In this article, we discuss the 10 best blue chip stocks to buy.
A humanitarian crisis has been sparked by the conflict in Ukraine. The economic damage from the conflict is adding to inflation and a major slowdown in the world economy. According to International Monetary Fund, global growth is projected to slow from an estimated 6.1% in 2021 to 3.6% in 2022 and 2023. Economists believe that with rising inflation there is a greater chance the U.S. economy will enter a recession in the coming months. According to analysts at JPMorgan Chase, the likelihood of a recession in the upcoming year has increased to 35%. Similarly, global economist Ethan Harris at the Bank of America predicts that there is a 40% possibility of a full-fledged recession in the second half of 2023. As a result, stocks that have already weakened could decline further.
Nevertheless, there could be opportunity for long term investors who pick the right stocks, especially blue chip stocks with strong businesses. Shares of very large, well-known corporations with a track record of reliable financial performance are referred to as blue chip stocks. They are large-cap stocks, with an outstanding share value of $10 billion or more. Although many of the blue chip stocks have higher valuations, investors like them because of their sound business models, consistency, and steady development. These stocks are renowned for their ability to tolerate challenging market situations and deliver strong returns in favorable market environments. Moreover, they frequently pay stable or rising dividends.
Blue chip stocks are also represented by one of the market’s most famous indexes, the Dow Jones Industrial Average. Founded 137 years ago, the Dow Jones Industrial Average includes 30 prominent companies including Apple Inc. (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT).
Photo by Alexandr Bormotin on Unsplash
Our Methodology:
In order to identify the best blue chip stocks to buy right now, we are going to use the collective wisdom of nearly 900 hedge funds tracked by Insider Monkey. We started with Dow Jones stocks as listed by the SPDR Dow Jones Industrial Average ETF Trust’s 30 holdings and then sorted these stocks by the number of hedge funds with long positions in each stock. So, according to hedge funds, here are the 10 best blue chip stocks to buy:
10 Best Blue Chip Stocks To Buy
10. Merck & Co., Inc. (NYSE:MRK)
No. of Hedge Fund Holders: 79
Merck & Co., Inc. (NYSE:MRK) provides biologic therapies, prescription drugs, vaccines, and animal health products. Given its brand name and patents, the company has substantial earnings power. If it can successfully utilize its science-led research and development strategy, Merck & Co., Inc. (NYSE:MRK) could also increase its earnings power over the long term too.
Analysts like the stock. On August 25, investment advisory Erste Group upgraded Merck & Co., Inc. (NYSE:MRK) stock to a Buy rating due to the company’s strong second quarter. Q2 adjusted EPS was $1.87, higher than the consensus of $1.69.
Many hedge funds like the stock too. At the end of second quarter of 2022, 79 hedge funds in the database of Insider Monkey held stakes worth $6.1 billion in Merck & Co., Inc. (NYSE:MRK), down from 84 the preceding quarter worth $5.9 billion.
Here is what Sound Shore Management, an investment management firm, has to say about Merck & Co., Inc. (NYSE:MRK) in their Q2 2022 investor letter:
“On the positive side, a number of our health care names outperformed, including drug maker Merck & Co. (NYSE:MRK). Benefitting from a best-in-class research and development team, Merck’s progress is being fueled by the impressive growth of its immuno oncology cancer drug, Keytruda. The stock remains attractive at less than 12 times 2023 earnings.”
Like Apple Inc. (NASDAQ:AAPL), Visa Inc. (NYSE:V), and Microsoft Corporation (NASDAQ:MSFT), Merck & Co., Inc. (NYSE:MRK) is a widely held blue chip stock among hedge funds.
9. The Home Depot, Inc. (NYSE:HD)
No. of Hedge Fund Holders: 80
The Home Depot, Inc. (NYSE:HD) is a retailer of products for home improvement. It sells various goods for construction, home remodeling, landscaping, gardening, kitchen, lighting, storage, and flooring. The company provides a range of services, including installation services, home delivery, e-retail, and payment card services.
Given its leading position in home improvement retailing, The Home Depot, Inc. (NYSE:HD) has both economies of scale and earnings power. With a forward P/E of 16.82, the blue chip stock could increase in the long run if the housing market continues to grow. Although a recession or economic slowdown could send the stock lower in the next year, the company’s long term potential is attractive.
In the second fiscal quarter, The Home Depot, Inc. (NYSE:HD) reported an EPS of $4.09, beating estimates by $0.39. The company’s revenue in the second quarter came in at $38.91 billion, an increase of 3.8% year over year, and beat revenue estimates by $2.13 billion.
According to Insider Monkey’s data, 80 hedge funds were long The Home Depot, Inc. (NYSE:HD) at the end of the second quarter of 2022, with combined stakes worth $5.4 billion, compared to 75 funds the prior quarter worth $5.6 billion. Ken Fisher’s Fisher Asset Management held a notable stake in the company, with 8.4 million shares worth $2 billion.
Diamond Hill Large Cap Fund mentioned The Home Depot, Inc. (NYSE:HD) in their Q1 2022 investor letter. This is what they had to say:
“Home Depot shares underperformed as continued solid fundamental results were outweighed by concerns about the impact rising mortgage rates may have on the housing market and general inflationary pressures potentially leading to a consumer spending slowdown. We view the long-term prospects and multi-year fundamental outlook as unchanged.”
8. Johnson & Johnson (NYSE:JNJ)
No. of Hedge Fund Holders: 83
Johnson & Johnson (NYSE:JNJ), established in 1886, makes consumer packaged goods, pharmaceuticals, and medical equipment. The company has about 250 subsidiary businesses that operate in 60 countries and sell their goods in more than 175 nations. Given its scale, Johnson & Johnson (NYSE:JNJ) is a blue chip with higher margins than many of its competitors.
Johnson & Johnson (NYSE:JNJ) has also been investor friendly with management having raised the dividend for 61 consecutive years.
83 hedge funds in our database owned the stock at the end of Q2. Out of the hedge funds tracked by Insider Monkey, GQG Partners is a leading shareholder in Johnson & Johnson (NYSE:JNJ) with over 6 million shares worth $1.2 billion.
Here is what Mayar Capital has to say about Johnson & Johnson (NYSE:JNJ) in its Q2 2021 investor letter:
“J&J is currently our largest position and a long-standing holding. The majority of the group’s sales comes from its collection of pharmaceutical franchises, but a large majority (~45%) comes from its collection of medical device businesses and its consumer brands.
Here’s how JNJ make and spend a dollar of revenues: As of 2021, about 55 cents of that dollar comes from its pharmaceutical sales – sales of drugs to pharmacies and distributors – while 30 cents come from the sale of medical devices, such as surgery equipment and orthopaedics. The rest of that dollar in sales comes from sales of JNJ’s consumer brands such as Listerine mouthwash, Nicorette nicotine tablets and Neutrogena cosmetics.
To make that dollar, however, JNJ typically spends about 25 cents to make the products themselves and another 27 cents on marketing and general administrative functions. This leaves JNJ with about 48 cents on the dollar in profit…” (Click here to see the full text)
7. UnitedHealth Group Incorporated (NYSE:UNH)
No. of Hedge Fund Holders: 91
UnitedHealth Group Incorporated (NYSE:UNH), headquartered in Minnetonka, Minnesota, provides insurance services and healthcare products.
Given its market capitalization of almost $500 billion, UnitedHealth Group Incorporated (NYSE:UNH) is a giant in the industry that services over 26.5 million people through employer and individual healthcare plans. The company’s Optum Health division also includes over 60,000 employed or aligned physicians.
Given its scale and the necessity of healthcare insurance, UnitedHealth Group Incorporated (NYSE:UNH) has been consistently profitable despite economic challenges. As of September 5, the company also has a dividend yield of 1.28%.
Many hedge funds like the stock. According to the second quarter database of Insider Monkey, 91 hedge funds were bullish on UnitedHealth Group Incorporated (NYSE:UNH), with combined stakes worth about $10.9 billion. GQG Partners is the biggest stakeholder of UnitedHealth Group Incorporated (NYSE:UNH) as of the second quarter of 2022, with more than 3 million shares worth more than $1.6 billion.
6. JPMorgan Chase & Co. (NYSE:JPM)
No. of Hedge Fund Holders: 104
JPMorgan Chase & Co. (NYSE:JPM), headquartered in New York City, is a global investment bank and financial services holding company. Based on assets under management, JPMorgan Chase & Co. (NYSE:JPM) is the biggest bank in the United States which gives it economies of scale.
Despite the Federal Reserve raising interest rates, some analysts are bullish on the stock. On July 17, Berenberg analyst Peter Richardson upgraded the stock from Sell to Hold rating with an unchanged price target of $120. According to the analyst, the downside risks to the bank’s share price are now less likely because the headwinds it is currently experiencing are only temporary. Although the market may not agree with the analyst and JPMorgan Chase & Co. (NYSE:JPM) could still decline, JPMorgan Chase & Co. (NYSE:JPM) is a blue chip with upside in the long term given the company’s market share and strengths.
At the end of Q2, 104 hedge funds in our database had a position in JPMorgan Chase & Co. (NYSE:JPM). Our data shows that Fisher Asset Management is the biggest stakeholder of JPMorgan Chase & Co. (NYSE:JPM), with almost 8 million shares worth $8.9 billion.
Alongside JPMorgan Chase & Co. (NYSE:JPM), Apple Inc. (NASDAQ:AAPL), Visa Inc. (NYSE:V), and Microsoft Corporation (NASDAQ:MSFT) are widely held blue chip stocks among hedge funds.
5. The Walt Disney Company (NYSE:DIS)
No. of Hedge Fund Holders: 109
The Walt Disney Company (NYSE:DIS), along with its subsidiaries, is a top global family entertainment and media company. The company operates theme parks and also produces film and TV content. In recent years, The Walt Disney Company (NYSE:DIS)’s Disney+ has also gained market share against Netflix, Inc. (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN).
Hedge funds like the stock. At the end of the second quarter, 109 hedge funds tracked by Insider Monkey owned stakes in The Walt Disney Company (NYSE:DIS). The total value of these stakes is $3.2 billion. This is compared to 113 hedge funds in the previous quarter that held stakes worth $5.17 billion in the firm.
Here is what Oakmark Fund has to say about The Walt Disney Company (NYSE:DIS) in its 2 2022 investor letter:
“Disney (NYSE:DIS) is one of the most beloved consumer companies in the world. Its media business has a rich library of intellectual property, which provides a powerful engine for creating new content across the Disney, Pixar, Marvel, and Star Wars brands. This content also contributes to the success of Disney’s theme parks, which generated nearly half the company’s earnings and grew more than 10% annually in the decade prior to the pandemic. Shares have fallen nearly 50% over the past year as investors worried about the company’s ability to transition its media business to a direct-to-consumer streaming world. This transition has required management to make investments in its Disney+ streaming service that are depressing profitability today. However, we believe these investments will ultimately produce attractive returns as Disney+ continues to grow subscribers and increase pricing over time. As a result, we were able to purchase shares at a substantial discount to our estimate of intrinsic value.”
4. Salesforce, Inc. (NYSE:CRM)
No. of Hedge Fund Holders: 116
Salesforce, Inc. (NYSE:CRM), headquartered in San Francisco, California, is a cloud-based software company that offers customer relationship management software and tools with a focus on sales, customer service, marketing automation, analytics, and application development.
Given its scale, Salesforce, Inc. (NYSE:CRM) is one of the leaders in the cloud industry. If it continues to grow earnings, shares of Salesforce, Inc. (NYSE:CRM) could offer upside to long term investors despite the company’s forward P/E earnings ratio of over 27.
According to Insider Monkey’s data, Salesforce, Inc. (NYSE:CRM) was part of 116 hedge fund portfolios at the end of June 2022, compared to 114 funds in the last quarter. Fisher Asset Management is the leading stakeholder of the company, with more than 15 million shares worth $2.6 billion.
Here is what Vulcan Value Partners has to say about Salesforce, Inc. (NYSE:CRM) in its Q1 2022 investor letter:
“Salesforce.com Inc. is the dominant provider of customer relationship management software and technology. Salesforce has high retention rates, pricing power, high free cash flow, and a competitive moat. The company continues to execute well. Margins decreased slightly during the fourth quarter but continue to be on path for material expansion over the long term. Salesforce is seeing increased spending as employees are returning to the office, and we believe the global pandemic has only improved its prospects.”
3. Apple Inc. (NASDAQ:AAPL)
No. of Hedge Fund Holders: 128
Apple Inc. (NASDAQ:AAPL), headquartered in Cupertino, California, is a technology firm that specializes in consumer electronics, online services, and software.
Given its market capitalization of over $2.5 trillion, Apple Inc. (NASDAQ:AAPL) is one of the leading blue chips with substantial competitive advantages. With its brand strength, Apple Inc. (NASDAQ:AAPL) could sell similar products for higher prices. With its economies of scale, Apple Inc. (NASDAQ:AAPL) could also realize higher margins.
Analysts are also bullish on the firm’s long-term prospects, with investment advisories like KeyBanc, UBS, Wedbush, Evercore, and Barclays raising their price targets on the stock in recent months.
According to Insider Monkey’s data, 128 hedge funds were long Apple Inc. (NASDAQ:AAPL) at the end of the second quarter of 2022, with combined stakes worth $1.43 billion, compared to 131 funds the prior quarter worth $1.82 billion.
Here is what Alger Capital specifically said about Apple Inc. (NASDAQ:AAPL) in its Q2 2022 investor letter:
“Apple Inc. (NASDAQ:AAPL) is a leading technology provider in telecommunications. computing and services. Apple’s iOS operating system is the company’s unique intellectual property and competitive strength. This software drives extremely tight engagement with consumers and enterprises. The engagement is fostering the growing purchase of high-margin services like music, apps, and apple pay. Apple’s shares detracted from performance as management lowered its guidance for the second quarter due to headwinds from the war in Ukraine, adverse foreign currency shifts, and dampened consumer demand associated with the coronavirus in China. Additionally, many investors were concerned that lockdowns implemented to curtail the spread of COVID-19 would impact production of apple products, however the manufacturing facilities have resumed activity.”
2. Visa Inc. (NYSE:V)
No. of Hedge Fund Holders: 166
Visa Inc. (NYSE:V) is a financial services company that enables global electronic financial transfers, most frequently through Visa credit cards, debit cards, and prepaid cards.
Given Visa Inc. (NYSE:V)’s scale, the company has higher margins than many of its competitors. The company had strong Q2 results with EPS of $1.98, beating analyst estimates by $0.23.
Visa Inc. (NYSE:V) is also the second most widely held Dow Jones index component among hedge funds that we tracked at the end of Q2 with 166 hedge fund holders.
Mayar Capital mentioned Visa Inc. (NYSE:V) in their Q2 2022 investor letter. This is what they had to say:
“Visa and Mastercardhave both been beneficiaries of the move away from cash over the course of the pandemic with the consequence that forward- looking opportunities for further penetration of card payments are lower than a couple of years ago. Moreover, cross-border payments – which were badly impacted by lockdowns – strongly recovered in 2021 and for both businesses are at or near to pre-COVID levels.”
1. Microsoft Corporation (NASDAQ:MSFT)
No. of Hedge Fund Holders: 258
Microsoft Corporation (NASDAQ:MSFT) is a multinational technology corporation that makes consumer electronics and computer software.
Given its strong financial balance sheet, strong market share in enterprise, and growing market share in the cloud, Microsoft Corporation (NASDAQ:MSFT) is regarded as a blue chip by many.
Microsoft Corporation (NASDAQ:MSFT) is also the most widely held Dow Jones component among hedge funds we track. According to data maintained by Insider Monkey, 258 funds were bullish on Microsoft Corporation (NASDAQ:MSFT) in the second quarter of 2022, compared to 259 the previous quarter.
Fisher Asset Management is the biggest stakeholder of Microsoft Corporation (NASDAQ:MSFT) as of the second quarter of 2022, with more than 28 million shares worth more than $7 billion.
Here is what Alger Capital specifically said about Microsoft Corporation (NASDAQ:MSFT) in its Q2 2022 investor letter:
“Microsoft Corporation (NASDAQ:MSFT) is a positive dynamic change beneficiary of corporate America’s transformative digitization. during a previous earnings call, Microsoft’s CEO estimated that technology spending as a percent of GDP may increase from about 5% today to 10% in 10 years. Microsoft’s enterprise cloud product, Azure, is rapidly growing and accruing market share and its revenues increased 49% during the first three months of this year as the company’s revenue growth approached 20%. Microsoft’s share price declined despite its high unit volume growth as the broad equity market was down due to higher interest rates and slowing economic growth.”
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Disclosure: None. 10 Best Blue Chip Stocks To Buy is originally published on Insider Monkey.
