We receive a lot of questions regarding blue chip stocks, from, “What is a blue chip stock?” to “What are the best blue chip stocks?”. It seems that there is also some confusion out that as a few of your have asked questions along the lines of “How can I buy stock in bluechip?”, seemingly assuming that it refers to a company.
So, to clear things up we have completed a complete beginner’s guide to blue chip stocks. We’ll tell you what they are, where you can find the best ones and much more.
What are Blue Chip Stocks?
Blue chip stocks are basically stocks that are industry leaders, stocks that are more or less guaranteed to be strong and stable. They are often seen as the opposite to penny stocks, which can be volatile and unstable. There are downsides and upsides to both, as explained a little later on, but for the majority of investors, blue chip stocks are the way to go.
Blue Chip Stock Definition
If we use the strictest definition of blue chip then it is defined as a stock of a well-established company that has a sound financial profile, and is either a market-leader or is one of the top three companies in its sector. That’s the basis behind a blue chip stock, but there is a little more to it than that.
To an investor, a blue chip stock is important because it provides reliability. Typically, it will have been listed on the market for a long time. This means that it has a long history to look over and it is also a familiar name and a familiar stock. What’s more, these stocks tend to pay dividends, which are fairly uncommon elsewhere. A stock can still be classed as a blue chip if it does not pay dividends, so this is not a strict requirement, but the majority of these stocks do offer dividends.
Blue chip stocks are usually more expensive and they are often listed on the biggest indexes, such as the Dow Jones or the FTSE 100. If you ask the average investor they will tell you that every stock portfolio should include a foundation of reliable blue chip stocks. And because the definition of blue chip stocks is of a company that every stock trader would happily invest in, it rarely matters which stock you choose, just as long as it fits the criteria.
The Best Blue Chip Stocks
As we have said many times before here on Buy Shares In, it’s not always easy to define what the “best stock” is, and that’s a problem we face trying to define the best blue chip stock. However, we can certainly point out a few stocks that we have covered on this website. These stocks are always worth an investment and if you click through on the link provided you will learn more about them, including the reasons and the ways that you can invest:
- Apple (NASDAQ: AAPL): A computing giant, Apple stock hasn’t always been considered to be a blue chip, but that is definitely the case now. It is one of the most sought after on the market and one that provides a reliable investment into the technological sector. Perhaps unsurprisingly, it is also one of the stocks that many first-time investors look to get involved with. This is most likely because they have developed a certain respect for the brand itself.
- Walt Disney (NYSE: DIS): Disney is one of the biggest entertainment and hospitality companies in the world. So it’s no surprise to see them on a list of the best blue chip stocks. They are a multinational powerhouse with a reach that extends into most industries and is completely dominant in the entertainment sector. After all, this is a brand with one of the biggest movie fanbases; a brand that owns Star Wars; and a brand that earns millions in merchandizing alone.
- GlaxoSmithKline (LON: GSX): Not only is this one of the largest pharmaceutical companies in the world, but it also creates a number of popular consumer products. In the UK, GSK is one of the top 2 in its sector. Around the world it easily makes it into the top five. It has had its problems, but the same can be said for many companies that spend their days promoting medications.
Blue Chip Stock vs Penny Stocks
These stocks are polar opposites of one another. For the most part, blue chip stocks are by far superior for all investors. But there are some benefits to penny stocks that blue chips don’t have. So, let’s focus on those here as we look at Blue Chip Stock versus Penny Stocks:
Blue Chips
- They are ore stable and more reliable
- They regularly generate dividends
- Work like savings accounts but pay out more regularly
- Great addition to any stock portfolio
- Still a threat of bankruptcy and loss
Penny Stocks
- Potential for more reward, but also greater loss
- No dividends
- Considered more of a gamble than a saving’s account
- Should only be considered for portfolios that will be regularly monitored and acted upon
List of Blue Chip Companies that Have Gone Bankrupt
One of the things you can often rely on with blue chip stocks is that they’ll stay strong in difficult times. During recent recessions, this has certainly been the case. However, every now and then one of these companies goes bankrupt and when they happens it typically creates waves that have an effect on the entire market.
Lehmann Brothers is perhaps one of the most famous of these, as is General Motors, which is now owned more or less entirely by the US Government. Others have included Nortel, Washington Mutual and Bear Sterns. In the UK, Northern Rock is one of the biggest blue chips to lose it all in recent years.
Blue Chip Technology Companies
This is often where many investors look to get their money, especially in the last few years. There was a time, not too long ago, when blue chip banking stocks were all the rage. These days banks are considered too risky, so everyone is trying to get their money in blue chip technology.
As mentioned above, Apple is one of the biggest and the best of these. But Google (NASDAQ: GOOGL) is also up there, as is Microsoft (NASDAQ: MSFT). Typically, these companies can be found on the NASDAQ, which is where all of the best tech stock in the United States are. Just bear in mind that there is a great deal of risk associated with tech companies, including blue chip tech companies.
Bubbles burst, values disappear. Many of these companies are relying on their future releases being a success and on future innovations taking off. If that happens then the stock will go through the roof. If not, and if it fails, then it will begin to plummet. Not so long ago Microsoft was leading the way in this industry and looked set to dominate. It had everything, from the money it needed to buy success to a market share that competitors were envious of.
But it struggled with innovation and it feel behind. Internet Explorer was outclassed by Chrome; Zune had nothing on the iPod; Windows phones were overshadowed by most other platforms; and they never really got to grips with the tablet or laptop market. They were once on top of the world, but they lost a lot very quickly.