Apple Is Everyone’s Favorite Blue-Chip Stock — But Which Companies Come Next? : MCD, IBM, V

You just can’t go wrong with Apple (NASDAQ:AAPL) stock these days. Just look at these recent returns:

• 50% gains for AAPL stock in the past year
• 120% gains for AAPL in the past two years
• 190% gains for AAPL in the past three years
• 455% gains for AAPL in the past five years
• 4,600% gains for AAPL in the past 10 years

Given the dominant nature of the gadget giant, the $12 billion in cash on its balance sheet and its track record of innovation, it’s easy to see why a great many investors agree that Apple simply is the best stock out there.

But if you want diversification, you can’t put every cent in Apple alone. Where else, then, should you stash your cash?

Even though there aren’t a lot of other growth options out there — and certainly no large-caps that have the explosive potential of Apple — there are a handful of other blue-chip stocks that are incredibly attractive buys. If you already own Apple and are looking for other investments to fill out your portfolio, consider these picks as the second-best stocks to buy right now behind the Silicon Valley superpower:

McDonald’s

McDonald’s (NYSE:MCD) isn’t quite as dramatic as Apple when it comes to stock performance. The company has “only” doubled since 2007 and “only” tripled since 2005 — compared with 330% gains since 2007 and 900% gains since 2005 for Apple.

But you have to admit, those gains still are incredibly impressive — especially for a mammoth blue chip like McDonald’s that is dominant worldwide.

Also worth consideration is the fact that, since 2007, McDonald’s has paid dividends totaling $9.26 per share. Since McDonald’s stock was trading around $45 four years ago, that means on top of doubling your money via the share appreciation, you would have gotten back about 20% of your initial investment via dividends alone. Or if you reinvested those funds, you really could have supercharged your returns even more.

Looking forward, McDonald’s shows no signs of slowing down. It has surpassed analysts’ expectations in four of its past five earnings reports, most recently with second-quarter numbers boasting a 15% increase in profits. While its revenue has risen at a modest 3.6% annual rate during the past five years, net income has surged at a 14.6% annual rate — proving MCD can maintain margins and grow profits even if sales don’t soar.

McDonald’s, like Apple, knows how to deliver small-cap gains despite its blue-chip size. That makes this pick a keeper.

IBM

While hip consumer tech stocks like Apple are in favor and laggards like Cisco (NASDAQ:CSCO) and Microsoft (NASDAQ:MSFT) are the butt of many jokes, it’s worth noting that the legacy names in the technology sector aren’t all dead money. Consider IBM (NYSE:IBM), which has doubled since Jan. 1, 2009. That’s more than three times the broader stock market.

Why is IBM stock doing so well right now? Well, earnings are a big reason. IBM earnings have been up year over year every single quarterly report for more than half a decade.

And look at this yearly EPS growth based on the past four fiscal years and the forecast for fiscal 2011:

• 2011 estimate: $13.40, forecasted up 16%
• 2010: $11.52, growth of 15%.
• 2009: $10.01, growth of 12%
• 2008: $8.93, growth of 24%
• 2007: $7.18, growth of 18%
• 2006: $6.06

Growth like that is simply stunning. Big Blue still is picking up steam, too, with blowout Q2 earnings in July that boasted big EPS and revenue gains along with strength in all four divisions — technology services, business services, software and systems.

It’s a high-tech world, and IBM continues to be a mainstay for many businesses even as the economy remains largely sluggish. Apple’s consumer focus is great, but there’s a lot to be said in the stodgy old IT industry via an investment in IBM.

Visa

Despite a very rough 2011 so far, payment processor Visa (NYSE:V) is right there beside Apple with gains of nearly 30% since the first of the year. Visa stock continues to set 52-week highs and is within striking distance of new all-time highs above $97.

Visa doesn’t have quite the track record of many blue chips, having only gone public in 2008. However, there are some big reasons to expect that the recent growth is not just a flash in the pan.

For starters, the demographic trends are hard to ignore. The percentage of cashless transactions continues to rise. Despite rapid growth from fees for payment processing, 40% of all transactions in the U.S. still are done with cash or paper checks. That’s to say nothing of rapid growth of debit and credit card business in emerging markets. Visa’s logo is everywhere and will only be accepted in more places as the months go by.

And don’t forget, Visa is not a financial stock. Service fees account for more than one-third of revenue — meaning the stock is little more than a toll-taker on the road between a merchant and a customer’s checking account. It is not exposed to bad debt the way financial stocks like Bank of America (NYSE:BAC) and others are.

Visa has seen year-over-year earnings growth every single quarter since going public, and it should keep up that growth. Additionally, revenue was up 17% from fiscal 2009 to fiscal 2010 and is forecast to jump another 12% in fiscal 2011.

There is big growth to be had at Visa. It might not be Apple, but its strong growth potential and dominant brand make it a go-to stock for large-cap investors.