Investors looking for low-cost blue chip stocks may not find what they are looking for as the most-reliable stocks in the market are rarely “on sale”

Blue chip stocks can drop sharply when the economy falters or bad news strikes, of course.

But low-cost blue chip stocks—and especially those that offer good value—are often the stocks that snap back quickest and most reliably after a market downturn, when the trend reverses and bad news comes less often. That’s why it generally pays to hold on to stocks like these through market setbacks. But you need to look at each case on its own, since there are exceptions.

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Do “low cost blue chip stocks” really exist or should you expect to pay market prices for them?

For many investors, buying stocks involves a two-part decision. First, they decide which ones to buy, then they decide what price they want to pay. Most want to buy, say, 5% to 10% below current prices.

These investors often explain that they are simply looking to buy stocks like a smart consumer buys a car. However, the stock market is more efficient than the car market, as an economist would put it. To get a lower price on a stock, you have to wait for its price to come down.

If you always try to buy below the market, you’ll always get a “fill” on stocks with hidden flaws. They’ll always come down into your buying range….and they’ll keep on falling.

But you’ll never get to buy the other kind of stock—the kind that keeps going up. They’ll always seem too expensive, and they’ll go on to get even more expensive. But you need a few of these ever-more expensive stocks to offset the losses from those that get cheaper and cheaper.

Regardless of price, this type of blue chip will probably not become one of the most profitable stocks to own 

It’s crucial to downplay stocks—even blue chip stocks—that seem to be near-universally recommended by brokers and are often the subject of favourable media coverage. That’s because, in investing, familiarity can breed excessive feelings of comfort, security and performance.

After all, brokers get information from the media, investment journalists spend a lot of time talking to brokers, and company managers listen to both. A feedback loop can develop that spurs high expectations, derails criticism, and leads companies (and their investors) to make devastating mistakes. You may get the feeling these are can’t-miss investments and that it’s safe to buy and forget them. That’s exactly the wrong thing to do with them. In fact, your in-the-limelight stocks are the ones you most need to watch closely.

Instead of familiarity, aim for investment quality and diversification in your investment decisions. At any given time, lots of prosperous, well-established companies—the best blue chip stocks included—are out of investor fashion. Some of the biggest profits you ever make will come from buying these stocks before they find their way into the limelight.

Be wary of low-cost blue chip stocks or otherwise that have unusually high dividend yields

The dividend yield is the percentage you get when you divide the current yearly dividend payment by the share or unit price of the investment. It’s an indicator we pay especially close attention to when we select stocks to recommend in our investment newsletters.

An attractive yield, and especially a very high dividend yield, can give you a false sense of security. That’s because many investors have a tendency to think that all investment income is almost as safe and predictable as bank interest.

The fact is that investment income can dry up suddenly. Money-losing companies are sometimes unable to keep paying a long-standing dividend, and they sometimes spring the bad news on their shareholders with little or no warning.

Investors should avoid judging a company based solely on its dividend yield because a high yield can sometimes be a danger sign rather than a bargain. For example, a dividend-paying stock’s yield could be high simply because its share price has dropped sharply in anticipation of a dividend cut.

Use our three-part Successful Investor approach when looking for blue chip stocks to invest in

You will have a strong selection of blue chip stocks in your portfolio when you follow our three-part investing program, which forms the core of all the advice you get in our newsletters and investment services, and on TSI Network.

These three safeguards will tend to limit your losses at the worst of times. But over long periods, they also let you profit nearly automatically.

• Invest mainly in well-established, mostly dividend-paying companies.
• Spread your money out across most if not all of the five main economic sectors (Manufacturing & Industry; Resources & Commodities; Consumer; Finance; and Utilities).
• Avoid or downplay stocks in the broker/media limelight.

Using these three value-investing principles will help protect your money during periods of market turbulence, and help you profit when the market rises.

Most stocks, including blue chips, invariably face periods of heightened scrutiny and criticism? In the past, how has negative public opinion affect your willingness to keep holding blue chip stocks?