In the world of investing, blue-chip stocks represent the gold standard. These large, reputable companies with strong balance sheets are pillars of stability and reliability. While the Dow Jones and S&P 500 are dominated by blue chips today, the landscape is always evolving. The blue chips of tomorrow have yet to reveal themselves. As an investor, identifying these stocks early is the key to maximizing one’s long-term returns.
The most promising companies demonstrate certain traits before ascending to blue-chip status. Financial strength, industry leadership, competitive advantages, innovation, and higher-than-average growth are signals to look for. Finding the next blue chips today will require digging into rising stars across various sectors.
In the following article, I will profile three stocks that exhibit blue-chip potential. The companies may not be household names yet, but shrewd investors know it pays to spot blue chips early before the rest of the market catches on. Let’s dive into the stocks poised to become the blue chips of tomorrow.
Albemarle (ALB)
Albemarle (NYSE:ALB) has rapidly emerged as a leader in lithium production, placing it at the forefront of the global electric vehicle revolution. As EVs go mainstream, demand for lithium-ion batteries is set to skyrocket. Albemarle appears well-positioned to ride this wave.
The company has continued executing well from an operational standpoint. In its recent Q2 earnings, Albemarle reported strong sales growth of 60% year-over-year and adjusted earnings per share that more than doubled to $7.33. Adjusted EBITDA also jumped 69% compared to Q2 2022. Importantly, Albemarle’s production ramp-up remains on schedule, despite some concerns about potential delays.
Looking ahead, analysts expect Albemarle’s growth trajectory to continue. Consensus estimates call for sales to rise 42% in 2023 but it will slow down to just 0.4% next year. Analysts expect a slow buildup of momentum after 2024, and Albemarle’s top-line growth could reach 25% in 2028 before slowing down again. Obviously, you can see that the company’s future growth rates are uncertain (well, you can’t expect too much consistency a commodity business). But if you’re really bullish on EVs and lithium, I’d take the over on Albermarle’s ability to outgrow projections.
Meanwhile, Wall Street sentiment remains bullish on the stock. Albemarle currently sports 13 buys, 3 holds and one sell rating, giving it a moderate buy consensus rating. Still, price targets average $263, implying 44% upside. If bulls are right about the lithium story, I see ALB stock being a future blue-chip.
Sea Limited (SE)
While not yet a household name, Sea Limited (NYSE:SE) has rapidly emerged as a dominant e-commerce force in Southeast Asia. Its Shopee platform is already the region’s top online marketplace. Sea Limited now looks to leverage this position into long-term growth and profitability. These up-and-coming blue-chip stocks could deliver tremendous gains as they graduate to blue-chip status through their financial strength. However, JPMorgan’s (NYSE:JPM) recent downgrade has crushed this stock to massively undervalued levels.
Concerns emerged last year as heavy investment led to widening losses. However, Sea Limited has impressively righted the ship. Its latest Q2 results revealed a return to growth and profitability, with sales up 5.2% and positive adjusted EBITDA of $510 million. After prioritizing efficiency, Sea Limited now appears ready to strategically ramp up spending again.
Importantly, analysts remain optimistic about Sea Limited’s growth outlook. Analysts believe revenue will grow 4.5% this year before climbing to the double digits (around 12%) next year. The company is expected to reach positive net income in 2023 as well. With a leading position in a rapidly growing e-commerce market, Sea Limited seems poised for massive growth still ahead.
Most analyst ratings still reflect confidence in the stock. Currently, SE stock carries an average price target of $73.30, implying almost 90% upside from here. Given its financial turnaround and long runway for e-commerce growth in Southeast Asia, Sea Limited exhibits the makings of a blue-chip stock. Investors who get in early stand to generate huge returns as this future giant keeps expanding.
Sony Group (SONY)
As a diversified electronics and entertainment leader, Sony Group (NYSE:SONY) possesses distinct blue-chip potential. The company holds strong positions across areas like music, movies, sensors, video games, and more. Sony Group seems poised to leverage these domains into sustainable long-term growth.
While macro headwinds have impacted segments like sensors and electronics, Sony’s business fundamentals remain strong. The company continues investing strategically in high-growth areas. Initiatives like adapting PlayStation games into live-action content demonstrate Sony’s potential. Sony grew its Q1 2023 revenue by 19%, beating estimates by a staggering $3 billion, though it did miss earnings per share expectations by nearly a buck.
Moving forward, analysts expect Sony Group to deliver healthy growth this decade. Since it is a Japanese company, it is difficult to estimate the raw dollar numbers we’ll be getting in the future. However, it is fair to say that Sony could easily pull off 4% or even 5% annualized growth this decade if it keeps beating top-line expectations.
Price targets are quite dry here, since Sony has only had one analyst rating by Goldman Sachs (NYSE:GS) in the recent past. That said, this is a juicy price target that implies roughly 30% upside.
On the date of publication, Omor Ibne Ehsan did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
