer products segment still focuses on over-the-counter medications and health and beauty products, ranging from Band-Aid bandages and Tylenol pain relievers to Reach dental floss. Johnson & Johnson also makes a wide array of medical devices, with products designed to help patients ailing from conditions like cardiovascular disease and diabetes, as well as medical instruments and other devices for surgical procedures.
Image source: Johnson & Johnson.
The most important part of J&J's business in the recent past has been its pharmaceutical segment. Top sellers recently have included Remicade for treating Crohn's disease, cancer-fighting drug Zytiga, the blood thinner Xarelto, and the Stelara treatment for psoriasis. Johnson & Johnson has gotten considerably more growth from its pharmaceutical segment than from its other businesses, and it's invested a lot more into that part of its operations, both organically and through acquisitions of other pharma companies.
With so many changes happening in healthcare, it's hard to predict exactly what path Johnson & Johnson will take to pursue future growth opportunities. However, J&J is continually working to bolster its pipeline of new candidate drugs in the hopes of replacing lost revenue from older treatments that lose their patent protection. Everyone needs healthcare no matter what condition the economy's in, though, and that gives Johnson & Johnson the resiliency it needs as a blue chip stock.
9. JPMorgan Chase
Banking is a key part of the U.S. economy, and JPMorgan Chase has been an important player in the U.S. banking industry since early in the nation's history. The company bearing the name of one of the most influential Americans in the financial industry has grown substantially over the course of its lifetime, taking advantage of the general trend toward bank consolidation to become the largest institution in the U.S. by assets. In particular, JPMorgan's acquisition of Chase Manhattan Bank in 2000 helped to bring experience in investment banking, asset management, private wealth management, and other business banking services together with a major retail banking and credit card operation.
As successful as JPMorgan Chase has been, it's important to remember just how close to the brink it came. During the 2008-2009 financial crisis, JPMorgan wasn't immune from the negative effects of the housing bust on the banking system, and the bank played a major role in helping to stabilize the financial system through its purchases of Bear Stearns and Washington Mutual. Even though it was healthier than many of its peers, JPMorgan still ended up taking financial assistance from the federal government, and it took a while for the bank to recover from the tough period.
Yet JPMorgan's recovery is complete, and the bank has emerged stronger than ever. High returns on net tangible equity give the banking giant a valuable edge in an environment of low interest rates, and it's been able to capitalize on opportunities to expand in key areas across its business segments. With so many more safeguards in place to protect big banks from overextending themselves and putting the financial system at risk, investors can be more comfortable than ever with the blue chip status that JPMorgan Chase boasts.
Image source: JPMorgan Chase.
Finally, ExxonMobil represents the energy industry. As a giant in the oil and gas industry, ExxonMobil has steadily evolved from its roots as part of the Rockefeller Standard Oil empire to its current position as a major integrated energy company.
ExxonMobil is heavily involved in just about every aspect of the energy industry. Its exploration and production business has vast assets located across the globe, seeking new resources of oil and natural gas and working to drill for and pump them from the ground as efficiently as possible. ExxonMobil also has midstream transportation infrastructure assets that help it and others get energy products from the oil-field locations where they're produced to the market hubs where they need to go. Downstream, ExxonMobil also has a vast network of gas stations, as well as refinery operations that let it take crude oil and produce the refined products on which customers rely, including gasoline, diesel fuel, and heating oil.
Because oil and gas is a commodity industry, the health of energy companies relies largely on the supply and demand factors that go into setting the price of energy products. Over the past decade, energy prices have been extremely volatile, and that's presented a challenge -- even for giants like ExxonMobil. With costs that are largely fixed in nature, falling prices for oil, natural gas, and refined energy products simply means less profit for ExxonMobil, and those pressures get reflected in the stock price.
However, ExxonMobil has high hopes for the future. The oil giant's vast financial resources allow it to pursue opportunities that other companies lack the resources to exploit, and ExxonMobil hasn't hesitated to put its capital to work pursuing high-return assets. The fact that ExxonMobil has been able not just to survive but to thrive over the long run despite the volatile energy markets is a testament to its blue chip status, and investors like the healthy dividend income ExxonMobil pays, as well as the exposure it offers to the energy sector.
Stick with blue-ribbon blue chip stocks
Regardless of what types of stocks you gravitate toward in your investing strategies, blue chip stocks can play a vital role in your portfolio. With their stability as well as their ability to use vast resources to foster growth opportunities that smaller companies can't match, blue chip stocks have historically delivered great long-term returns to their shareholders and become some of the most important businesses in the global economy.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Dan Caplinger owns shares of Alphabet (A shares), Apple, and Berkshire Hathaway (B shares). The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Berkshire Hathaway (B shares), Facebook, Microsoft, and Visa. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.