What Are Blue Chip Stocks? – The Safest Way To Invest
- The name “blue chip” comes from the game of poker, where blue chips have the highest value
- Blue chips stocks are the shares of financially sound companies
- Blue chips are companies with high market capitalization, usually, in billions
- There are several advantages and disadvantages associated with blue chips
Blue Chip Stocks Explained – Large Company Shares
Blue chip stocks Definition: Blue chip stocks are the shares of financially sound companies
In the stock trading market, blue chip stocks are the shares of financially sound companies that have a great reputation around the world. In most cases, blue chips are companies that are large, well-established, and household names that have operated for many years and have dependable earnings. In most cases, these companies are known for paying higher dividends to investors.
These companies in most cases have a very high market capitalization, in most cases, in billions. They also tend to be market leaders in the sector they represent and are well-known around the world. These shares are also known to be very popular among investors. Some of the best-known blue chip stocks in the market are Coca-Cola, Boeing, and many others like this.
While investing in blue chip stocks might be a great idea for some, there are other traders who prefer to avoid these types of stocks. There are several reasons why this happens. In this guide to blue chip stocks trading, we will discover both views to help you understand if blue chip stocks are a good option for you or not.
Why Blue Chip Stocks Are A Bad Idea
While there are many blue chip stocks to buy now available in the market, there still are some investors who decide to avoid investing in blue chips. There are several reasons for it. The main reason, however, is that these types of stocks are the ones that have already grown to what they could and they have already fulfilled their full potential.
Although these companies are likely to continue the growth, it is expected to be at a slower pace. Because of this, if you are a trader who wants to make huge profits, and you want to do so in a shorter time and with a lower initial deposit, it might not be a good fit for you.
If you are looking for large returns, you will have to invest lots of capital in blue chip stocks. This can get quite risky, which is one of the main reasons why some decide to avoid blue chips.
In most cases, the growth for these companies tends to be only around 2-5 percent on a yearly basis. Such a little growth is not that much when you are investing in the stock market, and for some, it simply is not worth it.
However, although there are disadvantages, it does not mean that you should avoid investing in such stocks at all costs. Although there are these disadvantages, there still are many reasons why people decide to invest in the best blue chip stocks.
Why Blue Chip Stocks Are A Good Idea
While some try to avoid blue chip investing, there are many others who believe that investing in blue chip stocks is a good idea. The main reason why so many people choose these stocks for investment is that they mostly tend to be simply too big to fail.
Mostly, no matter what happens to the economy, which might cause numerous other stocks to drop, blue chip stocks might not receive the same damage. Even if they fall, they are the ones to recover first
The main reason for the popularity of this type of stock is the safety and security that it offers to traders. However, this is not all. Although it might not be a requirement for a stock to be classified as a blue chip stock, they mostly tend to pay higher dividends.
High dividend blue chip stocks are very popular among investors around the world. The dividend paid by companies tends to be a great advantage for investors as it acts as an additional source of income for investors.
These companies are known to have solid balance sheets, steady cash flows, proven business models, and a history of increasing dividends. Because of this, there are many traders who consider blue chip stocks to be among the most secure investments due to their track records and performance history.
How To Choose The Best Blue Chip Stock To Trade
There are numerous things that you should keep in mind before you choose which blue chip stock to invest in. The first thing to do is to know what blue chip stocks are and how they really work.
In addition to this, you should also consider fundamentals, current prices vs historical prices, upcoming changes, and many others. All of these things together can help you make well-informed decisions.
Among the most important things that traders should keep in mind while choosing the best blue chip stock for investment are fundamentals, current prices compared to the historical data, possible upcoming changes, and several others.
By keeping these important factors in mind, you should be able to easily find a blue chip stock that is worth your time and energy.
The Fundamentals
We have already defined the meaning of blue chip stocks, but what do you do to find the best blue chip stocks to invest in? One of the things that can help you find the best blue chip stock is to do fundamental analysis.
While doing so, you should make sure that everything about the finances and economics of the company is in check. Although these companies are very likely to be successful in terms of performance, it is still very important to check out everything you can before you invest.
Once you see that the company has a successful performance and its current situation is good, you can continue by investing in the stocks.
Current Price vs Historical
A very important thing that you will have to do is to decide when you want to invest. But how do you know that the market conditions are favorable for your positions? A very useful thing to do is to compare the current price of the stock to the historical price.
Although regarded as mostly stable, the prices of blue chip stocks do fluctuate. However, these stocks tend to be extremely predictable and most investors know exactly when and how much the price will fall or grow.
By understanding this, you will be able to enter your positions when the stock is down, rather than when it’s high up. You can do so by comparing the current price to the average of the last 1-2 years.
You can also use charts to see how the price of the stock is changing and moving. This way, you can be sure that you are investing at the right time.
Upcoming Changes
When discussing blue chip stocks to watch you have to make sure that you are up to date with the possible upcoming changes. The changes in the company can have a huge influence on the price performance of the stocks.
For example, to better explain this, let’s discuss one of the blue chip stocks, Apple. Apple is a huge company, the shares of which are owned and traded by numerous people every day. The company is known for frequently unveiling new products.
Whenever the company releases a new product, the value of the company increases. Because of this, if you see that there is an anticipated addition to the list of the products coming, it might be a good idea to start investing in the stocks now.
However, you should also keep in mind that there are some risks associated with this situation as well. The biggest risk that you are facing in this situation is that the product released by the company might not be as successful and it might even flop. For example, something similar happened with Samsung’s Galaxy S6, if something like that happens to Apple when you have invested your money, you might lose some of it if the shares drop.
What Did We Learn From This Blue Chip Stocks Guide?
Bluechip meaning indicates that these are the shares of the large, successful, and financially sound companies that have a proven track record of success.
Trading blue chip stocks are very popular in the market because of the stability that they offer. In most cases, these companies are also known for paying dividends.
Although there are many people who like to invest in blue chip stocks, there are others who prefer to avoid it due to smaller room for growth.
Some of the best examples of blue chip companies include those like Apple, Microsoft, Coca Cola, and many others. In most cases, blue chips are leaders in their fields.
Common Questions On Blue Chip Stocks
What Stocks Are Considered Blue Chip?
Although there is no formal definition of what is a blue chip stock, they can be defined as the shares of financially sound companies that are highly valuable, stable, and established. These companies tend to be big names, often household names, and are considered to be leaders in their respective industries.
These companies are known for having a large market capitalization, which is usually in billions. They also have reliable growth history and are part of leading market indices. Although not a requirement, blue chip companies are also known for paying dividends.
The name blue chip was first used in the 1920s and is derived from the game of poker, where the blue chips are the most valuable.
What Are The Top 10 Blue Chip Stocks?
Some of the best blue chip stocks in the market include PayPal, with a market value of #332,6 billion, Mastercard, with a market value of $369.5 billion, JPMorgan Chase, with a market value of $455.4 billion, Walt Disney, with a market value of $316.1 billion, Visa, with a market value of almost $500 billion, Apple, with a market value of over $2.2 trillion, Alphabet, with a market value of over $1.6 trillion, Facebook, with a market value of $942 billion, Amazon, with a market value of $1.7 trillion, and Microsoft, with a market value of $2.0 trillion.
Are Blue Chip Stocks Safe?
Yes, blue chip stocks are considered to be safe. In fact, when discussing the listing of blue chip stocks, one of the most important things that investors are talking about is the safety and security associated with these companies.
These stocks are considered to be a safe investment option because they are capable of surviving economic downturns better than the others, they are less volatile, and are always among the first ones to recover from financial instability. These companies are known for having a slow, but moderate growth potential. In most cases, dividend blue chip stocks are among the most popular investment options.
What Is The Best Chip Stock To Buy?
Some of the best blue chip stocks to buy are Apple, Microsoft, J&J, Coca Cola, and many others. However, deciding which blue chip stock to buy can be a time-consuming process. There are many things that your decision depends on.
For example, while a majority of the blue chip companies pay dividends, there are others who do not. Keeping this in mind can help you find the one you are looking for. Another very important thing to focus on is the current performance and price of the stock you want to invest in.
It is always better to invest in blue chip stocks when their prices are low. For this, you should compare the price of the stock right now to the historical data and find the best time for your investment.