Investing in blue chip stocks is a long-term strategy because many firms with that designation are large- and mega-cap firms. As such, it’s unlikely some of these companies — many of which hail from defensive sectors — will notch jaw-dropping, near-term moves.
Over the long term, however, blue chips can accumulate significant gains. The thing is, stock-picking in this universe isn’t any easier than it is in other corners of the equity market. The right exchange traded fund can ease that burden. Just look at the VanEck Morningstar Wide Moat ETF (MOAT).
The weighted average market capitalization of MOAT’s 50 holdings is $177.9 billion, confirming a large/mega-cap posture. Within that group, many of the ETF’s components are blue chip companies — and the cream of the blue chip crop at that.
MOAT Methodology Conducive to Blue Chip Exposure
The Morningstar Wide Moat Focus Index — MOAT’s underlying index — is sector agnostic. Currently, the VanEck ETF provides exposure to eight of the 11 global industry classification standard sectors, providing investors with solid sector-level representation of blue chip names.
Healthcare is an example of a sector with a variety of blue chip members. MOAT reflects as much, with a 20.45% allocation to that group, a significant overweight relative to the S&P 500. Examples of MOAT healthcare holdings with the blue chip designation are Pfizer (PFE) and Bristol-Myers Squibb (BMY), the latter of which is viewed as inexpensive.
“Bristol-Myers Squibb, trading at a 21% discount, is the third drugmaker on our list of blue-chip stocks to buy for the long term,” noted Morningstar analyst Margaret Giles. “While we believe Bristol’s internal pipeline is solid and helps reinforce the firm’s wide moat, we also believe the company needs acquisitions to address the major patent expirations like cardiovascular drug Eliquis, says Morningstar’s Conover. We think the stock is worth $63 per share.”
MOAT devotes just 7.11% of its weight to the communication services sector, but Comcast (CMCSA) — one of the ETF’s holdings — is a blue chip member of that sector. The stock trades at a steep discount to fair value estimates.
“We nevertheless think Comcast will be able to limit broadband share losses in the coming years while enjoying solid pricing power, says Morningstar director Mike Hodel. NBCUniversal isn’t as well positioned, but we like the idea of expanding the theme park business around key content franchises, he adds. A solid balance sheet has allowed Comcast to aggressively repurchase shares and pay decent dividends,” added Giles.
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