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.
What Are Blue-Chip Stocks?
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 2024. 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 caps top $100 billion.
10 Best Blue-Chip Stocks to Buy for the Long Term—December 2024
These are the largest firms by market cap on Morningstar’s Best Companies to Own list whose stocks were at least 15% undervalued as of Dec. 16, 2024.
1 - Anheuser-Busch InBev BUD
2 - Pfizer PFE
3 - Roche RHHBY
4 - Nike NKE
5 - Nestle NSRGY
6 - Sanofi SNY
7 - Danaher DHR
8 - Merck MRK
9 - Thermo Fisher Scientific TMO
10 - Bristol-Myers Squibb BMY
Here’s a little bit about each of these blue-chip stocks for the long term. Data is as of Dec. 16.
Anheuser-Busch InBev
• Market Capitalization: $105 billion
• Morningstar Price/Fair Value: 0.58
• Morningstar Style Box: Large Core
• Trailing 12-Month Yield: 1.66%
• Morningstar Capital Allocation Rating: Exemplary
• Industry: Beverages—Brewers
Anheuser-Busch InBev is the most undervalued company on our list of best blue-chip stocks to buy. It has built a vast global scale and regional density through past acquisitions like Grupo Modelo and SABMiller. The brewer’s strategy is to buy brands with a promising growth platform, expand distribution, and ruthlessly squeeze costs from the business, observes Morningstar analyst Verushka Shetty. “AB InBev has one of the strongest cost advantages in our consumer defensive coverage and is among the most efficient operators,” she adds. The brewer’s free cash flow conversion has been consistently higher than peers’ in recent years, but it needs to continue to deleverage its balance sheet to reduce its earnings volatility. AB InBev stock trades 42% below our fair value estimate of $90 per share.
Pfizer
• Market Capitalization: $143 billion
• Morningstar Price/Fair Value: 0.60
• Morningstar Style Box: Large Value
• Trailing 12-Month Yield: 6.65%
• Morningstar Capital Allocation Rating: Standard
• Industry: Drug Manufacturers—General
Pfizer is the first of seven healthcare companies that made our list of the best blue-chip stocks to buy, and it offers the highest trailing yield of the group. A household name among drug manufacturers, Pfizer’s stock is currently trading at a 40% discount to its fair value estimate. The firm has strong cash flows generated from a basket of diverse drugs, says Morningstar strategist Karen Andersen. Further, the company’s large size confers significant competitive advantages in developing new drugs. We expect steady growth until 2028 when patent losses will likely increase, but pipeline advancements hold the potential to mitigate pressures. We think Pfizer stock is worth $42 per share.
Roche
• Market Capitalization: $231 billion
• Morningstar Price/Fair Value: 0.65
• Morningstar Style Box: Large Core
• Trailing 12-Month Yield: 3.80%
• Morningstar Capital Allocation Rating: Exemplary
• Industry: Drug Manufacturers—General
Roche stock trades 35% below our fair value estimate of $55 per share. The company‘s drug portfolio and industry-leading diagnostics provide significant competitive advantages and underpin our wide economic moat rating, says Morningstar’s Andersen. “This Swiss healthcare giant is in a unique position to guide healthcare into a safer, more personalized, and more cost-effective endeavor,” she notes. With its biologics focus and innovative pipeline, we expect Roche to continue to achieve growth as its blockbuster drugs face competition.
Nike
• Market Capitalization: $115 billion
• Morningstar Price/Fair Value: 0.66
• Morningstar Style Box: Large Core
• Trailing 12-Month Yield: 1.96%
• Morningstar Capital Allocation Rating: Exemplary
• Industry: Footwear and Accessories
Nike is one of only three nonhealthcare companies on our list of best blue-chip stocks. The largest athletic footwear brand in all major categories and all major markets, Nike dominates categories like running and basketball with popular shoe styles. We view Nike as the leader of the athletic apparel market and believe it will overcome current challenges, such as uneven demand for sportswear in key markets, argues Morningstar senior analyst David Swartz. Nike’s consumer plan is led by its Triple Double strategy to double innovation, speed, and direct connections to consumers. Although its recovery in China has been slow due to economic conditions, native competition, and a political controversy, we still believe Nike has a great opportunity for revenue growth there and in other emerging markets. Nike stock trades at a 34% discount to our fair value estimate of $117 per share.
Nestle
• Market Capitalization: $215 billion
• Morningstar Price/Fair Value: 0.71
• Morningstar Style Box: Large Core
• Trailing 12-Month Yield: 3.96%
• Morningstar Capital Allocation Rating: Standard
• Industry: Packaged Foods
Nestle is the largest food and beverage manufacturer in the world by sales. Its diverse product portfolio includes brands such as Nestle, Nescafe, Perrier, Pure Life, and Purina. Nestle faces competition from local operators, and past missteps have caused the firm to miss out on or be late to the latest consumer trends. However, current management has reversed past trends, says Morningstar analyst Diana Radu. Aside from structural cost-cutting efforts, the management team has successfully put a lot of weight on reinvigorating growth through active portfolio management, resetting legacy businesses, and further investment in high-growth categories (coffee, pet care, water, and nutrition). Nestle stock trades 29% below our fair value estimate of $116 per share.
Sanofi
• Market Capitalization: $117 billion
• Morningstar Price/Fair Value: 0.73
• Morningstar Style Box: Large Core
• Trailing 12-Month Yield: 4.44%
• Morningstar Capital Allocation Rating: Standard
• Industry: Drug Manufacturers—General
Sanofi’s wide lineup of branded drugs and vaccines and robust pipeline create strong cash flows and a wide economic moat. Growth of existing products and new product launches should help offset upcoming patent losses, says Morningstar senior analyst Jay Lee. Sanofi’s existing product line boasts several top-tier drugs, including immunology drug Dupixent. A history of acquisitions and robust cash flow from operations mean Sanofi could take advantage of further growth opportunities through external collaborations. We expect the firm’s acquisition focus on immunology drugs and rare disease drugs will continue following several deals in this area. Sanofi stock trades 17% below our fair value estimate of $61 per share.
Danaher
• Market Capitalization: $169 billion
• Morningstar Price/Fair Value: 0.82
• Morningstar Style Box: Large Core
• Trailing 12-Month Yield: 0.45%
• Morningstar Capital Allocation Rating: Exemplary
• Industry: Diagnostics and Research
Medical technology company Danaher joins our list of best blue-chip stocks to buy after Morningstar analysts upgraded the firm’s moat rating to wide from narrow. The firm offers differentiated technology that is protected by various intangible assets, including patents, brands, copyrights, and trademarks, observes Morningstar senior analyst Julie Utterback. Danaher seeks out attractive markets and makes acquisitions to enter or expand within those fields, and it also divests assets that are no longer core to the business. The company’s acquisition-focused strategy has contributed to it becoming a top-five player in the highly fragmented and relatively sticky life science and diagnostic tool markets. Danaher stock trades at an 18% discount to our fair value estimate of $285 per share.
Merck
• Market Capitalization: $253 billion
• Morningstar Price/Fair Value: 0.83
• Morningstar Style Box: Large Value
• Trailing 12-Month Yield: 3.12%
• Morningstar Capital Allocation Rating: Standard
• Industry: Drug Manufacturers—General
Merck’s combination of a wide lineup of high-margin drugs and a pipeline of new drugs should ensure strong returns on invested capital over the long term, says Morningstar’s Andersen. After several years of mixed results, Merck’s R&D productivity is improving as the company shifts more toward areas of unmet medical need. Merck’s new products have mitigated the generic competition, offsetting recent major patent losses. In particular, Keytruda for cancer represents a key blockbuster with multi-billion-dollar potential. We expect Keytruda’s leadership in non-small cell lung cancer and several other cancers will be a key driver of growth for the firm over the next several years, but the 2028 US patent loss on the drug will create eventual pressure. Merck stock is trading 17% below our fair value estimate of $120 per share.
Thermo Fisher Scientific
• Market Capitalization: $203 billion
• Morningstar Price/Fair Value: 0.84
• Morningstar Style Box: Large Value
• Trailing 12-Month Yield: 0.29%
• Morningstar Capital Allocation Rating: Exemplary
• Industry: Diagnostics and Research
Thermo Fisher is weathering the pullback in global biopharmaceutical spending better than most of its peers. Being the premier life science supplier and having an unmatched portfolio of products, resources, and manufacturing capabilities have allowed the firm to retain and grow its wallet share among its customers across all channels, observes Morningstar regional director Alex Morozov. We expect the current budget-constrained environment to slowly ease in the upcoming year. The firm remains in a great position to leverage its share gains in the biopharma channel and capitalize on strong long-term demand. Thermo Fisher stock is trading at a 16% discount to its fair value estimate of $630.
Bristol-Myers Squibb
• Market Capitalization: $113 billion
• Morningstar Price/Fair Value: 0.85
• Morningstar Style Box: Large Value
• Trailing 12-Month Yield: 4.30%
• Morningstar Capital Allocation Rating: Exemplary
• Industry: Drug Manufacturers—General
Rounding out our list of the best blue-chip stocks to buy for the long term, Bristol-Myers Squibb stock is trading 15% below our fair value estimate of $66 per share. Adept at partnerships and acquisitions, Bristol-Myers Squibb has built a strong portfolio of drugs and a robust pipeline. The firm has brought in partners to share the development costs and diversify the risks of clinical and regulatory failure. “We believe the cardiovascular partnership with Pfizer represents one of the most important partnerships,” says Morningstar’s Andersen. Bristol is aggressively repositioning itself to expand through challenging patent losses. The recent approval of Karuna’s schizophrenia drug Cobenfy stands to generate multi-billion-dollar peak sales in neurology, which is now reestablished as a key focus for Bristol.
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 capitalization.
Last, 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 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 capitalization 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 key word “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 that large-company funds and broad US stock index funds own blue-chip stocks, so you may not necessarily need a separate blue-chip fund if you already own a core stock fund.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
