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With the Fed desperately working to create yet another asset bubble, the only question now is where investors are going to find it.

And whether the next big thing is found in disruptive new biotechs or game changing cleantech investments, one thing at least is for certain: It won't be found in the stocks that led the last run up.

So you can forget about the banks and the builders this go round. After all, the new bubble is never found in the wreckage of the old one.

Instead, its usually found somewhere nearby-even though it takes us awhile to fully recognize it.

That's why my prediction for one of the biggest market sectors over the next 2 years may surprise you.

Unlike the previous couple of bubbles, I'm beginning to think investors are going to herd into the so called bullet-proof investments pushing blue chip stocks to P/E multiples never seen before.

All of which, I admit, doesn't sound very sexy—but that is sort of the point.

Blue Chip Stocks Explained

The reasons for this are pretty simple....

Blue chip stocks are the best-of-the-best and, financial stocks aside, they are going to be with us for a long, long time.

That is what will make them so appealing to every Tom, Dick and Harry burned by the stocks of the last two bubbles.

In fact, the name itself comes from the world of poker where the color blue signifies the highest valued chips. And if you're able to build up a stack of these during the run up, you will likely wake up at some point in the future well ahead of the rest of the players.

So what are blue chip stock hunters like Warren Buffett looking for these days as they look to win big with the tried and true?

It's simple really.

In general blue chip investors like Buffett are looking for companies that, at a minimum, have the following six characteristics. That's what makes them blue chip stocks in the first place.

They are:

  • A nationally recognized, well-established company.

  • Companies that sell high-quality, widely accepted products and services.

  • Companies that are known to weather economic downturns.

  • Companies that can operate profitably under adverse economic conditions.

  • Companies with a long record of stable and reliable growth.

  • Companies with a solid and consistent dividend history.

Where to find Blue Chip Stocks

Perhaps the most famous list of these types of companies is the Dow Jones Industrial Average, more commonly known as the DOW.

First published in 1826, the Dow is a carefully selected list of the 30 companies that in essence serve as the national bellwethers. That would be a good place to start.

Another place to start, however, would be with what's known as the Nifty Fifty.

That was the name given to the 50 large cap stocks on the New York Stock Exchange in the 1960s and 1970s that were widely regarded as rock-solid buy and hold growth stocks.

These were the fail-safe stocks of the time that investors believed would weather any downturn and are credited with propelling the bull market of the early 70's—even as their P/E's reached unsustainable heights.

Old timers will remember these stocks perhaps as the "bubble before the bubble", that preceded the previous two bubbles. That's how far back this story goes.

In fact, at one point the average P/E of these 50 blue chips peaked at 45.21 while the S&P 500 traded at only 19.2 times earnings.

They included names like Xerox (NYSE:XRX) at 49 times earnings, Avon (NYSE:AVP) at 65 times earnings, Eastman Kodak (EK) at 48 times earnings and Polaroid at the nose bleed heights of 91 times earnings.

Of course, it was only later during the market drop of 1973 that these household names were brought crashing back to earth. A few like Polaroid and Standard Brands Paint even went bankrupt over time.

However, that's not to say all of them failed, the list also included names like Coca-Cola (NYSE:KO) Procter & Gamble (NYSE: PG) , McDonald's (NYSE: MCD) and Anheuser-Busch (NYSE: BUD) - companies that are still with us today and that will still be with us tomorrow.

There was even a stock called Wal-Mart Stores (NYSE:WMT) that traded with 52.3 P/E at the peak in 1972.

The Wealth Daily Nifty Fifty

Overtime though, the Nifty Fifty—like the Dow—has evolved to include companies that better reflect the new growth economy.

That's why I've built a new list of the household names that will likely lead the next bull market. After all they are the ones that are leading the current rally.

In short, it's a new nifty fifty that includes names not necessarily found on the Dow such as Adobe Systems (Nasdaq: ADBE) , Oracle Corporation (Nasdaq: ORCL) and Amazon.com (Nasdaq: AMZN)

One of them is Apple Inc (Nasdaq: AAPL), which blew out earnings with big iPhone sales as profits rose 90% in the second quarter. As a result, the company is now trading at an all time high with more likely to come.

As for the rest of list, I'll be naming the other 49 stocks in next week's issue.

As crazy as it sounds, the next bull market is going to be found partly in the blue chips.

In fact, I believe these pressures are already building given the current price action in large cap stocks these days.

The best part is that most of these companies pay a market beating dividend to boot.

Source: The Bull Case for Blue Chip Stocks