Bespoke Investment Group, in celebration of the sixth anniversary of Visa (V) becoming a public company, took the top 25 companies in the S&P 500 by market cap and compared their rankings today against their rankings from six years ago.
Some have made extraordinary moves while others, like Visa, weren’t even in the S&P 500. The list serves as a good reminder of just how much blue-chip stocks can move in a few years. So we decided to play the prediction game and try to pick the blue-chip stocks that will top the S&P a few years from now.
So, who will be the big winners from this list six years later? Here is my list of the 5 blue-chip stocks set to boom even more.
Blue-Chip Stocks — Facebook (FB)
Facebook (FB) didn’t become publicly traded until 2012, four years after Visa’s IPO party. Yet FB stock sits in 19th position, six spots higher than Visa.
Information technology looms large in the top 25, with seven of the 25 spots on the list. Only financials and healthcare come close to that kind of presence, with five and three respectively. Information technology has been a big part of the S&P’s growth over the last six years and should be largely responsible for much of the growth over the next six years.
At the moment, the million-dollar question for FB stock is whether it will successfully be able to monetize its $19 billion offer for WhatsApp. Kevin Landis, CEO of the Firsthand Technology Value Fund (SVVC), whose fund owns nine million shares of Facebook, gives Zuckerberg the benefit of the doubt that this incredibly expensive acquisition ($4 billion cash, $12 billion stock, $3 billion restricted stock units) will pan out in the years to come.
Considering how far FB stock has come in the last year, I think it’s a brilliant move using its inflated stock price to pay for almost 80% of the deal. Six years from now, this will look like a game changer, and FB will be one of the top blue-chip stocks in the S&P 500.
Blue-Chip Stocks — Amazon (AMZN)
The biggest knock against Amazon (AMZN) is that it doesn’t make enough money. But profits aren’t the only thing that matters to blue-chip stocks like AMZN.
A steady stream of articles appear each year highlighting why Amazon has a failed business model. Most of them presuppose that businesses aren’t successful unless their margins are through the roof and fully maximized. The thinking is, “Screw the customer — only shareholders matter.”
In reality, this profit-first mentality is classic short-term thinking, which eventually leads to the killing of the goose that lays the golden eggs. It’s a loser’s mindset that can only hurt AMZN stock.
This past December, I recommended The 5 Best Stocks to Buy for the Next 20 Years. One of the blue-chip stocks on my list is AMZN stock, which I believe can only continue to appreciate if CEO and founder Jeff Bezos continues to think big-picture, refusing to give in to the whims of analysts and investors who can’t see past the next quarterly report.
Costco’s (COST) policy of passing on supplier savings to its customers in the form of lower prices might infuriate some in the investment community but it ingratiates the company to its customers, shareholders and employees. Jeff Bezos might not do what’s right for this year’s bottom line, but in six years I’m willing to bet Amazon will have moved into the S&P 500s top 10 by market cap.
Blue Chip Stocks — Disney (DIS)
Disney (DIS) is only non-tech selection in the bunch, although the largest holder of DIS stock happens to be Steve Jobs’ widow Laurene with 7.5% of the shares.
Although Disney is considered a consumer discretionary stock it’s obvious that technology plays a vital role in its success. Disney has moved up 12 spots in the S&P 500 over the past five years and currently sits in 24th, well behind the other blue-chip stocks. But over the next six years, I see a bigger move in store.
Recently, I discussed five reasons that DIS stock is going to take flight. Chief among them is ESPN’s stranglehold on cable, combined with media content that is second to none. Whichever way the ground moves when it comes to future TV viewing, Disney is going to be all over it.
Trading within 5% of its all-time high of $83.65, DIS stock continues to perform well, which isn’t a surprise given how good a job Bob Iger and his team have done over the past few years. Even though it’s not technically a tech stock, I expect technology to play a big part in DIS stock continuing to rally.
Don’t be surprised if DIS stock challenges Apple (AAPL) for the No. 1 position among blue-chip stocks.
Blue Chip Stocks — Visa (V)
Visa (V) wasn’t even in the S&P 500 six years ago, and now it sits in 25th place. It and Mastercard (MA) have an oligopoly when it comes to transaction processing and that’s not changing anytime soon. Visa’s business model should keep it competing with other blue-chip stocks for quite some time.
Visa will generate about $5 billion in free cash flow in fiscal 2014 with almost no credit risk given its intermediary status. Its free cash flow yield of 3.5% might not seem like a lot, but the company is growing operating income by approximately 25% annually combined while keeping capital expenditures around $500 million.
That’s pretty much a license to print money, which is accurately reflected in the valuation of V stock. Unless its business model totally unravels due to some unforeseen competitive threat, it’s easy to see V stock doubling over the next six years, putting it ahead of other blue-chip stocks and much higher up in the S&P 500 rankings.
Blue Chip Stocks — Apple (AAPL)
Apple will most likely introduce its iWatch this year as well as a big screen iPhone 6, a new MacBook Air and its Touch ID payment platform. Next year, don’t be surprised to see the iTV hit stores, with more innovation rolling out in 2016 and beyond.
At the moment, investors are giving all the innovation credit to Google, which is reflected in the price of GOOG stock. But once investors realize that Cupertino hasn’t been sitting on its laurels the last two years, AAPL stock will move north of $600. And if Apple can hit enough positives over the next six years I don’t see any reason why it can’t join Google in the $1,000 club.
As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.