What Are Blue-Chip Stocks?

Some of the most common questions we receive at Money Morning from new investors are what are blue-chip stocks and why are they so valuable to investors?

Blue-chip stocks are a good option for investors looking for healthy long-term growth in their portfolio. Here's everything you need to know about what blue chips are, plus one of our favorites to invest in now...

What Are Blue-Chip Stocks and Why Should I Buy Them?

What are blue chip stocksBlue chips are stocks of well-established companies with multibillion-dollar market capitalizations. They're internationally recognized and leaders in their respective industries.

Blue-chip stocks trade on major exchanges like the Dow Jones Industrial Average, the S&P 500, or the Nasdaq 100.

Blue-chip stocks are best for investors who want to purchase a stock and hold it for five years, 10 years, or even longer. They're not great for day traders because there won't be frequent price swings.

But for anyone looking for a solid way to protect and build their wealth, blue chips are an excellent choice.

Blue chip stocks have very strong earnings, revenue, and margins. This makes them some of the most stable investment opportunities on the market. During market corrections, or even recessions, blue chip stocks hold their value better than other stocks.

But because they're leaders of their industry, blue-chip stocks also offer strong upside.

Another benefit of these stocks is they typically pay healthy, consistent dividends. Many blue chips increase their dividends regularly and make payouts for decades. This lets investors collect income even if share prices pull back.

One of the most popular and well-known blue-chips stocks is Procter & Gamble Co. (NYSE: PG). Procter is a $223 billion conglomerate that's a worldwide leader in consumer packaged goods. It is one of the 30 components of the Dow and was founded 177 years ago. Over the past five years the stock has posted steady growth of 32%. Right now PG stock has a dividend yield of 3.2%.

While PG is a healthy, long-term money maker for your portfolio, here's our favorite blue-chip stock to buy today...

The Best Blue-Chip Stock to Buy and Hold Now

Apple Inc. (Nasdaq: AAPL) "officially" became a blue-chip stock when it was added to the Dow Jones Industrial Average in March. AAPL has climbed 20% in 2015. In the last 12 months, AAPL has climbed 56%.

But this isn't the time to take profits on AAPL stock if you've been holding it. This stock still has plenty of upside.

"I wouldn't be selling Apple stock right now," Money Morning's Defense and Tech Specialist Michael Robinson said on FOX Business in March. "I think we still have a lot of momentum left on this stock. I have a $142.85 target on this for Labor Day 2016."

And one of the biggest reasons AAPL stock will continue higher is the Apple Watch. Money Morning's Chief Investment Strategist Keith Fitz-Gerald has even termed it a "cell-phone killer."

"Think about what they're doing with this watch," Fitz-Gerald said. "They're changing the way we think about devices. And if there's one thing that Apple's good at consistently, it's that."

Fitz-Gerald is so bullish on AAPL stock in fact, he's set a price target of $200 per share in the next two years. That would be an increase of more than 51% from today's share price near $132.

The lowest-level version of the Watch will retail near $349, and the mid-level Watch at $549. Margins on those products are expected to fall between 40% and 50%. But Apple is also working on a gold luxury version that will retail between $10,000 and $17,000. The margins on that one should push 80%.

Apple has some of the highest margins in the industry, with gross profit margins of 39.9% in the last quarter. That was up from 37.9% the previous year.

Revenue is expected to hit $47.1 billion for Q2, an increase of 26% from last year. The company has a market cap of $773 billion. If AAPL hits Fitz-Gerald's price target, it will be the world's first $1 trillion company.

"They are such a juggernaut," added Money Morning's Technical Trading Strategist D.R. Barton said in February. "If you're a money manager and you don't have Apple in your portfolio it's basically financial suicide."

Apple also pays a modest dividend of 1.4%.

The Bottom Line: One of our most frequently asked questions is "What are blue-chip stocks?" Blue chips are an excellent investment tool for those looking to protect their money, while also growing it steadily over time. Blue-chip stocks have huge market caps, pay a dividend, and have solid financials. Our favorite blue-chip play right now is Apple stock, because of the industry it's in and its incredible revenue stream.

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