Top UK Blue-Chip Stocks of 2024

For investors, the term “blue-chip stocks” immediately demands attention. Blue-chip stocks refers to companies that are the foundation of most successful portfolios, and they generally dictate market moves. 

And the London Stock Exchange (LSE), being one of the oldest and most mature stock markets in the world, has a host of blue-chip shares to choose from. 

In this article, we will look at the largest companies in the UK in terms of market size and go over the fundamentals of investing in blue-chip companies in the country.

What are blue-chip stocks?

Blue-chip stocks are companies with a history of positive performance, investor returns, and a stellar reputation. They usually generate billions in revenue every year and have secure finances dating back decades.

A blue-chip company is typically a market leader in its sector, which gives it pricing power to keep ahead of the competition. Its products are usually well-known and have a loyal consumer base. 

Even better, companies with a long history of growth generally pay an above-average dividend to investors, backed by robust cash reserves. Investor interest is often high in blue-chip shares because they can ride volatile markets and usually rebound fast in the event of a market crash.

To understand how blue-chip stocks are categorised, we need to understand market capitalisation (market cap). Market capitalisation is the total monetary value of all a company’s outstanding shares. It is a commonly used metric that helps investors judge the size, true value, and investor interest of a company. It helps group companies into large-cap, mid-cap, and small-cap categories on trading platforms. 

Top blue-chip stocks in the UK

Now that we’ve defined what blue-chips shares are, here are some of the best blue-chip stocks listed on the UK stock market by largest market capitalisation.

1.   Shell

After switching its headquarters to the UK in 2022 and simplifying its share structure, Shell has become the largest listed company in the country. The oil and gas giant has a global presence and operates in most segments within the crude oil industry. 

After incurring a loss of £21.6bn in 2020, this blue-chip stock bounced back strongly in 2021, recording an income of £20.1bn. While this was largely due to the big jump in oil prices in 2021, it also serves as a good indicator of future performance. Shell’s ability to rebound thanks to the demand for oil and robust revenue streams is a big positive for any investment portfolio.

And while the renewable energy lobby is growing stronger, crude oil demand is expected to remain high over the next few decades. Based on current trends, the U.S. Energy Information Administration expects a per barrel price of $178 by 2050. And rising oil prices will increase revenue while improving margins, which is a good indicator of future profits.

2.   AstraZeneca

This British-Swedish pharma giant, established in 1999, is a leader in oncology, biopharma, and rare disease treatment. The company has a thriving R&D department working on crucial treatment areas for chronic respiratory and gastrointestinal diseases as well. 

AstraZeneca has a global presence, which accelerated as a result of its Covid-19 vaccine, developed alongside Oxford University. The company has recently improved its new drug pipeline, and has some promising treatments in the final stages of development. These should be launched over the next five years.

Its R&D ventures are backed by a healthy cash flow, which has grown significantly over the last decade. And this blue-chip stock operates in an industry that’s in the midst of a huge boom.

In fact, the pharma industry is expected to grow at a compounded annual growth rate (CAGR) of 11% and is projected to exceed $1,500bn by 2028. Oncology care and treatment is one of the fastest-growing areas within the industry and is also one of AstraZeneca’s highest earning segments. This adds to the large-cap stock’s growth potential over the next decade.

3.   HSBC Holdings

UK-based finance giant HSBC Holdings operates in over 60 countries and is the world’s sixth-largest bank in terms of total assets and market capitalisation. After the turbulent economic climate in 2020, HSBC recovered well and saw operations across all regions turn a profit.

The group has steadily improved its presence in Asia and is now a top financial services provider in the region. Asia is witnessing a huge surge in business start-ups that will require funds over the next decade. In fact, HSBC’s board is confident that its Asia-first strategy will be an effective long-term revenue generator given the projected economic growth of the region.

But it also means that this UK blue-chip stock is heavily impacted by the economic conditions in Asia. Although the situation in 2021 was unfavourable, analysts expect this growth stock to benefit from its renewed focus. Multi-billion-dollar development projects and increasing foreign investment in the region are good earning prospects for financial institutions.

4.   Unilever

With a customer base of over 3.5bn people, spread across 100 countries, Unilever is undoubtedly a fast-moving consumer goods (FMCG) giant. It has a portfolio of over 400 brands and is the fourth-largest FMCG company in the world in terms of sales.

Its three largest divisions are beauty and personal care, food, and home care products. Thirteen of Unilever’s brands recorded a turnover of over €1bn in 2021. During the same period, the company also recorded an underlying sales growth of 4.5%, which was its fastest year-over-year growth in nine years until that point.

Environmental, social, and governance (ESG) goals are already huge markers of success for a business and are only expected to grow in importance over the long term. Unilever recognises this and has reduced its greenhouse emissions by 64% since 2015 and switched to recyclable or compostable plastic packaging in 53% of its products. 

In addition, 52% of the company’s management roles are held by female employees and it has invested €445m on empowering businesses owned by under-represented groups. Sustained efforts in this area could add a lot of positive momentum to Unilever’s brand image and its performance in the stock market as well.

5.   Diageo

A major player in the global alcohol beverage space, Diageo owns and operates brands like Johnnie Walker and Guinness. As of 2020, the company’s share of the global alcohol market was 4%. And Diageo’s board expects this to increase to 6% by 2030. 

Analysts estimate the alcohol market to grow at a CAGR of nearly 3% and this would bring its valuation to nearly $2,000bn by 2030. Emerging markets like Asia and Africa are expected to grow much faster over the next decade. And Diageo is already expanding fast in these areas.

This blue-chip company already holds over 20% of the growing Indian malt beverage segment and is growing fast in mainland China thanks to its broad range of premium offerings and regional brands. The company has also been on an acquisition spree in the last half-decade, identifying growth areas and acting fast.

Are blue-chip stocks right for you? 

It is important to note that high valuations and a history of financial growth do not guarantee future returns. Investing in the best blue-chip companies is usually a good starting point to a strong long-term portfolio but investors should identify market trends and also pick strong growth stocks operating in exciting new areas too.

And it is important to recognise when a blue-chip company is forced to transition to meet market demands. Shell is a good example of this. The hydrocarbon energy market is expected to shrink as renewable energy grows. If Shell does not transition effectively, it could slowly lose its existing revenue streams.

Also, the pharma and FMCG companies on this list are susceptible to competition from discount options. Especially in an environment where inflation is rampant, the company offering the lowest price usually sees a jump in market share. If the value of branded products decreases, generic products and discount retailers could become attractive to the average consumer.

But UK blue-chip stocks are an excellent reference for the economic strength of a country. They help beginner investors understand how the stock market works and help seasoned investors understand the market mood and new areas of interest. 

Even outside of the stocks discussed in this article, there are several excellent FTSE 100 blue-chip shares that are worth exploring.