Blue Chip Stock Performance: Weathering the Recession

A blue chip stock is a stock that is thought to generally be safe and to represent a company that is a leader in its field.  They generally pay dividends and often are a little pricier than other stocks in their sector.  Some examples of blue chip stocks include Wal-mart, Caterpillar, Coca-Cola and Exxon-Mobile.

The blue chip stocks have been carefully watched over the past few years because in some ways they are seen as a barometer of the economy.  Yet often events happening around the world impact some stocks differently than others.

Take for example Caterpillar Inc.  (CAT).  At the end of 2008, Caterpillar was trading at $44.91.  Yesterday, March 21,2011, it closed at 107.59.  Caterpillar has been able to take advantage of growth in China and other countries.

Wal-mart closed at $55.05 at the end of 2008 and closed at $51.92 on March 21, 2011.  Forecasts were strong at the onset of the recession because individuals were more likely to buy from Walmart than more expensive retailers.  But buying habits have changed, Walmart didn't seem as attractive as some of the other competitors and it did not benefit during the economic downturn as much as anticipated.

Coca Cola closed at $45.27 at the end of 2008 compared to $63.57 on March 21, 2011.  Why have they done so well?  Perhaps investing in "healthier" drinks such as Honest Tea? or the popularity of the new Coke Zero?  Last week Diet Coke became the second most popular soft drink in the U.S. right after Coca-Cola.

It is harder to make summations about the economy than expected by looking at just three of the blue chip stocks.  But two out of three are doing better than at the lowest point of our economy since the Great Depression.  It also allows for interesting analysis by the common man.

Keep in mind that none of the commentary provided in this article is meant to be investment advice and is based on common headline knowledge rather than in-depth stock analysis.

Stockpickr, however, is an expert, and in an article by Jonas Elmerraji on March 4, 2011, he stated that dividend stocks, which represents most of the blue chips, have outperformed the rest of the S&P 500 by about 2.5% annually.  "They outperformed non-payers by nearly 8% every year."

Warren Buffett, the most well known stock picker in the U.S. holds some of the following in his portfolio:  Proctor & Gamble, General Electric, and Kraft Foods, according to Stockpickr.  These are clearly names familiar to the common investor.

At the end of 2010, sixty four percent of Mass Affluent households (those with $100,000 to $1 million of net worth) own individual stocks with portfolios averaging $55,000.  Eighty eight percent of Millionaire households (those with $1 to $5 million of net worth) own individual stocks with an average value of just under $400,000.  It is possible that as the market seems to recover,  many of these households currently hold blue chip stocks or may be considering investing in these stocks.