Blue Chip Companies Essay Example
Blue Chip Companies Essay Example

Blue Chip Companies Essay Example

Available Only on StudyHippo
  • Pages: 4 (1089 words)
  • Published: May 6, 2018
  • Type: Case Study
View Entire Sample
Text preview

Introduction Blue Chip Blue chips are the biggest, most stable, and often the most reputable companies in existence.

The term comes from casino houses, whihc use colored plastic chips to represent the money patrons gamble with. Traditionally, blue chips were the most valuable color chip of all; but in gambling today blue chips are among the lowest valued chips, and also the most widely recognized. This is in standing with the financial industry's strong feeling for its own history: investors aren't going to start calling General Motors (GM) a "mustard yellow" stock just to match trends in casinos.

Blue chips are the dominant companies in their respective industries, bellwether behemoths whose sound business practices and established financial security have earned them broad recognition throughout the country, and around the world. Some examples of


blue chips that will be familiar to everyone, savvy investor and first-time buyer alike, are Microsoft (MSFT), General Electric (GE), and AT&T (T).

Just as the companies that offer blue chip stocks have some traits in common with one another - massive size, market capitalization of over $1 billion, broad market penetration, and a long, stable history of excellence - blue chip stocks themselves share many traits, which distinguish them from other classes of stock. The primary traits of blue chip stocks are stability in price, regular dividend payments, and high liquidity. Blue chips are not necessarily expensive, but their price is expected to remain relatively stable, with trends that are broad and easily predictable.

We'd all like our stocks to continually grow more valuable, but the hard fact is that they do not. One of the benefits of owning a

View entire sample
Join StudyHippo to see entire essay

blue chip is that when it's price inevitably begins to drop, it will generally drop slowly and over a long period of time, allowing a shareholder to identify its downward trend and exit the trade without sustaining very heavy losses.

Owners of small-cap stocks or growth stocks face the risk of losing a quarter of their investment in a day or two at the slightest tremor in the market: such losses are extremely rare in blue chips.

On the other hand, uptrend’s are just as broad and slow in blue chips as down trends, and investors who want the challenge and thrill of locking in high capital gains will watch in frustration as growth stocks soar 5%, 10%, 20% or more on a good market day while their own investment inches up half a percent, or less, or not at all. To counterbalance the lack of volatility, and the absence of large capital gains, many blue chip stocks offer a dividend payment as part of their allure.

Dividends from blue chips may not be the highest out there, but the financial security of the company and virtual certainty of payment makes them very attractive to investors looking for stable income. Dividend payments from blue chips constitute a reliable income, which is delivered to shareholders no matter whether the stock price is rising or sinking. Another advantage to investing in blue chips is their high liquidity, or high daily volume.

These companies are so huge and have been around for so long that billions of shares have been offered and sold to the public, creating an enormous market for them.

A few dozen thousand shares of

an average stock may change hands in day, but the daily volume of blue chip stocks can easily exceed 50 million shares. That means that it is extremely easy to buy and sell blue chip stocks because there is always, always, always someone in the market who wants to sell or buy. Savvy investors with large accounts, good timing and good software can consistently make money day-to-day on the small dips and increases in price. What do you mean by Blue Chip Companies & how it identify? Blue Chips Companies are the companies having the huge amount of capital .

Basically these are big companies , having the market capitalisation more than 12500 crore.

Companies like ONGC , TCS , Infosys are included under this category. Large, stable and well established company. A nationally recognized, well-established and financially sound company. Blue chips generally sell high-quality, widely accepted products and services.

Blue-chip companies are known to weather downturns and operate profitably in the face of adverse economic conditions, which helps to contribute to their long record of stable and reliable growth.

The name "blue chip" came about because in the game of poker the blue chips have the highest value. Blue Chip companies are those organizations which have a A Rating in the BSE/NSE The ratings are done on many parameters like: Crisil Ratings T/O of the Company Dividends contributed Profit attained and many such other parameters. In India BSE Sensex gives you a list of 30 top companies. Some blue chip companies are ONGC, Infosys, RIL, Dr. Reddy's Laboratory etc.

How It Works/Example: Blue chip companies have several characteristics: 1.

They are usually large companies.

2. They are usually older companies. 3. They generally sell widely used products or services.

4. They perform relatively well during economic downturns. 5. They have records of long-term, stable growth. 6.

They usually pay regular dividends, and those dividends usually grow over time. 7. They have reputations as management and industry leaders. 8. They are usually very creditworthy. IBM, AT;T, General Electric, Coca-Cola, and DuPont are examples of blue chip companies.

Positive And Negative Aspects of Blue Chips

As with any stock, there are positives and negatives with blue chips. Because blue chips are the oldest and best-known companies, they are easy to follow, often ending up on the front page instead of just in the financial section of the local newspaper. Investors can thus track these companies and evaluate their advertising and marketing strategies. Finally, they are a great tool for teaching kids about the stock market by using brand names they recognize, like McDonald's or Walt Disney. The negatives associated with blue chips are basically the same as for other stocks.

Even blue chips can take a nosedive.

And as the old saying goes, "the bigger they are, the harder they fall. " The more you have invested in a company, the worse its mistakes can be for your portfolio. In addition, blue chip stocks often pay smaller dividends than even the 4 percent yield associated with income stocks. This puts off some investors.

Most blue chip stocks are traded on the New York Stock Exchange and make up a significant portion of the Dow Jones Industrial Average and the S & P 500 Index. They can be purchased through brokers or


Get an explanation on any task
Get unstuck with the help of our AI assistant in seconds