When investors hear the term “blue-chip stocks,” it tends to remind them of old, legacy businesses. That’s not a bad thing necessarily, but there are alternative blue-chip stocks to know about too — especially since these holdings are top blue-chip stocks overall.
There’s nothing wrong with Procter & Gamble (NYSE:PG), McDonald’s (NYSE:MCD) and PepsiCo (NYSE:PEP) — not by a long shot.
However, to think that other sectors and businesses can’t grow into blue chips in their own right is close-minded thinking. We want an open mind when it comes to investing, giving all high-quality assets an opportunity to shine in our portfolios.
Enough of the talk — let’s look at a few alternative blue-chip stocks going forward.
Alternative Blue-Chip Stocks: Alphabet (GOOGL, GOOG)
So many of the older blue-chip stocks focus on consumer spending and not many focus on technology stocks. Well, that should change given the dominance of mega-cap tech stocks — one of which is Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG).
Alphabet is one of five U.S. companies with a market capitalization in excess of $1 trillion and is currently No. 3 on that list, trailing just Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT).
While many investors focus on the real estate market, one seemingly under-considered real estate area is the digital landscape — also known as the internet. Look no further than Alphabet, which owns the two most popular websites in the world with Google.com and YouTube.com. I often refer to them as the Boardwalk and Park Place of the internet.
Shares trade at just 23.5 times this year’s earnings forecast, despite analysts expecting profits to grow almost 17% this year before accelerating to 18% growth in 2024. For its dominance, cash flow power and balance sheet strength, Alphabet should enjoy years of growth (and AI should be the next catalyst).
Diversified Portfolio Stocks: Visa (V)
If investors are bullish on consumer spending, Visa (NYSE:V) is their play. The company has quietly amassed a $500 billion market cap, as it continues to slowly but surely churn out steady growth. Betting against Visa at any point in the last decade for any considerable amount of time has been a losing battle.
The stock is up five-fold in the last 10 years. That’s good for a compound annual growth rate (CAGR) of 17.5%. That smashes the S&P 500’s 169% gain in the same period (or a CAGR of 10.3%). Even if we use total returns to incorporate the dividend, Visa’s 450% gain doubles the index’s gain of 225% over the last decade.
All of this put simply — Visa is a winner.
If there’s a recession or a notable slowdown in spending, Visa will feel the pinch. So will many others. However, the long-term nature of this business is impossible to dispute, making it one of our top alternative blue-chip stocks.
Don’t Forget the Consumer: Costco (COST)
Many investors are bullish on traditional blue-chip stocks, almost all of which hinge on consumer spending. While they are consumer-oriented businesses, it can be difficult to pick winners from the retail sector.
However, in that group is Costco (NASDAQ:COST), a company that has been a proven long-term winner.
If you thought Visa’s stock gains and total returns were impressive, consider Costco. While the company has a price return of “just” 369% over the last decade, its total return swells to 470%. The company has been incredibly shareholder friendly in that span too.
While some investors critique the valuation relative to its growth rate (trading at about 39 times this year’s earnings for earnings growth forecasts of about 7% this year and 10.5% next year), those investors seem to be undervaluing the firm’s consistency.
One reason? Cash flow. Costco’s membership plan keeps a very consistent rate of cash flow, helping shelter the business from economic fluctuations. For many investors, that dependable cash flow is worth a premium and we’ve seen that to be the case with Costco over the long term.
On the date of publication, Bret Kenwell 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.
