If you have spent any time around the world of investing, you must have heard the term “blue-chip stocks”. In this guide to blue-chip stocks, you’re going to know what makes them very much different than other stock types, and how to buy them.This is no joke to suggest that if you took advantage of possessing a diversified portfolio of these wonderful long-term holdings, this might transform your life for the better.So what is a blue-chip stock? There is no solid definition of blue stocks but this term is highly reserved for the leading companies of the stock market available. Blue chip stocks are also considered as the Creme de la creme of the stock. It is the stock of a large well-established company that most likely has a good reputation and rising dividends for years. These stocks are very well known and market leaders in their sectors.
History of Blue Chip:
Blue-chip stock derived its name from the game of poker. The term “blue chips” became popular in the early 1900s. At that time blue circular chips at any casino were considered the most valuable.Following this idea, this term in the world of stocks and investment was firstly used in 1923. When Oliver Gingold noticed a very rapid increase in the value of per share of some companies. Examples of today’s blue-chip stock companies include Nike, ExxonMobil, Boeing, Coca-Cola, IBM, and MacDonalds.
What makes a stock blue chip?
Blue-chip organizations are among the most regarded in the business world. They’ve stood the trial of time with strong plans of action that have created considerable benefits and alluring returns for their investors. Accordingly, blue-chip stocks are tremendously mainstream among speculators. If we study the patterns of the famous blue-chip companies, we will notice that all these companies exhibit some common traits. Some of them are as follows.
They are very large:
There is no exact definition of how large and expanded these companies, but we can safely say that many of them are worth over a hundred billion dollars.
They are reliable:
It is understood that to be number one you need consistent growth. When it comes to stocks it might take years. In the long run for a company to become the stock leader it takes steady growth of sales and profit and with that determination. These companies have a very long and stable track record of generating revenue. This they key point that makes them a blue-chip. Since they are reliable, the investors invest in their stock which then helps the company in the long run. In the long term investment plans with fewer risks. They are greatly consider by the investors. Because they promise to bring some benefit in the investment. Blue-chip stocks are therefore perceive to be the most important securities. An investor can have in his portfolio.
Their consistent history of paying dividends and raising them to keep up with inflation. Since economic distress can happen anytime, these stock companies also presuppose stable and solid balance sheets, steady earnings and flow of cash to keep up with a hard time. and during any economic distress, they provide security to your investments.
Top bond ratings:
Their bonds are usually A-rate in investment grades. When a company issues a bond different rating agencies rate the bond based on the company’s ability to repay. Generally, the bonds of these companies are placed on the top of the list in the AAA category, which is the strongest of all the bond ratings.
They are the financial kings of the industry:
Historically, blue-chip stocks have been successful in outperforming their rivals and climbing to the top of their industry. Blue-chip companies generally have string income statements and balance sheets because they have been around for a long time so it would be very difficult for the other companies to take market share from them. Blue-chip business success determines the performance of the market regularly. Their business efficiency appears to be far more robust.
Are there any risks to consider?
Although blue-chip companies are generally accept as some of the most solid companies to invest in. But it does not mean that their stock prices do not fluctuate. It also does not mean that they never fall. For example, general motors long consider as a blue-chip stock. So, in June 2009, they filed for bankruptcy after the Great Recession. Sometimes blue-chip stocks can even fall because of any controversy and poor management. Also, because of this fall in stocks they might lose their shares to any smaller companies. These chips won’t easily make you rich; their stock prices won’t make big moves in a short amount of time. It is important to not to fall for the definition of blue-chip stocks. Because at times they do not stand by their definition. Which ensures that they are not always a good option to go for.
In case you are new to investing, you may rather need to put your investments into organizations. That are more interested in their own growth and improvement of their stock value. Rather than the ones who offer more dividends. Another drawback is that blue-chip stock companies are not interests in their company’s development and growth. Which might cause some loss to the investors during any bad economic time. For investment security, the growth factor is compromises. In order to be on the safer side, it is important for the investor. That before investing in a blue-chip stock he should consult a professional.
What is the upside of investing in blue-chip stocks?
What makes blue chips investors favorite is the upsides and benefits they come with. Since blue chips stocks have the size that many companies wish for, they are loves by investors. Another factor that many analysts suggest investors look at Blue Chip stocks. They have a history for consistent earnings. It is also to note that almost eighty percent of the blue-chip stocks pay dividends. And earning enough dividends to return their investors in a more appropriate way. Always boosts investors’ morale and trust in the company.
Blue Chips aim to have different divisions that generate revenue and diversify service. Offerings to help them to prevent possible organizational risk. From operating problems or losses. Most Blue Chip firms also have a global brand image. So, customers often see and prefer to buy. These include beverages and mobiles. And due to the brand identity and preference by customers. These blue-chip companies get an advantage. Which in return brings more value and sale of their product.
As mentioned earlier, blue chips can lead you towards success. And can also affect your success ratio in a negative manner. There are several manners factors; Why blue chips are considers to be the kings of finance. Blue-chip companies are widely recognizes for their generous commitment to and campaigns. Related to environmental, social and humanitarian activities. This does not mean that you should confine yourself only to blue chips. However, for a great portfolio blue chips investing in blue-chip stocks is the best idea. Because in any case, you face economic instability you will not lose much.