Investors often hold blue-chip stocks at the core of their portfolios. That makes sense: After all, blue-chip companies are leaders in their industries. Their names are familiar to investors.
Blue-chip stocks are from companies that are large, well-established, and financially sound. These companies have strong brand names and reputations, and they generate dependable earnings. Blue-chip companies usually boast consistent dividends and are often considered to be less risky, given their financial stability.
However, investors may differ in how they define blue-chip companies. Some investors demand that a blue-chip stock be included in a particular index, such as the Dow Jones Industrial Average. Others may only include dividend-paying companies on their lists of blue-chip stocks. Still others may have specific market-capitalization thresholds for blue-chip companies.
The companies on Morningstar’s list of the best blue-chip stocks to buy for the long term share a few qualities.
The stocks are from companies included on Morningstar’s list of the Best Companies to Own for 2023. Companies on this list have wide Morningstar Economic Moat Ratings and predictable cash flows, and they are run by management teams that make smart capital-allocation decisions.
These stocks look undervalued, which means they’re trading below Morningstar’s fair value estimates.
Their market capitalisations top $100 billion.
10 Best Blue-Chip Stocks to Buy for the Long Term
These are the largest firms by market capitalisation on Morningstar’s Best Companies to Own list whose stocks were at least 10% undervalued as of September 15 2023.
Taiwan Semiconductor Manufacturing TSM;
Here’s a bit more on each of these blue-chip stocks for the long term, as of September 15.
Taiwan Semiconductor Manufacturing
- Market Capitalization: $454 billion;
- Morningstar Price/Fair Value: 0.65;
- Morningstar Style Box: Large Blend;
- Trailing 12-Month Yield: 2.52%;
- Morningstar Capital Allocation Rating: Exemplary;
- Industry: Semiconductors.
Taiwan Semiconductor Manufacturing Company (TSMC) tops our list of the best blue-chip stocks for the long term. The world’s largest dedicated contract chip manufacturer, TSMC should be a significant beneficiary in high-performance computing with additional upside potential from generative artificial intelligence, says Morningstar analyst Phelix Lee.
However, the firm has issued tapered its guidance for full-year 2023, which poses a short-term downside for the stock, Lee adds. He also notes that TSMC has generated more stable earnings than many of its peers, which has led to more consistent (and growing) dividends over time. Taiwan Semiconductor’s stock trades 35% below our fair value estimate of $137.
Nestle
- Market Capitalization: $314 billion;
- Morningstar Price/Fair Value: 0.90;
- Morningstar Style Box: Large Blend;
- Trailing 12-Month Yield: 2.81%;
- Morningstar Capital Allocation Rating: Standard;
- Industry: Packaged Foods.
The only packaged foods maker on our list of the top blue chip companies to buy, Nestle stock trades 10% below our fair value estimate of $131. The largest food and beverage manufacturer in the world by sales, the company’s famous brands include its namesake, Nescafe, Perrier, and Purina, among others. Management has done a good job of reinvigorating growth through active portfolio management, resetting legacy businesses, and investment in high-growth areas, notes Morningstar senior analyst Ioannis Pontikis.
This blue-chip company’s balance sheet is solid, and we think Nestle’s strong multicategory, multinational presence makes it an essential brand manufacturer and supplier for retailers, Pontikis adds.
Roche
Market Capitalization: $235 billion;
Morningstar Price/Fair Value: 0.65;
Morningstar Style Box: Large Blend;
Trailing 12-Month Yield: 3.56%;
Morningstar Capital Allocation Rating: Exemplary;
Industry: Drug Manufacturers – General.
The largest drugmaker on our blue-chip stocks list, Roche stock trades 35% below our fair value estimate of $56. The company’s drug portfolio and industry-leading diagnostics provide significant competitive advantages and underpin our wide economic moat rating, says Morningstar strategist Karen Andersen.
“This Swiss healthcare giant is in a unique position to guide healthcare into a safer, more personalised, and more cost-effective endeavor,” she notes. With its biologics focus and innovative pipeline, we expect Roche to continue to achieve growth as its blockbusters face competition.
ASML
- Market Capitalization: $235 billion;
- Morningstar Price/Fair Value: 0.80;
- Morningstar Style Box: Large Growth;
- Trailing 12-Month Yield: 1.06%;
- Morningstar Capital Allocation Rating: Exemplary;
- Industry: Semiconductor Equipment & Materials.
The second undervalued technology company on our list of the best blue chip stocks to buy, ASML stock trades 20% below our fair value estimate. As the predominant supplier of photolithography equipment for semiconductor manufacturers, ASML should materially benefit from the proliferation of extreme ultraviolet lithography at leading-edge chipmakers, argues Morningstar analyst William Kerwin. We think management has done an exemplary job of allocating capital, strengthening the company’s competitive and market positions, he adds. We think ASML stock is worth $750 per share.
Bank of America
- Market Capitalisation: $229 billion;
- Morningstar Price/Fair Value: 0.82;
- Morningstar Style Box: Large Value;
- Trailing 12-Month Yield: 3.13%;
- Morningstar Capital Allocation Rating: Standard;
- Industry: Banks – Diversified.
Bank of America stock trades 18% below our fair value estimate. Considered to be one of the preeminent banking franchises today, Bank of America has one of the best retail branch networks and overall retail franchises in the United States, is a leading investment bank and a top-four US credit card issuer, and owns the Merrill Lynch franchise, notes Morningstar strategist Eric Compton. Second-quarter earnings were solid thanks to higher net interest income and trading results, though expenses crept higher. We think Bank of America stock is cheap and worth $35 per share.
AstraZeneca
- Market Capitalisation: $210 billion;
- Morningstar Price/Fair Value: 0.88;
- Morningstar Style Box: Large Growth;
- Trailing 12-Month Yield: 2.18%;
- Morningstar Capital Allocation Rating: Exemplary;
- Industry: Drug Manufacturers – General.
AstraZeneca is the second drugmaker on our list of blue-chip stocks for the long term. The drugmaker’s portfolio spans several major therapeutic classes, including gastrointestinal, diabetes, cardiovascular, cancer, and rare diseases among them.
Morningstar sector director Damien Conover argues that the firm’s pipeline is one of the strongest in the drug group, with several key products that have blockbuster potential. We think AstraZeneca is well positioned for growth; we’re projecting 8% annual sales growth over the next five years as new products offset patent losses, Conover notes. AstraZeneca stock is 12% undervalued relative to our $78 fair value estimate.
Thermo Fisher Scientific
- Market Capitalisation: $199 billion;
- Morningstar Price/Fair Value: 0.86;
- Morningstar Style Box: Large Blend;
- Trailing 12-Month Yield: 0.27%;
- Morningstar Capital Allocation Rating: Exemplary;
- Industry: Diagnostics & Research.
Thermo Fisher Scientific stock is about 14% undervalued today. The premier life sciences supplier with an unmatched portfolio of products, resources, and capabilities, Thermo Fisher is committed to being a one-stop shop and go-to provider of life sciences instruments and consumables, says Morningstar director Alex Morozov. To that end, the company has been “a serial acquirer,” notes Morozov, and is skilled at quickly integrating its acquisitions to extract meaningful synergies. Although we think that management has done a great job of capital allocation in general, the dividend policy is lacking: Thermo Fisher has the lowest dividend yield of the blue-chip stocks on our long-term buy list. We think the stock is worth $600 per share.
Pfizer
- Market Capitalisation: $192 billion;
- Morningstar Price/Fair Value: 0.71;
- Morningstar Style Box: Large Value;
- Trailing 12-Month Yield: 4.85%;
- Morningstar Capital Allocation Rating: Standard;
- Industry: Drug Manufacturers – General.
Pfizer stock offers the highest trailing yield among our list of the best blue chip stocks to buy for the long term. We don’t think the market fully appreciates the pharmaceutical giant’s ability to offset major patent losses over the next five years, argues Morningstar’s Conover.
We’re most bullish on several near-term launches, including the respiratory syncytial virus vaccine and immunology drugs ritlecitinib and etrasimod, Conover says. We expect the firm’s falling Covid-19 vaccine and treatment sales will create a drag on earnings growth in 2023, but we project a healthier annual growth rate during the next five years, he adds. We think Pfizer stock is worth $48 per share; the stock currently trades 29% below that.
Comcast
- Market Capitalisation: $187 billion;
- Morningstar Price/Fair Value: 0.76;
- Morningstar Style Box: Large Value;
- Trailing 12-Month Yield: 2.45%;
- Morningstar Capital Allocation Rating: Standard;
- Industry: Telecom Services.
Trading 24% below our fair value estimate of $60, Comcast is the only telecom stock on our list of blue-chip companies to buy. Growth in Comcast’s cable business has slowed, and we expect it to continue to slow as more customers access fiber and wireless network alternatives. We nevertheless think Comcast will be able to limit broadband share losses in the coming years while enjoying solid pricing power, says Morningstar director Mike Hodel. NBCUniversal isn’t as well positioned, but we like the idea of expanding the theme park business around key content franchises, he adds. A solid balance sheet has allowed Comcast to aggressively repurchase shares and pay decent dividends.
Wells Fargo
Market Capitalisation: $157 billion;
Morningstar Price/Fair Value: 0.70;
Morningstar Style Box: Large Value;
Trailing 12-Month Yield: 2.87%;
Morningstar Capital Allocation Rating: Standard;
Industry: Banks – Diversified.
Wells Fargo rounds out our blue-chip stocks list. It remains one of the top deposit gatherers in the US. The bank is in the midst of a multi-year rebuild, with years of expense-saving-related projects ahead and additional investment in its existing franchises, says Morningstar’s Compton.
The bank also has a sizable presence in the middle-market commercial space and boasts a large adviser network, and these factors support its wide economic moat rating. Second-quarter earnings were decent, notes Compton, with net interest income outperforming as expenses ticked up. Wells Fargo stock trades 30% below our fair value estimate of $61.
What Are the Morningstar Fair Value Estimate, Style Box, and Capital Allocation Rating?
The Morningstar fair value estimate represents what Morningstar analysts think a particular stock is worth. Fair value estimates are rooted in the fundamentals and based on how much cash we think a company can generate in the future, not on fleeting metrics such as recent earnings or current stock price momentum.
The Morningstar Style Box, meanwhile, is a nine-square grid that provides a graphical representation of the investment style of stocks, bonds, or funds. Based on a series of inputs – including a company’s historical and long-term projected growth and its historical and forward-looking price multiples – a stock is classified as either a value stock, a growth stock, or a core stock. A stock is also classified as either small-cap, mid-cap, or large-cap based on its market capitalisation.
Lastly, the Morningstar Capital Allocation Rating is an assessment of how well a company manages its balance sheet investments and shareholders’ distributions. Analysts assign each company one of three ratings – Exemplary, Standard, or Poor – based on their assessments of how well a management team provides shareholder returns.
How to Find More Blue-Chip Companies to Invest In
Of course, there are many other criteria that investors can use to find blue chip stocks to buy for the long term. Here are some tools that investors can use to find more blue-chip companies to research further:
Investors can review Morningstar’s lists of large-cap value stocks, large-cap core stocks, and large-cap growth stocks. The lists aren’t restricted by quality or valuation; rather, they’re complete lists of the large-cap stocks in Morningstar’s database and broadly represent a starting point for finding blue-chip companies.
Investors can use the Morningstar Investor screener to create their own list of blue chip stocks that meet their specific criteria. Set the Investment Type to stocks, and then choose what market capitalisation threshold you’d like in the Criteria section. You can then refine your search for blue chip stocks even further by adding valuation, profitability, and/or dividend requirements. You can also screen your list of blue chip stocks by Morningstar Rating or economic moat.
Investors who’d rather invest in blue-chip companies through a managed product like an exchange-traded fund or a mutual fund can also use the Morningstar Investor screener.
For Investment Type, choose either mutual fund or ETF. In Search Securities, type in the keyword “blue chip”. Some highly rated funds and ETFs focused on blue-chip stocks include Fidelity Blue Chip Growth FBGRX and T. Rowe Price Blue Chip Growth ETF TCHP. Just remember: large-company funds and broad US stock index funds own blue chip stocks; you may not necessarily need a separate blue-chip fund if you already own a core stock fund.
