We recently compiled a list of the 12 Best Blue Chip Stocks to Buy Under $100. In this article, we are going to take a look at where NextEra Energy, Inc. (NYSE:NEE) stands against other best blue chip stocks to buy under $100.
Blue chip stocks have long been considered the gold standard of investments, offering a combination of steady growth, consistent dividends, and a reputation for weathering economic downturns.
The term “blue chip” originated from poker, where blue chips were the highest denomination of chips used in the game. In the early 20th century, the term was adopted by financial analysts to describe the stocks of large, well-established companies with a proven track record of success. These companies were considered to be the best of the best. Today, blue chip stocks are typically defined as the stocks of large, well-established companies that have a large market capitalization. These companies are usually industry leaders, with a strong brand, a diverse product or service offering, and a history of consistent profitability. Blue chip stocks offer a relatively low level of risk, particularly when compared to smaller, more volatile stocks. This makes them an attractive option for conservative investors, who are looking to preserve their capital and generate steady returns.
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In an interview with Yahoo Finance on December 21, David Wagner, Portfolio Manager at Aptus Capital Advisors, provided a detailed analysis of the current market dynamics and his investment strategy. One of the key points Wagner made was his preference for large-cap stocks over small-cap stocks. This stance was particularly noteworthy given his extensive experience in small-cap investing and running a small-cap strategy for over a decade. Wagner explained that while small caps were not all equal, many passive small-cap investments include a significant portion of unprofitable companies. He cited data showing that passive small-cap investors often had 40% of their assets invested in companies that lacked profitability, which could be a significant risk in a volatile market.
In contrast, large-cap stocks, particularly those in the S&P 500 have a strong operating leverage. Wagner noted that the S&P 500 is projected to see earnings per share (EPS) growth of 15% in the following year, driven by revenue growth of only 5%. This operating leverage, he argued, was a unique characteristic of large-cap stocks and provided a compelling reason to favor them over small-caps. He explained that operating leverage amplifies the impact of revenue growth on earnings, which can lead to more significant returns for investors.
Wagner also highlighted the evolving nature of the S&P 500. He noted that large-cap stocks were increasingly benefiting from operational efficiencies and economies of scale, which were not as prevalent in small-cap or international markets. Small-cap stocks, he observed, were more service-oriented and often lacked the robust profit margins and revenue diversification seen in large-cap companies.
Wagner further emphasized that while operating leverage could work both ways, potentially leading to more pronounced negative returns in a downturn, it was currently working in favor of large-cap stocks. He forecasted that the market would see more “tailed” returns, meaning that the best-performing large-cap stocks would outperform more significantly, while the worst-performing ones would underperform more severely. This dynamic, he argued, made large-cap stocks an attractive investment option.
Blue chip stocks continue to be a cornerstone of a well-diversified investment portfolio, offering stability, steady growth, and resilience in uncertain economic conditions. Therefore, the case for investing in these stocks remains compelling.
A wind turbine, its blades spinning to generate clean renewable energy.
Our Methodology
To compile our list of the 12 best blue chip stocks to buy under $100, we used blue chip ETFs plus online rankings to compile a list of 25 companies. We then used Insider Monkey’s Hedge Fund database to rank 12 stocks according to the largest number of hedge fund holders, as of Q3 2024. The list is sorted in ascending order of hedge fund sentiment.
Why do we care about what hedge funds do? 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 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
NextEra Energy, Inc. (NYSE:NEE)
Number of Hedge Fund Holdings: 69
Stock Price as of January 24: $72.83
NextEra Energy, Inc. (NYSE:NEE) is a leading American energy company that has been at the forefront of the energy industry for decades. The company is a leader in operating one of the largest wind and solar energy assets in the United States. NextEra Energy, Inc. (NYSE:NEE) also provides utility services through its subsidiary, Florida Power & Light.
NextEra Energy, Inc. (NYSE:NEE) has recently announced a framework agreement with GE Vernova, a leading provider of gas power technology, to jointly develop new gas-fired generation projects. This partnership will enable the company to leverage GE Vernova’s expertise in gas turbine technology, while also utilizing its extensive experience in developing and operating large-scale energy projects.
In addition to its partnership with GE Vernova, NextEra Energy, Inc. (NYSE:NEE) is investing heavily in renewable energy, with a particular focus on wind and solar power. The company has set ambitious targets for the development of new renewable energy projects, with a goal of adding over 25 gigawatts of new capacity to its portfolio in the coming years. To achieve this goal, NextEra Energy, Inc. (NYSE:NEE) is exploring new technologies and innovations, such as energy storage and grid modernization, which will enable the efficient integration of renewable energy sources into the grid.
Furthermore, NextEra Energy, Inc. (NYSE:NEE) is exploring new opportunities for growth through the development of small modular reactors (SMRs) and the potential recommissioning of its Duane Arnold nuclear plant in Iowa. The company believes that SMR technology has the potential to play a significant role in the future of nuclear power.
Overall NEE ranks 10th on our list of the best blue chip stocks to buy under $100. While we acknowledge the potential of NEE as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NEE but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.