Buying Blue Chips as An Investment

When people on Wall Street talk about “Blue Chips” they refer not to an assortment of fancily colored crunchy munchies, rather, they speak of the most valuable and stable stocks on the stock market. The phrase “Blue-Chip” originated in 1904 and comes from the blue chips people used as the highest bidding chip in the game of poker. Blue-chip stocks are still considered by many in the industry to be the highest bidding chips in the investing game.

Blue-Chip stocks are large-cap companies, meaning their market price, a value achieved by calculating the number of shares outstanding by the price of one individual share, exceeds five billion dollars. Not all companies represent large-cap stocks; there are three other descending categories of capitalization; mid-cap for companies totally between one and five billion, small-cap for companies at the two-hundred fifty million to one billion mark, and lastly, micro-cap companies, those whose value is below two-hundred and fifty million.

Many of these Blue-Chip corporations are found in the market indexes. There are several indexes on the market, the two main being The Dow Jones Industrial Average and the S&P Index. The Dow is the most popular market index. It is comprised of the shares of thirty public U.S. companies from a variety of industries—industries ranging from computer manufacturing to fountain drink production. Some of the companies that are considered Blue-Chip and that make up the Dow are American Express, AT&T, Boeing, Caterpillar, CitiGroup, ExxonMobil, General Electric, Hewlett-Packard, Home Depot, Wal-Mart, 3M, Intel, IBM, Disney, and United Technologies. This partial list of thirty shows represents a popular measure against which an investor makes his or her decisions. Some investors not only use the Dow as a comparison tool, rather, they make their most significant investments in the index itself.

Popular Blue-Chip stocks are also found on the S&P, which is another market index. The S&P is composed of five-hundred companies based not just on market cap, rather, the percent of influence a company has within its own industry. A stock may be part of the DJIA index but may not be included on the S&P if another company within its industry outperforms it. Some of the industries covered by the S&P are telecommunications, health care, biotechnology, food and beverage, and consumer brands. Like the Dow, the S&P attracts many investors not only because of its value as a stock performance index, but as a source of solid investment.

Blue-chip stocks, particularly those found on the Dow and S&P are popular choices for investors because of their potential to outperform the market. Investing in large-cap companies is generally less risky than buying smaller, lesser-known stocks. For instance, companies that have already proven their salt; a UPS or an American Express, will likely provide a stable investment for you where as a relatively new company with no history can prove volatile and unsuccessful. With Blue-Chip stocks the income may be gradual and profits will take quarters and years to realize, you have made a reliable, long-term, high yield investment. Blue-Chip stocks do carry a greater risk due to their high price-per-share cost when compared to micro-cap companies, however, they are generally safer picks due to their predictability and tendency to stay on top of the market.

Related Post:

• Basic Investment Strategies
• Learning to Evaluate Stock Market Risks
• Researching a Company for Investment

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