The Best UK Blue-Chip Companies to Invest In

They can be in any sector or country and are identified by certain characteristics.

• Large market caps – Blue-chips are large firms that are well-financed and well managed. They might not have particularly dynamic growth plans, but for them, slow and steady wins the race.
• Reputation and track record – It takes time to develop a strong reputation with customers and shareholders. Years of investing in relationships with stakeholders results in the firms being seen as trustworthy.

Blue-chips are firms that tick the above particular boxes. It’s possible to refine the definition by considering what is not a blue-chip company.

• Not all large-cap UK firms are blue-chips, but all blue-chips have large market capitalisations.
• Not all UK firms with strong reputations are blue chips, but all blue-chips have strong reputations.

If you’re looking to invest in blue-chip companies in the UK, your search will be limited to shares in the FTSE 100 index. That index contains the largest UK firms by market capitalisation, with the smallest firm of the 100 currently valued at £4.7bn.

The Best UK Blue-Chip Stocks to Buy Right Now

1. Unilever PLC
2. HSBC Holdings PLC
3. Rio Tinto PLC
4. Diageo PLC
5. British American Tobacco PLC
6. Prudential PLC
7. Vodafone Group PLC
8. National Grid PLC

1. Unilever (LON:ULVR)

Consumer goods manufacturer Unilever has been selling everything from baby food to soap powder since 1929. It has a global client base with an estimated 2.5 billion people using its products every day. All that revenue means it is consistently one of the largest firms in the UK. It has a market capitalisation close to £100bn, strong and reliable revenue streams, a diversified product portfolio and a share price that is currently in the doldrums.

*68% of retail CFD accounts lose money

As the share prices of blue-chip firms are unlikely to sky-rocket, buying the dips is an effective way of enhancing long-term returns. The ULVR share price is sitting just above a long-term support level at £3.70, making now the time to buy this leading UK blue-chip firm.

2. HSBC (LON:HSBA)

Buying blue-chip stocks is a long-term strategy and HSBC is attracting attention because its share price is trading at the lower end of its long-term price range. The largest bank in the FTSE 100 index, HSBC has a valuation of £87bn. Its operations are spread across the globe, which spreads its risks. In February 2020, HSBC announced it was engaging in a long-term transformation plan.

*68% of retail CFD accounts lose money

An uptick in the fortunes of the banking sector could be on the horizon. Profit margins have been squeezed by historically low interest rates. If and when base lending rates start to move away from zero, HSBC could be expected to grow its margins and that would drive up this blue-chip’s share price.

3. Rio Tinto (LON:RIO)

With a market cap of £96bn, Rio Tinto is the largest blue-chip mining stock in the UK. It’s currently the fourth-largest firm by size in the FTSE 100 index and while it might not be a household name, it has a strong reputation in the mining sector, having been in operation since 1873.

*68% of retail CFD accounts lose money

Whereas investing in blue-chips like HSBC and Unilever offers a chance to bottom-fish the market, the Rio Tinto share price is already on the move. Mining sector stocks are associated with greater price volatility, so Rio Tinto represents a chance to scale up on risk-return but with a large, trusted, UK blue-chip company. Recent share price gains are based on hopes that economic activity will pick up following the COVID-19 pandemic. If the much talked about ‘commodities super-cycle’ does come into play, investors in this blue-chip stock could generate significant returns.

4. Diageo (LON:DGE)

Drinks-maker Diageo didn’t have a good pandemic and that is reflected in its share price. The share price hit an all-time high in 2019 but then slumped as the entertainment sector was badly hit. With the prospect of economies opening back up, the share price of this £75bn blue-chip company is showing a willingness to get back in line with its long-term growth pattern.

*68% of retail CFD accounts lose money

5. British American Tobacco (LON:BATS)

Investing in tobacco products isn’t for everyone, but those willing to hold their nose can take advantage of BAT being unfashionable but profitable. Over the last four years, BAT has generated dividends for investors, which represent a +5% yield, making it one of the highest dividend blue-chip stocks in the UK.

*68% of retail CFD accounts lose money

For as long as the BAT share price trades at the bottom of its long-term price range, high-yield investors will be able to buy into the firm and generate reliable returns in excess of what they’d receive on their cash savings account.

6. Prudential (LON:PRU)

Market volatility over the last year has acted as a reminder that investing in stocks can be a risky business. One of the best blue-chip picks in the UK, for those looking for security as well as capital return, is the insurance and investment firm Prudential.

The UK-based multinational firm was founded in 1848, so has had enough time to establish itself in a market that relies on trust and where brand names are important. With operations in the UK, US, Asia and Africa, the firm has diversified its risk across the world’s regions and has a market cap of around £40bn.

*68% of retail CFD accounts lose money

7. Vodafone (LON:VOD)

On a long-term price-chart, the share price of Vodafone can be seen to be at the bottom of its price range. But the recent break out of the downward trend line is catching the attention of investors.

*68% of retail CFD accounts lose money

Since the beginning of 2021, the valuation of this blue-chip UK company has soared by more than 10%. That’s not including the annual dividend yield, which has been 5.19%, 6.62% and 6.07% in the last three years. The company’s management team is working to reduce the amount of debt on the firm’s balance sheet, which would take the telecoms giant deeper into the heart of the pool of blue-chip stocks.

8. National Grid (LON:NG)

Pandemic or not, everyone needs electricity. This has been reflected in the National Grid share price, which didn’t fall away as much as those of other UK blue-chip stocks. Between 2011 and 2016, the share price of National Grid more than doubled in value, confirming that security and equity growth don’t have to be mutually exclusive.

*68% of retail CFD accounts lose money

The firm is a much sought after high-yield stock and in each of the years between 2011 and 2020, it increased its dividend pay-out. The UK electricity network is undergoing a transformation, which will require substantial investment, but National Grid’s upgrade plans are already in motion, making this a UK blue-chip to buy now.

The Advantages of UK Blue-Chip Stocks

Reliability

Being well known can be an advantage to household names such as Unilever, which use their strong brand recognition to maintain customer loyalty and preserve revenue streams. This also forms barriers to entry to any newcomers.

Security

Blue-chip stocks also come under a lot more scrutiny than smaller firms. With so many institutional investors holding multi-million-pound positions, it can be taken for granted that extensive due diligence has been carried out on many occasions.

Ease of Access

Most brokers provide markets in UK blue-chip shares. With such high trading volumes going through the market each day, pricing is transparent, spreads are tight and getting stuck in a position unlikely.

Free Research & Analysis

Being prime targets for investors means third party research firms and news services provide extensive coverage of blue-chip companies in the UK.

Favourable Tax Terms

Blue-chip stocks in the UK are often included in long-term investment schemes such as ISAs (Individual Savings Accounts), which offer Capital Gains and Income Tax breaks.

What to Know Before Investing in UK Blue-Chip Companies?

The fundamental investment risks still apply. Diversifying your capital across a range of names will mitigate single-stock risk and even blue-chips can get it wrong. The UK’s leading supermarket, Tesco, suffered an existential crisis in 2014 thanks to an accounting scandal, which wiped billions off the firm’s market value.

How to Invest in UK Blue-Chip Stocks

1. Find a Safe Broker

There are a few factors to consider when choosing your broker. The first is safety, so only choose from a shortlist of brokers that are regulated by a tier-1 authority such as one of the below:

• The Financial Conduct Authority (FCA)
• The Australian Securities and Investments Commission (ASIC)
• The US Securities and Exchange Commission (SEC)
• Cyprus Securities and Exchange Commission (CySEC)

2. Choose a Broker That Supports Trading in UK Blue-Chip Stocks

Most of the established brokers offer markets in the UK blue-chip stocks. Those that specialise in large-cap equities may provide more research, analysis and news. All of them will offer a slightly different approach to the trading experience they provide to their clients, so trying them out ‘hands-on’ using a risk-free demo account is highly recommended.

3. Research UK Blue-Chip Companies Using Fundamental and Technical Analysis

Some traders speculate in blue-chip companies using short-term strategies, while others invest in them for the long-term. The former lean towards using technical analysis-based strategies, which use market data to spot short-term pricing anomalies. Investment decisions for buy-and-hold investors tend to draw more on fundamental analysis and the firm’s long-term prospects.

In reality, using a combination of the two can help you optimise your trade entry and exit points. Fundamental analysis might help you identify a stock you want to invest in, and technical analysis can then help you identify the optimal time to do so.

Source: eToro

4. Open & Fund an Account

This part is relatively straightforward, but do keep running sanity checks to make sure you are setting up with a legitimate broker.

FCA regulated brokers require clients to submit a degree of personal information to verify their account and answer some questions on topics such as ‘trading experience’. There aren’t any right or wrong answers, but it does help the broker build a profile of you and assign a degree of client protection.

The process is done online, using a desktop or handheld device. Once your account is set up, you can wire funds to it using various payment methods, including credit card, debit card and wire transfer.

Source: eToro

5. Open an Order Ticket and Select Your Position Size

The user-friendly functionality of online trading platforms means it’s very easy to find your target market. Depending on whether you’re using a desktop or mobile device, executing a trade in a UK blue-chip is as easy as clicking a button or tapping a screen.

6. Select & Buy UK Blue-Chip Stocks

Enter the amount you want to buy, consider whether you want to add a stop-loss, or take profit instruction, then click.

7. Final Checks After Trading

If your investment is something you intend to only check occasionally, it’s important to double check the details straight after trading. Even experienced traders make ‘fat-finger’ errors and correcting any errors is best done before the share price of your blue-chip runs away.

• Access the portfolio section of your account and check trade size, direction (buy or sell) and instrument name.
• Also, check you bought shares outright and not the CFD version. Most brokers offer both types of instrument. While CFDs have certain advantages, they do incur overnight financing charges. If you intend to hold your position for more than a few weeks, then buying outright will likely be more cost-effective. A more detailed analysis of the pros and cons of both approaches can be found here.

Summary

Investing in blue-chip UK stocks is an ideal way to start off trading the markets. The familiarity of the brands, the extra comfort gained from big institutions also holding shares, and the additional credibility of them being a member of the FTSE 100 all combine to provide some comfort.

Removing emotion from trading is highly recommended as it helps you follow long-term strategies rather than panic due to short-term fluctuations. Even those traders who move on to explore strategies with higher levels of risk-return may well keep a percentage of their portfolio devoted to UK blue-chips as they can help stabilise returns.