What are Blue Chip Stocks? Features of Blue-chip Stocks

Blue chip stocks are one of the top choices favored by investors, especially those interested in the long-term growth of a company. Let’s explore the details of Blue Chip stocks with Tipstrade.org in the following article!

What are blue chip stocks?

Blue chip stocks explained

Blue chip stocks are a type of stock representing leading companies that are industry leaders and have a strong market position. These businesses often possess strong financial capabilities, high liquidity, a stable operating history, and the ability to generate sustainable cash flow in the long term.

Companies in the blue-chip group primarily come from key economic sectors such as banking, energy, real estate, technology, healthcare, and essential consumer goods. Thanks to their stability and reputation, blue chip stocks are considered a safe and reliable choice for long-term investors.

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Origin of blue chip stocks

The term “blue chip” was first used to describe high-quality stocks in the early 1920s by a Dow Jones employee, Oliver Gingold. Oliver was standing by the stock ticker at the brokerage firm when he observed some shares trading at $200, $250, or more. He told Lucien Hooper of W.E. Hutton & Co. that he planned to go back to the office and write about “these blue chip stocks.” The term’s been used since then to refer to high-priced stocks, just as blue chips in poker typically carry higher chip values. Blue chip stocks do not necessarily need to be highly priced but should be of high quality.

Features of blue chip stocks

Blue chip stocks have long been considered a safe and effective choice for long-term investors. Before making an investment decision, let’s explore the key features of blue chip stocks to understand why they attract significant interest from investors.

Significant market capitalisation: Often boasting a valuation exceeding USD 10 billion.
Solid history of growth: They’re the long-distance runners, delivering steady returns over the years.
Listed on a major index: Their names frequently appear in indices like the S&P 500 or Nasdaq 100.
Dividend yields: An added bonus, most blue-chip stocks reward shareholders with dividends, reflecting their strong returns.

Are blue chip stocks a good investment?

The decision of whether to invest in blue chip stocks depends on each investor’s investment goals and plans, as well as the overall market conditions. Here are a few pros and cons to help you better understand this group of stocks.

Major advantages of investing in blue chip stocks

Because blue chip stocks belong to leading enterprises with large size, thanks to the good use of the advantages that large size brings, the blue chip stocks group always tends to outperform other stock groups. Among them, the 3 most outstanding advantages that can be mentioned are:

High operating efficiency

By taking advantage of the profits from the cooperation of large shareholders, businesses maintain very effective business operations. Smaller companies usually rarely see this advantage.

Financial advantages

Larger businesses are always more attractive to investors because of their stability, whether that’s due to cheaper debt or easier access to equity.

Strategic advantage

In times of competition, especially in a market downturn, strategic advantages are most evident. Larger companies can leverage their market power to attract potential customers from their competitors, while smaller companies struggle to survive.

Major advantages of investing in blue chip stocks

Disadvantages of investing in blue chip stocks

Known for their safety and steady, rather than rapid, growth, blue chip stocks have the disadvantage of not yielding high returns compared to investing in shares of smaller companies.
Besides, the price of blue chip stocks is always much higher than other stocks because of high market demand, so investors need to prepare a significant amount of capital if they want to own blue chip stocks.

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How to invest in blue chip stocks?

When it comes to investing, there is always a risk factor. To effectively invest in bluechip stocks, investors should pay attention to the following issues:

Learn more about the company:

Investors should carefully research the company issuing bluechip stocks to understand its operations, organizational structure, business strategy, projects, financial situation,… This will help investors assess the company’s growth potential and risks.

Stock valuation:

Investors need to evaluate the real value of bluechip stocks, by using financial indicators such as P/E, P/B, EPS, ROE,… to determine the stock value compared to the current price.

Market monitoring and related factors:

Investors should closely monitor the market and factors related to the company and the industry in which the company operates in order to make accurate investment decisions.

Portfolio adjustment:

Investors should regularly adjust their portfolios, including blue chip stocks, to suit market conditions and investment goals.

Risk management:

Investors need to manage risk by diversifying their portfolios and not putting too much money into any single stock or sector.

The above notes will help investors invest in bluechip stocks more effectively and safely.

Criteria for evaluating blue chip stocks

When investing in blue chip stocks, accurately assessing key factors is crucial to ensure the right choices are made. These criteria not only help you analyze the company’s financial health but also reflect its long-term profitability and stability.

Typically, for a stock to be considered a Bluechip, it needs to meet the following criteria:

Companies issuing blue-chip stocks are typically those with a long history and are among the leaders in a specific market sector.
The company has a large market capitalization and a wide scope of operations. At the same time, the company’s value must be at least 10 billion USD or more.
The company’s stock value growth history must be sustainable from the time of issuance to its future growth potential.
Specifically, the market index used to evaluate the Bluechip stock group must yield results among the top 500 stocks of Standard and Poor, or the Dow Jones Industrial Average, and also the Nasdaq 100 (this index is used to measure the 100 largest non-financial companies listed on the Nasdaq exchange).

Criteria for evaluating blue chip stocks

Top 10 best blue chip stocks to buy

At the time of writing, below is a summary table of Top 10 best blue chip stocks to buy that investors can refer to:

Stock	Sector	Market value	Dividend
AbbVie Inc. (ticker: ABBV)	Health care	$338 billion	3.5%
AT&T Inc. (T)	Communication services	$206 billion	4.0%
Cisco Systems Inc. (CSCO)	Technology	$254 billion	2.5%
Coca-Cola Co. (KO)	Consumer staples	$310 billion	2.8%
International Business Machines Corp. (IBM)	Technology	$258 billion	2.5%
JPMorgan Chase & Co. (JPM)	Financials	$747 billion	2.1%
Johnson & Johnson (JNJ)	Health care	$376 billion	3.4%
Novartis AG (NVS)	Health care	$234 billion	3.4%
Philip Morris International Inc. (PM)	Consumer staples	$282 billion	3.0%
Wells Fargo & Co. (WFC)	Financials	$245 billion	2.1%

Comparing blue chip stocks with other types of stocks

Category	Bluechip	Penny Stock	Growth Stock	Income Stock
Definition	Shares of large, leading companies that are stable and highly reputable in the market.	Shares with very low par value, usually issued by small or newly listed companies.	Shares of a company expected to grow at a significantly higher rate than the market average.	Shares that generate regular income by distributing company profits or surplus cash through dividends higher than the market average.
Advantages	– Sustainable development, stable operations – High safety level – Steady profits and regular dividends – High liquidity	– Great growth potential – Low investment amount – Potential for quick profits	– High potential for price appreciation and long-term stability – High profit growth	– High dividend yield – Stable, less volatile, low risk – High liquidity
Disadvantages	– Requires large capital to invest – Low price appreciation range – Slow growth rate	– Prone to speculation and price manipulation – Lack of transparency in information disclosure – Low liquidity – High risk	– Unstable returns – High price volatility – No dividends	– High risk – Low growth potential – Dependent on company profits

Conclusion

The above is detailed information about Blue Chip stocks, their features, as well as the advantages and disadvantages of this type of stock. Hopefully, through this article, you can gain useful knowledge to serve your stock investment process.