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Trading Blue Chip Stocks on TD Ameritrade and Others?

If you’ve just opened up an account with one of these brokers (TDA, Etrade, Firstrade, Webull, or Ally Invest) and are wondering if you can buy blue chip stocks, the short answer is “yes”. Blue chip stocks represent ownership in some of the strongest corporations and form the backbone of many portfolios, and so it makes sense that every stock broker would offer these on their platform. This article will walk through what blue chips are and examples from these brokers.

What Are Blue Chips?

So-called blue chip stocks represent ownership in the highest quality corporations across industries and sectors whose profitability and financial health have withstood the tests of time and economic cycles. The name was coined after the blue chips in a poker game, which are traditionally assigned the highest value. The Dow Jones Industrial average, which is a price-weighted index of 30 blue chip stocks that represent the best of each sector, is the most popular index that tracks the performance of these blue chip corporations.

How to Find Blue Chip Stocks

All five of the brokers we mentioned in the first paragraph support blue chip stocks on their platform; in fact, it would be hard to find a broker that doesn’t! Most brokers offer stock screening tools, which make it easy to locate the largest of the blue chip stocks. In the below screenshot of TD Ameritrade’s stock screener, for example, you can narrow your investment universe by index and select the Dow Jones Industrial Average to view the 30 largest blue chip companies. We’ll take a look at some of these next.

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Microsoft Corporation

Currently the largest company on the Dow Jones is Microsoft Corporation (MSFT) with a market cap of $967 billion. Ameritrade’s stock profile page tells us that Microsoft’s stock has traded between roughly $94 and $131 over the past 12 months with an average of 28 million shares changing hands each day. With an EPS of $4.48 over the past year and 72.7% institutional ownership, we can tell that the market views this as a high quality corporation, a cornerstone of the Software industry.

Johnson & Johnson

Health Care giant Johnson & Johnson (JNJ) represents the best of the Health Care companies by its inclusion in the Dow Jones. Added to the index in 1997, Johnson & Johnson is worth more than $350 billion and has an impressive EPS and dividend yield of $5.40 and 2.7% respectively. Most blue chip companies pay a strong and consistent dividend as evidence to their strong and reliable financial state and position in the economy.

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McDonald’s Corporation

Another strong blue chip stock is the all-American name - McDonald’s. Looking at its profitability metrics on Ameritrade’s profile page below, we can see that McDonald’s outshines the competition. They boast impressive profitability, with their gross, operating, and net profit margins all coming in well above the industry averages. This is a sign of a healthy company that has really been able to master economies of scale and translate that into higher profitability for its shareholders.

Are Blue Chip Companies Always Good Investments?

While investing in blue chip companies is arguably less risky than investing in the broader stock market (these are the best of the best in each industry, after all), it doesn’t mean that there isn’t still risk investing in these companies. Although it doesn’t happen often, companies in the Dow Jones can lose their position in the index to growing competitors or can simply be dropped from the index if their industry is going through a fundamental shift.

For example, in June 2018, General Electric was dropped from the index due to recent liquidity concerns as the conglomerate suffered from years of bad deals. Its stock price has plunged more than 50% over the past few years and its dividend was cut in half. Prior to being dropped, the household name had been a continuous member of the Dow Jones for more than 100 years. This is an example of why one must always stay current on their investments, because even the strongest corporations can succumb to challenging industry conditions.

Diversified Blue Chip Investing

If you are worried about choosing the right blue chip stocks to invest in you can practically eliminate your company-specific risk by investing in one of the many ETFs or mutual funds out there that track the performance of the Dow Jones by investing in and thereby spreading the company specific risk out among its constituents. The most popular of these is the SPDR Dow Jones Industrial Average (DIA), which has returned more than 12% over the past year.

Best Brokerage Incentives Conclusion

To summarize, despite the unavoidable risks of investing in the stock markets, blue chip stocks remain some of the highest quality public corporations out there. All stock brokers we’ve looked at, including TDA, Etrade, Firstrade, Webull, and Robinhood, support trading in blue chip stocks and the various ETFs that track them as a whole.