Are you blue?

Investment clubs put money in blue chips in good and bad times

There is no such thing as a stock for all markets. In seeking a long-term investment that provides quality, growth and income, bet on blue chips. In fact, investment clubs always keep a significant portion of their portfolios invested in these stocks. Named for the most expensive poker chips, they have a reputation for solid management and a history of profitability. On average, blue chips have dividend yields of 3%-4%.

Classic examples of blue chips can be found among the 30 companies that make up the Dow Jones Industrial Average, including Du Pont, IBM, Exxon, AT&T, General Electric and Procter & Gamble. “Because many of the blue chips are companies that club members are familiar with, it gives them a comfort level in choosing those kinds of stocks for their portfolio,” says Baunita Greer, president of New York-based investment firm, Cromwell, Miller & Greer, and an active participant in the National Association of Investors Corp., an investment club association based in Madison Heights, Michigan. “It makes it easier for them to understand what those companies do and monitor them. With new and emerging companies, they may not have a track record yet.”

Moreover, many blue chips have dividend reinvestment plans (DRIPS), in which dividends are automatically reinvested in more shares of a company’s stock and, as a result, the concern absorbs the brokerage fees. Greer says typically 25%-33% of a club’s portfolio should be blue. But stock prices are usually higher than smaller issues and may take longer for clubs to purchase.

While blue chips usually withstand economic downturns, Greer cautions, “don’t ever buy a stock, even a blue chip, and then never look at it again.”

10 Top Picks Among The Blues
Blue chip stocks make up a significant portion of the portfolios of most investment clubs. The table below are some of the preferred holdings:
Company — Ticker
1. AT&T — NYSE: T
2. Bristol-Myers Squibb — NYSE: BMY
3. Colgate-Palmolive — NYSE: CL
4. Exxon — NYSE: XON
5. Ford — NYSE: F
6. General Electric — NYSE: GE
7. IBM — NYSE: IBM
8. Johnson & Johnson — NYSE: JNJ
9. Procter & Gamble — NYSE: PG
10.Quaker Oats — NYSE: OAT
Source: National Association of Investors Corp., Madison Heights, Michigan

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