Ask any professional financial advisor and chances are, they’ll tell you that you can never go wrong with long-term exposure to blue-chip stocks. Obviously, when you’re younger, you should take more risks for greater profitability potential. But large, established companies with an extensive track record can better adjust to downturns.
But blue-chip stocks don’t just represent viable investments. In my view, everyone should watch this sector because they provide important clues regarding the broader economy as well as sector-specific data. Primarily, the blue chips large volume of shares traded relative to other investment classes make this segment quite reliable for interpretive purposes and analysis.
Another advantage that blue-chip stocks offer from economic data points, such as the monthly jobs report from the Bureau of Labor Statistics is that they represent real-time demand. Again, because of their large volume, movements in blue chips are very significant. You can’t say the same thing about a penny stock because its usually limited volume means big moves are anomalous.
Also, blue-chip stocks give you feedback on both broader and sector-specific trends. For instance, everybody these days is talking about the wild housing market. It’s possible — though not guaranteed — that price action of housing-related equity units can provide a forward indicator of where real estate is going. Of course, real estate demand has huge implications for economic stability.
Therefore, the spirit of this gallery isn’t necessarily to say that these are blue-chip stocks to buy or sell. Rather, you should pay close attention to these industry stalwarts because they provide important clues to where we might be headed next.
- Pfizer (NYSE:PFE)
- Berkshire Hathaway (NYSE:BRK.B)
- Public Storage (NYSE:PSA)
- Carmax (NYSE:KMX)
- Blackstone (NYSE:BX)
- Disney (NYSE:DIS)
- Chevron (NYSE:CVX)
Again, this is the internet so let me reiterate: this is not about buy or sell guidance but using blue-chip stocks as economic indicators. Indeed, I don’t have the greatest confidence in some of these names. So, with that caveat out of the way, let’s take a look at what various economic sectors may be telling us.
Well before the novel coronavirus pandemic, the issue of vaccinations was a contentious one. As you might guess, the topic generated legions of conspiracy theories, typically involving Bill Gates and the supposed deep state push to depopulate the Earth. But if that were to happen, that would leave the elites fewer folks to exploit.
But hey, I don’t think logic and reasoning will work for those who are deeply entrenched in such ideations. Nevertheless, the Covid-19 crisis did not help matters in the least, in large part because rare but highly publicized blood clot problems spooked many people. Logically, this adds fuel to the conspiratorial argument.
Cynically, this is why Pfizer is one of the blue-chip stocks to watch closely. Yes, the company has had its fair share of vaccine side-effect accusations. But in my view, Johnson & Johnson (NYSE:JNJ) and AstraZeneca (NASDAQ:AZN) have it much worse. When it comes to confirmed serious side effects, their Covid-19 vaccines suffered the worst headlines.
True, the current Covid-19 vaccines incorporate groundbreaking technology. But Pfizer’s messenger RNA may have an edge here because, as I recently learned, all mRNAs “are ultimately degraded at a defined rate.”
What this suggests is that you probably won’t grow a third arm out of your forehead. That’s got to be comforting for those who own PFE stock.
Berkshire Hathaway (BRK.B)
The house that Warren Buffett built (or at least made famous), Berkshire Hathaway is an American multinational conglomerate, a true icon in a world where that word is overused. For me, BRK.B is one of the most fascinating blue-chip stocks to monitor because the underlying company has exposure to key market segments. As well, Buffett and the Berkshire team carefully select their holdings.
If you think they approach the markets conservatively and with a longer-term framework, you’d be right. Over the trailing five years, BRK.B stock generated a return of 83%, which isn’t too shabby compared to other blue-chip stocks. Nevertheless, most of those gains came between 2016 and the beginning of 2018. Between the start of 2018 to the end of 2020, though, shares have only increased by around 15%.
Of course, on a year-to-date basis, BRK.B is up 17%. It begs the question, is the surge in equities this year sustainable? If it is, you’d expect Berkshire Hathaway shares to perform well. So far, they’re doing just that but you’ve got to keep an eye on them. If BRK.B starts to falter, that might be an early warning signal.
Public Storage (PSA)
Public Storage may not be the biggest member of blue-chip stocks, with a market capitalization of just under $48 billion. Indeed, a handful of cryptocurrencies have a larger market cap than PSA stock. Nevertheless, Public Storage has been a publicly traded equity unit since the early 1980s so it has more than proven its stability and reliability.
Arguably, though, PSA stock has never been of more consequence than it is today. In September 2019, the Wall Street Journal reported that investors have been moving into storage units, with PSA being one of the main beneficiaries. Interestingly, the WSJ cited “low interest rates and lingering fears of recession” as prime reasons why people have sought out blue-chip stocks in this space.
But there is another reason why the move to storage units is significant. With baby boomers retiring en masse, they don’t need a huge house to live in. After all, their kids have gone off and started their own families.
Could that mean the crazy housing boom will continue? I can’t say for certain. But you may want to check PSA as a real-time gauge of the housing market.
If there’s one name among blue-chip stocks I’m tempted to short, it’s Carmax. I don’t think I’ll do it — then again, I might change my mind. Looking at the charts, though, it seems that KMX stock is printing a bearish head-and-shoulders pattern between the Jan. 20, 2021 session till the time of writing (April 21).
If shares do end up tumbling, I won’t be surprised. Anecdotally, I have a well-used vehicle that I no longer have a need for. Prior to the pandemic, I was looking to sell it and the deal that I got from both online auto specialists and traditional dealers was around $2,500. Now, I can easily have it towed away for a little over $3,000. And if I put in a little work, I might get $4,000.
Now, Carmax offered me even higher than that, which surprised me. It just doesn’t seem worth it but that’s the crazy auto market that we’re in. Yeah, it’s not just housing but it makes me wonder about sustainability.
When cutthroat car dealers are offering almost twice as much as a vehicle would normally fetch, something’s up. Again, this is one of the blue-chip stocks to watch closely for its economic implications.
If you wanted to short blue-chip stocks, you’d be doing the world a solid by targeting Blackstone. You see, the current mantra in social media is to protect companies from short traders; that is, to go on the defensive to save myriad jobs that people depend on. But sometimes, it’s worth it to go on the offensive and try to actively disrupt certain organizations.
I’m not recommending anything one way or the other. But the wild housing market — which by the way prevents hard-working families from realizing the American Dream — brings up an excellent question: who the heck are these all-cash buyers bidding the price to a seemingly unsustainable level? Companies like Blackstone, that’s who.
According to HousingWire.com, Blackstone became the largest owner of single-family rental homes in America in 2012. During the Covid-19 crisis, it has “returned to a familiar watering hole.” Long story short, Blackstone intends to become America’s landlord. The company along with its rivals have untold resources that regular folks can only dream about.
And thanks to these corporations, home ownership is exactly that, a dream. If you want a target for your anger, it’s BX stock.
Several blue-chip stocks bounced back strongly following last year’s March doldrums. But one of the most surprising — at least in my opinion — was entertainment giant Disney. With government mandates imposing lockdowns and a cap on non-essential activities, these moves initially devastated DIS stock. But shares eventually rebounded, in large part due to anticipation of better days post-Covid.
It’s also important to bring up the company’s streaming service, Disney+. Thanks to its acquisition of marquee franchises such as Star Wars and Marvel Comics, Disney+ was basically a must-have platform for the underlying company’s key demo: millennials and Generation Z. Plus, the Magic Kingdom specializes in family friendly entertainment, giving it broad appeal.
Still, the streaming service despite its tremendous growth represents a small portion of the overall revenue picture. Disney needs the world to reopen so that they visit the resorts and theme parks. In addition, people need to return to the box office; otherwise, those franchise acquisitions will quickly get mighty expensive.
According to Morning Consult, the comfort level of returning to the movies (and presumably other high-contact businesses) is improving but not to the threshold that Disney needs. So forget the consumer sentiment index. DIS stock is your real-time indicator of what people are thinking regarding safety.
Supposedly, the election of President Joe Biden represents a paradigm shift in how we view the environment. Throughout the campaign, Biden promised to get America on a path to become a net-zero emissions nation by 2050. Getting there will require a rethink across the board, from renewable energy infrastructure at the top to electric vehicles on the consumer end.
It all sounds great and perhaps even better for green advocates, it puts a damper on blue-chip stocks that earn their valuation on the fossil-fuel industry. On the surface, the Biden administration is a terrible headwind for Chevron and CVX stock. Clearly, people want to make the transition to EVs and that bodes poorly for big oil.
But as my economics teacher was fond of saying, there’s a big difference between want and demand. Collectively, average income households can want EVs as much as they like. But realistically, most EVs are priced to the stratosphere on a pound-for-pound basis, even taking into consideration federal tax subsidies. Therefore, CVX stock may be more relevant than you might think.
Finally, people are not going to make the transition to EVs overnight. Therefore, a higher valuation for Chevron could represent sustainability for the economic recovery thesis. But the opposite could also be true. One thing is for certain — watch this name.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.