Blue Chip Stocks
Blue Chip Stocks are traditional industrial stocks and financial stocks with long-term stable growth and large size. In the stock market, those companies with good operating results and stable and high cash dividend payments are often called "blue chips". I have compiled a basic terminology of stock speculation, for your reference, I hope you have gained in the process of reading!
Blue chips are stocks of high-quality companies that are leaders in their respective industries. Named after the traditional color of the highest-value chips on the gambling table, blue chip companies are some of the most respected in the business world. They have passed the test of time with a solid business model that delivers substantial profits and attractive returns to shareholders. As a result, blue chips are very popular among investors.
What are blue chips made of?
Blue chips have several characteristics. While there is no universal definition of what constitutes a blue chip stock, most investors agree that the following are key characteristics of a blue chip company:
Leadership in their industry. Blue-chip stocks generally succeed in outperforming their competitors and ranking at the top of their industries. They may not be the best companies in the industry, but they are usually up to the task.
Extremely high _value. Blue chip companies tend to be large and important businesses, and investors recognize their value by driving up their share prices. The total value of blue-chip stocks, measured by market capitalization, is often higher than the market capitalization of other companies, and they are often viewed as the best value in the overall market.
Historic business growth. Stocks don't become blue chips overnight. To be a leader in its industry, a company needs to grow revenues and earnings consistently over time, and investors expect blue-chip companies to prove their growth prowess even in difficult times for their respective industries and the economy as a whole.
It has an essential place in major stock indices. Some investors have a narrow understanding of blue chips, which are the 30 companies that make up the Dow Jones Industrial Average. Even if you _ use a broader _ standard, you will usually find most of the blue chips in the S&P 500 index of popular _ five billion dollar stocks _ index. In Hong Kong that means the constituents of the Hang Seng Index.
Financially stable and strong. Blue chips generally have large cash reserves generated by their businesses. They can take on debt, but they need to have the ability to manage all of it more effectively and ideally be able to use it to boost profitability.
Paying dividends to shareholders. Paying a dividend is not a requirement to be a blue chip, but most blue chips do pay dividends to their shareholders. The amount of a blue chip's dividend can vary depending on the maturity of the business and the amount of extra cash it generates. Many of the top blue-chip stocks have maintained stable or growing dividends in the past.
Why investing in blue chips is the right choice?
The main advantage blue chips have over their peers is the size of their business. To achieve blue chip status, companies need to demonstrate their ability to outperform their competitors. It takes a long time for a new business to prove itself and become a leader in its category, and that process eliminates a lot of substandard companies that lack the wherewithal to do so. Only time-tested companies become blue chips, so investing in companies that have reached the pinnacle of their industries and matured avoids the uncertainty and risk associated with investing in smaller start-ups.
The size of blue-chip companies also gives them a considerable competitive advantage.
Most companies benefit from economies of scale, meaning that the more they grow, the more efficient they become and the more they can capitalize on opportunities that are not available to smaller companies. By obtaining loans from financial institutions or issuing shares to investors, blue-chip companies have easier access to the capital they need to prepare for new business. When blue chip companies are faced with the threat of competition from small businesses, they will have the resources to take strategic steps to defend themselves against potential competitors, either by acquiring them or by enticing their competitors' customers to switch their business.
Over time, these advantages have allowed blue-chip shareholders to realize significant returns on their investments. For example, the Dow Jones Industrial Average has grown at an average rate of about 7 percent a year over the past 50 years, and the dividends paid by these stocks have been enough to boost blue-chip total returns in that benchmark to more than 10 percent a year.
Blue-chip stocks are not immune to short-term declines, and some have even found their businesses in trouble. But on balance, blue-chip companies tend to have more secure and stable businesses than others, and their stability is particularly attractive to more conservative investors, who minimize investment risk when investing in the stock market.
What are some examples of blue chip stocks?
Even if you're not an investor, you'll recognize many of the names of blue chips because their products and services are part of the daily lives of millions of people around the world. The following companies are just a few examples of blue chips, but they can help investors navigate the many important sectors of the global economy.
Coca-Cola (NYSE: KO) is a leader in the beverage industry, and its eponymous sugary soda is popular worldwide. The company now offers a wide range of products, including juices, sports drinks, bottled water and a variety of sodas.
Jpmorgan Chase (NYSE: JPM) has become one of the world's largest banks, surviving the financial crisis and getting back on top. With businesses spanning retail and commercial banking, credit cards, investment banking and a host of other financial products and services, JPMorgan plays a key leadership role in the banking industry.
BerkshireHathaway (NYSE: BRK-A) (NYSE: BRK-B) has become a leader in the insurance industry, led by famed investment legend Warren Buffett.
Disney (NYSE: DIS) has become an entertainment superstar, combining numerous interrelated businesses together. Disney has mastered the art of integrating itself into the lives of its customers in a variety of ways through its movie _ studios, television networks, theme parks and retail merchandising operations.
AIA (HKG: 1299) is the world's largest life insurance company with operations in 18 markets across Asia Pacific. It has been developed over a 100-year history and is well recognized by the industry.
How should I invest in blue chips?
Investors have a number of options when investing in blue chips. The easiest way is to just buy individual stocks. You can pick and choose from the companies listed above and other industry leaders, diversifying your light_combination portfolio of a variety of different blue-chip stocks.
You can also invest in blue chips by using index funds that are designed to track those leaders. For example, the SPDR Dow Jones Industrial Average ETF (NYSEMKT: DIA) includes four of the five stocks mentioned above, as well as more than 24 other top blue-chip companies in sectors such as _manufacturing_, _healthcare_, _consumer_ goods and _technology_.
Investing in blue chips is a smart choice for all investors. For those who are new to investing, it may be more comfortable to buy blue chips that you know well. Seasoned investors who have watched blue chips outperform their rivals to reach their current peaks know how valuable they can be.
For a solid return on investment, blue chips are the way to go.
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