3 Blue-Chip Stocks That Can Consistently Beat Index Returns

Stocks to buy

I believe it is very important to explore blue-chip stocks if you’re an investor looking to beat the market. If we look at the S&P 500 index, the 10-year annualized (price returns) have been healthy at 10.71%. By just investing in the index, an investor could have easily delivered positive returns when adjusted for inflation.

However, the story does not end here. During the same 10-year period, Costco Wholesale (NASDAQ:COST) stock has delivered annualized returns of 18%. COST stock is just one example of blue-chip stocks that consistently outperformed the index.

Without a doubt, there will be growth stocks that have significantly outperformed index returns in the last 10 years. However, at any point in time, it’s risky to allocate more than 50% of the portfolio towards growth stocks, given the high-beta factor.

Blue-chip stocks are important for capital preservation and steady returns. This column focuses on quality blue-chip stocks to buy that can consistently best index returns over the next 10 years.

Tesla (TSLA)

Tesla (TSLA) on phone screen stock image.

Source: sdx15 / Shutterstock.com

Tesla (NASDAQ:TSLA) stock has made a strong comeback in 2023 after a big correction last year. Given the industry tailwinds and the company’s brand pull, I believe that TSLA stock is a buy-and-hold.

Talking about blue chips, the first point to note is strong fundamentals. As of Q2 2023, Tesla reported cash and equivalents of $23 billion. Further, the company is on track to report annual operating cash flow of $12 to $14 billion.

This is important as Tesla has set an ambitious target of selling 20 million EVs annually by 2030. To achieve this target, the company must invest in building multiple factories. With high financial flexibility, I don’t see any challenge on that front.

It’s also worth noting that Tesla has a strong line-up of new models. This includes Cybertruck, Roadster, and Tesla Semi. With investment in research and development, the company is likely to maintain a healthy market share amidst growing competition. I, therefore, see TSLA stock as a sustained value creator.

Apple (AAPL)

Apple logo on a pink and purple background. AAPL stock.

Source: Moab Republic / Shutterstock

Apple (NASDAQ:AAPL) stock has witnessed a big rally of 50% year-to-date. As an innovator, the company is positioned to grow steadily and create massive long-term value. I also believe that AAPL stock is among the attractive dividend growth stocks to buy and hold.

Starting with fundamentals, Apple reported $28.4 billion in cash and equivalents as of Q3 2023. Further, the company delivered an operating cash flow of $89 billion for the first nine months of the financial year.

Clearly, financial flexibility is robust for dividends, share repurchases, and aggressive investments.

It’s worth noting that for Q3, the company’s services revenue reached an all-time high of $21.2 billion. While the iPhone segment remains the cash cow, emerging segments like services and wearables will drive long-term growth.

Another point to note is that for Q3, Apple reported revenue of $15.7 billion from Greater China. For the same period, revenue from the rest of Asia-Pacific was at $5.6 billion. There is ample scope for growth in other emerging markets like India.

Lockheed Martin (LMT)

Close top view of a Lockheed Martin (LMT) F-35C Lightning II with afterburner on

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Last year, global defense spending increased by 3.7% in real terms to reach a record high of $2.24 trillion. A key highlight was robust growth in defense spending in Europe. I expect global defense spending growth to be sustained, with geopolitical tensions remaining high.

Considering the industry tailwinds, Lockheed Martin (NYSE:LMT) stock is worth considering among blue-chip stocks to buy. It’s worth noting that LMT stock trades at an attractive forward price-earnings ratio of 16.5. Further, a dividend yield of 2.68% is robust.

In terms of fundamentals, Lockheed ended Q2 2023 with a record order backlog of $158 billion. With the company catering to the U.S. and Allies, robust growth in defense spending in Europe is a crucial catalyst. I expect the order intake to remain healthy, and Lockheed is positioned to generate strong free cash flows.

It’s also worth noting that Lockheed is focused on advanced technologies such as hypersonic capabilities. Innovation will help in accelerating revenue growth in 2024 and beyond, which is why I think this is one of the top blue-chip stocks to buy.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.