“Blue chip” stocks: what they are and are they worth investing in?

With the right approach to investing it cannot be compared to gambling, but even so, the stock market has borrowed the term “blue chips” from casino and card game jargon. In gambling, the blue chips are the ones with the highest value. In the stock market, a stock called “blue chip” refers to assets of stable companies with high liquidity and capitalization. 

 

We have prepared a new article in which we will tell you about blue chip stocks, their advantages, and the benefits of investing in this type of asset. 

“Blue chips”: definition and specifics

The term “blue chips” was coined in finance in the early 1920s by Dow Jones journalist Oliver Gingold when he observed a ticker tape showing large trades. He immediately called these stocks “blue chips.” 

 

Today, blue chips are stocks of companies that are leaders in their industries and have strong earnings results. Such companies have proven themselves in the market, are considered the most stable and have a good reputation, so their assets are highly valued. 

 

Since there are no official criteria of companies whose shares are considered “blue chips”, we suggest you consider the features and differences between blue chips and common stocks. 

 

 

1. Large market capitalization. Large, well-financed companies have blue chips. Their market capitalization, that is, the total market value of all shares, amounts to billions of dollars. 

 

2. Stable Growth. “Blue chip” companies show active and steady growth over many years, and sometimes decades. 

 

3. Stock index positions. “Blue chips” hold positions in the major market indices. A company is often considered “successful” in terms of blue chip status if it is on one of these lists, which act as leaders for the stock market itself.

 

4. Stable and profitable dividends. Blue chip shareholders receive profitable and stable dividends. Because companies are mature and have a good reputation, they can focus less on growth than startups and other businesses that need constant development. Blue chip companies receive a flow of funds that allows them to share profits with stockholders through dividends. As profits rise, dividends often increase as well. 

 

Advantages and Disadvantages of “Blue Chips”

Before investing in any asset in the financial market, it is important to understand its advantages and disadvantages in order to assess all the risks. This applies to blue chip investments as well. 

 

Let's start with the advantages.

 

 

+ Low volatility. Large corporations respond steadily to any market changes. Despite the fact that strong economic shocks can shake the price of blue chips, assets do not react to changes with large changes in price. 

 

+ Reliability. By investing in “blue chips”, the investor has maximum confidence that the company will continue to operate, and he will receive the desired profit. 

 

+ High yield. Stable profits without the need for significant investment in growth means that “blue chips” can provide a stable and significant dividend payments. Therefore, blue chip dividends are the most reliable tool for income-oriented investors.

 

+ The ability to diversify your investment portfolio. “Blue chips” are profitable stocks, which can be used to stabilize profits and minimize the risk of losses.

 

+ Liquidity. Owners of “blue chips” get the opportunity to sell assets at a favorable price at any time. 

 

But, blue chips have disadvantages. 

 

- Inactive growth. “Blue chips” are assets of mature companies whose active growth is over. They continue to grow steadily and hold leadership positions in the market, but active growth or a sharp surge in the share price should not be expected. 

 

- Expensive assets. These stocks are expensive — the purchase price of just one stock can range from one to several hundred dollars. For example, in September 2022, the price per Apple stock is $152.07. 

 

Investing in “blue chips”: who fits and why

 

“Blue chips” are a great investment option if you're looking to achieve your long-term financial goals. With these stocks, investor can receive a guaranteed passive income and high dividends that are paid quarterly. In addition, with the help of blue chips, the investor can diversify the investment portfolio and minimize the risk of losses. 

 

This type of stock is great for investors who want a long-term and guaranteed return with minimal risk due to market volatility.