Blue-Chip Stocks Guide: Should You Buy in During a Market Downturn?

Daniel Penzing
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Looking to invest when the stock market is down? Consider investing in these blue-chip stocks.

The Dow Jones Industrial Average currently sits at around 15,000.

The stock market has made new highs, and it looks like stocks are ready to watch that upward trajectory continue.

But now might not the best time to pile into riskier high-growth stocks. Some analysts think now is the time to take some chips off the table and to instead move them into blue-chip stocks.

So just what are blue-chip stocks?

Blue-chip stocks are what every investor dreams of investing in. They are stocks of large, established companies that are renowned for their flexibility in financial downturns. Put another way, blue-chip stocks are stocks that can withstand external economic disturbances and they tend to perform in a highly consistent manner.

They are also stocks that have a very high market capitalization and have been around for some time.

The term blue-chip is very old stock market term. It’s a reference to poker chips.

In early poker versions, the highest value cards were considered to be red, and the lowest were blue.

Over time, people started to view blue as one of the coolest colors and the higher value of poker chips started to reflect this.

Blue-chip stocks have been continuously around for a long time and have proven their resilience against economic decline. Stocks such as Walmart, ExxonMobil, IBM, and GE are all blue-chip stocks.

What Are Blue-Chip Stocks?

In the short-term, stocks can be a bit like trying to play the lottery. You can make a bit of money investing all at once – or you can lose it all in an unexpected downturn!

But an investment in blue-chip stocks can be the base of a long-term portfolio. These are high-quality companies that have a track record of returning dividends. They have a stock price that’s relatively stable and won’t crash too dramatically even during a market downturn. Blue-chip stocks can be a wise choice if you’re looking for a steady long-term return.

But there are a few things to remember when you’re buying these stocks. One is that it’s not a good idea to invest the entirety of your savings in blue-chip stocks. If you do this, you’re likely to be taking a lot of risk, hurting the overall stability of your portfolio.

Blue chips are stocks you can set and forget. It’s a good idea to keep some of your savings in blue-chip stocks so that you’ll never lose money in stocks. Some experts suggest keeping up to a quarter of your portfolio in blue-chip stocks.

Characteristics of Blue-Chip Stocks

A blue-chip stock is a company that is an industry leader and has a long history of paying dividends. As a result, owning a blue-chip stock during the downturn of a bull market will typically provide you with stability and short-term profitability. Let’s look at some characteristics of a blue-chip stock.

Good Liquidity

A stock may not offer good liquidity, which could make it difficult for you to sell your holdings quickly. Blue-chip stocks tend to have good liquidity, which makes them easier to sell. This keeps you from taking too much of a loss or trying to hold onto securities that are not performing well.

Good Management

When a company has good management, you can be sure that they will work towards increasing the value of the company. Good management teams generally make good decisions, such as issuing dividends and buying back company shares. And these decisions can help to protect your profits and mitigate losses.

Stable Financials

A blue-chip stock may be more reliable than other stocks because its financials are typically stable. This means that investors can form a good idea of how well the company is performing and how much money it is going to generate down the road. As a result, you will have a more accurate idea of whether the stock is worth purchasing and how much it may be worth in the end.

Reasons to Invest in Blue-Chip Stocks

Despite what many people think about investing in the stock market during a downturn, you can actually make a considerable amount of money by investing in quality blue-chip companies during bearish market conditions.

The stock market is subject to the same laws of supply and demand as anything else. When stock prices are low, there is a higher supply of available stocks and thus the potential to buy more quantity for the same amount of money. Since stocks are part of the broader portfolio that many investors use to keep their wealth balanced and protected from the risks of other assets, investing money in a stock market downturn can actually be a safe and logical move.

In the current stock market downturn, you could likely pick up shares in some of the most reputable companies on the market for a fraction of the price you would likely pay in the next bull market.

This article is a brief look at some of the best blue chip stocks on the market right now and why you should invest in them.

Companies Who Are in a Holding Pattern

There are certain blue chip stocks you should invest in during a downturn because they are actively involved in all aspects of the economy but are experiencing growing pains as investors and the general public get frustrated with slow sales and profits. These companies are often waiting on the sidelines for a clear sense of direction that is pulling them into one of two directions: either emerging markets or emerging technologies.

Examples of Blue Chip Stocks That Have Survived Market Downturns

Some blue-chip stocks always seem to ride out downturns in the market, and they provide a steady stream of income to shareholders through dividends. These stocks tend to hold their value more than newer or smaller companies, and their track record of growth seems to be more stable.

Consider a recent downturn in the stock market when stocks for many smaller companies plummeted rather than blue chip stocks. Many analysts believe this is because larger companies have more financial resources (cash on hand) to use as the market trends down.

How to Buy Blue-Chip Stocks

First, if you are going to make any sort of decision in the markets you need to look at what the experts do. These experts run mutual funds and many of them buy or sell BUY NEWSLETTERS as a necessity for their positions. Think about it; all of the money they manage is not their own, but belongs to some corporation, individual or small group of people. The Manager of the mutual fund needs to buy and sell and needs to have a strategy.

They start with a basic investment philosophy upon which they build their strategies. Most of the time this approach involves long-term investment and patient capital management. However, as the markets change and the economy fluctuates they need to adapt.

Right now we have seen economic and market turbulence throughout this year. The world is a mess, and the markets have tumbled. It seems that the Chinese economy is on its way to a recession, and the Japanese yen continues to dominate as it is the strongest of the currencies. Even the Euro has been volatile, and the U.S. is not much better off either.

Even with all this turmoil going on, the mutual funds are moving money around. What are they doing? What are the experts doing? Where do they put their money?

After all, if the experts are investing their clients’ money, doesn’t it make sense that we should be doing the same?

Where to Buy Blue Chip Stocks

The most important thing to remember is that investing in blue chip stocks should be done because you believe that they are going to grow steadily over the next several years. Not because they are easy to get, not because you think that if the market recovers, you can get the same price for them.

Before you buy them, you should know the facts and the prospective growth along with the possibility of a takeover. You have to know all of that to make the right choice.

Then, you should be aware that if you buy them, you are going to have to wait at least a couple of years to see a profit. And you have to be prepared to deal with any kind of troubles, like a takeover, that can delay things.

The main thing is to be able to do your homework on a blue chip stock and being able to deal with anything that comes along.

A lot of people do not have the time or the money to do this. It is actually better for most of us to just buy mutual funds.

But if you have the time and the money, you should definitely consider trying this out. It can be very rewarding to know that you own a piece of a business and that you are going to see a profit from it.

List of Blue Chip Stocks

Today, purchasing a stock is extremely simple. You can do it in your sleep. With a few keystrokes, you can have a trades open, and you can wake up to a profit. Even if stocks make you nervous, though, the simple act of opening an online brokerage account and putting some money in it is a good thing to do.

To help you do that, we’re going to take a quick look at some of the best blue-chip stocks to buy straightaway, at any time, really. Some are mature, while others are relative newcomers. But they all share one thing in common … they’re all great blue-chip stocks to buy.

We need to first start with Walmart (WMT). It’s the largest retailer in the world, and it’s aggressive expansion into Asia and Europe is a huge opportunity for it. It’s also moving aggressively to expand its e-commerce presence, because online sales are growing at a 15% clip. It’s also very clearly the king of same-day delivery.

Blue-Chip vs. Large-cap Stocks

There are many different types of stocks available. Most of them can be split into two categories … blue-chip stocks and large-cap stocks. When you hear the term blue chip, you probably think of financial success. While the two are not synonyms, mostly blue-chip stocks are the ones that are known for their longevity.

Blue-chip stocks are generally considered by people to be financially secure. They have withstood the test of time and are not looking to disappear in the same fashion. Therefore, those stocks can be acquired in times when people are uncertain about the market as a whole.

Large-cap is a term that is also related to financial securities. However, they are traded in a much larger marketplace. You`re not going to find these on the stock exchange of one small village somewhere, but they are traded on major exchanges such as New York, London, Tokyo and Sydney.

Large-cap stocks are easy to find. When you go to sell them, they are easier to get rid of because there are many people who want to buy and sell them. When you have an influx of buyers, that means that there is a high demand for the stock, which helps keep the price high.

What Makes a Blue-Chip Stock?

There is not an exact definition of what is considered a blue-chip stock. It is instead a type of stock that is known for their financial success.

What About Blue Chip Funds?

Many advocates of stock and bond index funds regularly recommend that new investors should begin with these vehicles first. They've got the advantages of capital protection and accommodating long-term time horizons, and there's also the low transaction cost to consider.

If this works for you, then that's great. For some people, however, at least early in the investing process, the experience of watching your investments pop up and down considerably makes you want to pull out of the market altogether. Concerns about making a career out of market-timing might sound silly to veterans like Warren Buffett, but for beginners who've never seen a serious downturn first-hand, the risk might seem too great.

Of course, not everyone who's interested in stock market investing can afford to plunk down six figures on an index fund, either. So an experienced advisor might recommend that you buy into individual stocks and blue chip funds.

If you're just getting started in the stock market and you've got a chunk of cash you'd like to invest, you should consider setting yourself up with a blue chip stocks fund. Investing in blue-chip stocks (or blue chippers) is a great way to get started with a slice of the stock market without overdoing it.

Blue Chip Stocks Are the Most Reliable Investments

For many people, the stock market is intimidating. Stocks are difficult to buy, and the process of buying them is complicated. With so much information about the market out there, it’s hard to know what to really look for in a stock, when to buy, and when to sell. Luckily, there is a way to simplify all of this information about the stock market and use it to invest your money.

That way, of course, is to buy blue-chip stocks.

A blue-chip stock is a stock that has a reputation for consistently growing in value. These stocks are well-known and well-trusted by investors, so they are much more stable than other stocks. These stocks are also high-quality. They have a good history of payouts, are growing, and hold a distinguished place in their field.

Because they are well-known and highly-valued, they are also great assets to have in your portfolio. Blue-chip stocks usually offer dividends and consistent growth. They are also more likely to survive a market downturn.