In this article, we will take a detailed look at the most profitable blue chip stocks to buy now.
Blue chip stocks are large, financially stable companies with strong market presence, consistent profitability, and regular dividend payments. They are generally market leaders, with strong business models that are resilient across business cycles. Many blue chip stocks are included in the Dow Index (DJIA), so the index is often considered an indicator of their overall performance. Investors would typically flock to blue chip stocks in times of market volatility, economic uncertainty, or when the economy is in late-stage expansion, as these large-cap companies tend to offer stability and consistent returns versus smaller or riskier companies.
We believe that blue chip stocks, and the constituents of the Dow index in particular, represent a unique blend of the value and size factors, combining the financial stability, earnings consistency, and attractive market valuations typically associated with value stocks, with the scale and market dominance of large-cap companies. This dual exposure enhances their resilience in economic downturns and makes them well-positioned to outperform during recessions, when investors tend to shift towards quality and safer stocks. For reference, the Fama–French Three-Factor Model, introduced in 1993, concludes that incorporating exposure to several favorable factors can further enhance stock returns. In this context, both the value and large size factors outperformed in the last years, and especially year-to-date.
READ ALSO: 10 Most Profitable Large Cap Stocks to Buy Now
Our research indicates that recession fears and Trump Turmoil are likely to persist and potentially continue to favor the most profitable blue chip stocks over everything else. The US administration appears to be eroding the trust of investors through a plethora of unpredictable and contradictory moves – Trump appeared to soften his stance on the US-China trade war, saying that tariffs on Chinese goods “will not be as high as 145 per cent” and that “it’ll come down substantially, but won’t be zero”. While this represents a good signal at first glance, such actions are very likely to deter the US’s partners from negotiating for tariff exemption, simply because the current administration has become too unpredictable.
Our thoughts are confirmed by the VIX volatility index remaining elevated compared to the long-term trend, while the crude oil price remains in a downtrend, suggesting expectations of weaker industrial demand and a weaker economy. On the consumer side, there are reasons to believe that US consumers are getting more cautious than ever – the employee quits rate, as reported by FRED, declined substantially year-to-date and reached levels comparable to the aftermath of the 2008 financial crisis. When employees are reluctant to quit it means two things: (1) it is tough to get jobs out there, implying that the economy is slowing down, and (2) their expectation about the future becomes more pessimistic, which leads to less willingness to quit and potentially risk difficulties finding a new job. Both these factors mean the consumer spending will likely slow down in the following quarters, further pressuring GDP growth.
The key takeaway for the readers is that the odds of a recession and of a prolonged bear market still persist. In this context, the best hedging strategy would be to hold shares of companies that perform well in bull markets, but at the same time can offer protection against turmoil and recessions. Our belief is that the most profitable blue chip stocks are the best candidates, because they possess the wide moat and strong cash flow capacity to withstand any economic slowdown and even potentially absorb the incremental tariffs. Given this economic landscape, we will take a look at some of the most profitable stocks to invest in.
Our Methodology
To compile our list of most profitable blue chip stocks to buy now, we screened for current and former members of the Dow Jones Industrial Average index and identified companies with the highest net income generated in the latest reported fiscal year. From that group, we picked companies with the highest net profit margin, which suggests sound financial health and excellent cost management. The stocks are ranked in ascending order of their net profit margin as of the most recent quarter. For each stock, we also included the number of hedge funds that own the stock as of Q4 2024, according to Insider Monkey’s database.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
10. Walmart Inc. (NYSE:WMT)
Net Profit Margin: 2.96%
Last year’s net income: $20.28 billion
Number of Hedge Fund Holders: 116
Walmart Inc. (NYSE:WMT) is a retail giant operating more than 10,500 stores and e-commerce platforms globally. The company’s retail formats operate in 19 countries and include supercenters, discount stores, neighborhood markets, warehouse clubs, and online platforms. Its product offerings include groceries, apparel, electronics, home goods, and pharmaceuticals. Given the defensive nature of its business, WMT ranked 1st on our recent list of 11 Best Counter Cyclical Stocks to Buy According to Analysts.
In the most recent reported Q4 2024, Walmart Inc. (NYSE:WMT) delivered strong sales growth of 5.2% YoY and adjusted operating income growth of 9.4% in constant currency, while continuing to gain market share across countries and income levels. The company’s success was driven by strengthening its ability to serve customers through multiple channels, maintaining low prices, and becoming more convenient, resulting in customers shopping more frequently and buying more items. The business model demonstrated its effectiveness with improved e-commerce economics, particularly in the US, while newer digital businesses contributed to faster growth and a more diversified product mix, with global advertising growing 27% to $4.4 billion, Walmart US Marketplace revenue growing 37% YoY, and global membership income increasing 21% YoY.
Looking forward, Walmart Inc. (NYSE:WMT) is focusing on several strategic initiatives, including expanding same-day delivery capabilities, which now reach 93% of US households, and investing in supply chain automation to lower costs. Over the past 5 years, the company’s transformation has led to global e-commerce penetration reaching 18% of sales, approximately 1,100 basis points higher than in 2020. The business model’s evolution has enabled faster profit growth than sales despite headwinds. New profit streams like advertising and membership allow the company to fund investments in its core business while expanding operating margins. The strong focus on profitability in the current decade has brought solid results for WMT, which secured its 10th place on our list of most profitable stocks to buy now.
