Blue-chip stock

What is a Blue-Chip Stock?

A blue-chip stock is a stock of a generally well-known company with an excellent track-record.

Blue-chip companies are often considered as safe investments and "too big to fail". Even though there is no strict definition of which companies are blue-chip stocks, they are generally market leaders, with market capitalization in billions of dollars

Are Blue-Chip stocks good investments?

Generally, blue-chip stocks are good investments because they are more stable and less risky than smaller, developing companies. They have a higher dividend yield and a larger capital base, meaning shareholders are more likely to get a return on their investments.

However, blue-chip stocks may not always provide the highest returns on investments as they tend to move slowly, meaning investors cannot benefit from short-term movements in the market. Furthermore, blue-chip stocks tend to be priced higher, meaning investors may need to spend more money to purchase them.

Understanding a Blue Chip Stock's Potential

An investor should consider several criteria when deciding whether or not a stock is a blue-chip stock. The company must have proven track record of being profitable and financially survive periods of market downturns and changes in consumer demand.

In addition, an investor should look at the quality of the company's management and assess the company's ability to reinvest profits or pay back debts. The company's financial statements should be studied to ensure the company is substantial enough to go the distance and not be decimated in a negative competitive market situation.

Finally, an investor should consider what kind of returns the stock can provide in the near and long term. Blue chip stocks typically have lower volatility than other types of stocks, but investor should ensure that returns are consistent over time.

Example of Blue-Chip Stocks:

Some of the most well-known blue-chip stocks include, Apple, Microsoft, Amazon, Wal-Mart, ExxonMobil, and Johnson & Johnson.

These companies are considered to be giants of their respective industries. Moreover, these companies have proven track records of strong performance regardless of the business cycle or the market situation.

Many of the blue-chip stocks have been in the Standard & Poor's 500 Index (S&P500) for more than a decade. This means that they have stood the test of time and are considered safe investments for both smaller and larger investors.

More generally, blue-chip stocks are often large companies based in developed countries, have stable and consistent earnings, and a track record of paying consistent dividends.