What Is The Difference Between Blue Chip Stocks And Penny Stocks
The main difference between blue chip stocks and penny stocks is risk. Blue chip stocks tend to be large, established companies that are less likely to experience drastic price swings. On the other hand, Penny stocks are small-cap companies with a lower market capitalization that are more volatile, less liquid, and manipulated by market makers.
Monitor Your Holdings At Least Annually
Blue chip stocks arent blue chip forever, so do not be complacent. For example, PLDT was once regarded as an old-reliable because its money from telephone subscriptions was consistent. However, when the telecommunications landscape changed and the name of the game became data offerings while telephones became obsolete, the outlook for $TEL changed. To this day, it has not yet recovered back to the high it made in 2014.
How To Invest In Blue Chip Companies
There are a number of ways to make Blue Chip investments. We enumerate the important ones:-
Directinvestment We may invest in Blue Chip stocks by buying them from the open stock market at market price.
A return of less than Rs 1 lakh on equity shares does not attract tax, while a profit of more than Rs 1 lakh attracts an STCG tax of 15 percent if the investment is sold within a year of being bought. If sold later, then the LTCG tax of 10 percent is levied.
Pooled investment We may opt for investment Blue Chip funds which track Blue Chip stocks with the pooled money and distribute the earnings based on the units held by us.
There are mutual funds that track Blue Chip stocks such as SBI Bluechip Fund, Axis Bluechip Fund, and Mirae Asset Emerging Bluechip Fund.
The SBI Bluechip Fund is headed by Fund Manager Sohini Andani and its major holdings include stocks of HDFC Bank, ITC, and L& T.
The Axis Bluechip Fund is headed by Fund Manager Shreyash Devalkar and its major holdings include HDFC Bank, Kotak Mahindra Bank, and Reliance Industries.
The Mirae Asset Emerging Bluechip Fund, co-managed by Neelesh Surana and Ankit Jain, has major holdings in HDFC Bank, ICICI Bank, and SBI, among other stocks.
In passive investing, exchange-traded funds track Blue Chips in their own way, as well.
For example, we have the Kotak Nifty ETF which holds stocks of companies such as HDFC Bank, Reliance Industries, HDFC, ICICI Bank, and Infosys, which are all Blue Chips.
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Pros:
- Strong outperformance above S& P 500
- High overall average return for stock picks
Cons:
Cons Of Blue Chip Stocks
- âBoringâ investments that crawl, rather than leap, in the stock charts
- Relatively little volatility to boost short-term returns, even in choppy markets
- High stock prices that can be prohibitive to some investors
- Potential stagnancy â large, lumbering companies may struggle to keep up with the trends or innovate for modern consumers
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Blue Chip Stock Qualifications
Thereâs no official list of criteria to qualify as a blue chip â in fact, thereâs no official list of blue chips. To borrow from Supreme Court Justice Potter Stewartâs infamous statement about explicit content: Youâll know a blue chip when you see it.
Most blue chip stocks share a set of similar characteristics, including:
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What Qualifies A Company As A Blue Chip
Let us understand the characteristics and features that make an organization a blue chip company:
The Brand is Well established
The business should be well-known and well-established. Let us take two examples here. Nestle a big brand in India makes many products like Maggi, Nescafe, etc. There was a big blow to Nestle a few years ago when the entire stock of Maggi had to be returned because of testing issues. There was a slight variation in the stock value, but Nestle being a big brand, overcame this blow and was back in the market standing strong. On the other hand, let us consider newbies like Facebook or Twitter. They are undoubtedly famous but still don’t come in the category of ‘Blue Chip Companies’.
Reputation and Credibility
Blue Chip companies are extremely reputed and have products and services that are widely used. They have survived market crises, and several financial controversies, sailing through the volatility smoothly. They have a strong balance sheet and profits grow each year. Let us look at examples like Reliance Industries, Hindustan Lever, or ITC. Their products and services have been in demand for years and the trust of the consumer has never waivered in them.
Well-Capitalized
Introduction In Blue Chip Stocks
When we hear the words blue chip we may think of something of the highest quality and value. In the game of poker, the blue chips always represent the highest dollar value.
A blue-chip panel of experts is considered to consist of individuals of the highest knowledge and character to bring to a subject.
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Discover Popular Stocks Plus Considerations When Investing In Blue Chip Stocks
Compare platforms to buy blue chip stocksCompare platform features
Traditionally, the blue chips in poker are the ones with the highest value, which is how blue chip stocks got their name. A blue chip stock is the stock of the highest valued companies, measured by their market capitalisation, reliability and quality. Theres no defined list of blue chip stocks, theyre a little bit subjective, but everyone seems to be on the same general page in how theyre determined.
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What Makes A Stock A Blue Chip
Think of a blue-chip stock as a stock you would bring home to meet your parents: It makes a good impression and has the substance to back it up. Its stable, responsible and reliable.
Blue-chip companies have proven themselves in good times and bad, and the stocks have a history of solid performance. Stocks that are considered blue-chip stocks generally have these things in common:
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Large market capitalization. is a measure of the size and value of a company. Blue-chip stocks are often large-cap stocks, which typically means they have a market valuation of $10 billion or more.
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Growth history. Blue-chips have a reliable, solid history of sustained growth and good future prospects. They might not be flashy like fast-growing tech stocks, but thats because theyre already established.
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Component of a market index. Blue-chip stocks are in major market indexes like the S& P 500, the Dow Jones Industrial Average and/or the Nasdaq 100.
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Dividends. Not all blue-chip stocks pay dividends, but many do. Dividends are regular payments made to investors from a companys revenue. Companies that pay dividends are often mature, which means they may no longer need to invest as much revenue back into their growth.
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How To Buy Blue
It’s easy to buy a blue-chip stock in nearly any investment portfolio. If you have a stock brokerage account that allows you to buy and sell U.S. stocks, you can buy blue-chip stocks.
Follow these steps to buy a blue-chip stock in a market downturn:
What Are The Benefits Of Blue
Blue-chip stocks are shares of large, established, and financially stable companies that have been around for a long time. The term “blue chip” comes from the game of poker, where a blue chip holds the highest value. On Wall Street, a blue-chip stock is usually a highly valued and well-known company with characteristics that benefit investors over the long run, such as stable cash flows and consistent dividends.
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Why Invest In Blue Chip Stocks
Blue chip stocks got their name for a reason. Theyre well known companies that perform well. Investors like them because they add some stability to their portfolios due to the fact that theyve shown reliability in the past.
As theyre profitable and long running, a lot of blue chip companies pay dividends, which allow investors to make a regular income with their investments.
Long Track Record Of Dependable Earnings
Blue-chip stocks differ from other equities in another respect: they consistently deliver good results. These companies are not flashes in the pan, but rather firms that have shown their capacity to succeed during prosperous economic periods and withstand difficult times while continuing to develop.
Blue-chip stocks have profit margins that are typically greater than those of their competition. This is due to inherent characteristics such as the strength of their brand and fundamental factors like pricing power and scale.
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Blue Chip Stock Insights
- The term blue chip comes from poker, where a blue chip is the highest-value chip that players can bet with.
- Blue chip stocks are considered the most valuable and safest investment option an investor can choose.
- Blue chip stocks are considered less risky because they come from companies that have been around for a long time, survived multiple recessions, and have a good reputation.
- Blue chip companies usually have a market capitalization of over $50B
Pros And Cons Of Investing In Blue
As with all investments, there are pros and cons to investing in blue chip stocks. Blue-chip stocks have many attractive qualities but are not suitable for all investment accounts, strategies, or investors. You also want to consider sectors and industries as well. Blue-chip tech stocks dont perform the same as blue-chip materials stocks or blue-chip consumer staples.
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Lower Share Price Volatility
Due to the stability of their earnings, the share prices of blue chip companies tend to be less volatile than those of smaller companies. The beta value is a measure of volatility and compares the standard deviation of returns away from the average returns for the index.
According to the Financial Times, Cineworld is currently trading on a beta of 3.6 compared to 0.4 for United Utilities Group. That means that Cineworlds share price is nine times more volatile than United Utilities compared to the index as a whole, with the average beta for the index being 1.
While volatility can create an opportunity for short-term trading, a high level of volatility can make it more difficult for investors to obtain the best price for when buying or selling shares.
List Of Top Blue Chip Stocks
While there is no exact list of blue-chip stocks, one place to look for blue-chip stocks is the Dow Jones Industrial Average . The members of the following list of 30 large-cap stocks are about as blue-chip as they come:
Ticker / Company Name
- DIS The Walt Disney Company
- GS The Goldman Sachs Group, Inc.
- HD The Home Depot, Inc.
- INTC Intel Corporation
- PG The Procter & Gamble Company
- TRV The Travelers Companies, Inc.
- UTX Raytheon Technologies Corporation
- UNH UnitedHealth Group Incorporated
- WBA Walgreens Boots Alliance, Inc.
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Should You Invest In Blue Chips Or Small Caps
While blue chip stocks tend to be a safer investment, they dont usually rise considerably in value over a short-time frame unless you can scoop them up at a discount during a downturn. This means that blue chips are long-term investments or used to provide an ongoing incoming through dividends.
Those looking to make a quick buck by striking it lucky invest in riskier but smaller companies called small-caps. When you invest in a small company youre betting that it will be the next big thing and turn that pocket money into millions.
It can be tempting to take a punt on speculative companies. These are companies that do not have a long, well-established history of providing stable returns to investors. Theyre also typically located outside the list of the top 100 companies in Malaysia. These are sometimes called growth stocks and the smallest are penny stocks those that trade at less than RM1 per share.
Blue chip stocks vs penny stocks
Blue chip stocks.
Penny stocks. Penny stocks tend to trade for less than RM1 and are also called micro-cap stocks or small-cap stocks. The idea is to buy them for a low price with the promise of big profits later. Theyre generally riskier, speculative stocks.
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.
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Reasons Why People Invest In Blue Chip Stocks
For passive income: Blue chip stocks are known for rewarding their investors with attractive dividends, year after year. Whether its for a comfortable retirement, financial independence or other individual goals, investors looking to build a steady income stream by collecting dividends could find blue chip stocks to be a good choice to add to their portfolios.
For stability: The long history of these big companies instills confidence in investors that the company can weather future storms, much like how theyve weathered tumultuous times of the past like the Asian Financial Crisis and the Great Recession. The size and financial stability of the company also play a part rough seas can batter even the sturdiest of ships, what more a small dinghy.
For diversification: Diversification helps to ensure that your portfolio is not overly exposed to a single stock, geography, industry or asset class. If youre an investor that prefers to invest in US stocks, that does not render Singapore blue chips irrelevant. Theres still good reason to include Singapore blue chips into your portfolio, to collect dividends and to keep your eggs spread across multiple baskets.
However, its worth noting that no sector or company is infallible or immune to market volatility. For example, no one could have predicted an event like COVID-19 could bring the entire aviation and travel sector to its knees in 2020.
