Blue Chip

Too Big To Fail

What is a Blue Chip Company?

A blue chip company is financially sound and well established.

These companies usually sell well-known and high-quality products and services. They have a record of stability and steady growth because they can operate in difficult economic conditions.


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Most share the following characteristics:

  • Value in the billions
  • Household name
  • Good reputation
  • Dependable earnings
  • Pay dividends
  • Leader in their industry

Why is it Important?

They usually perform well in good times and bad and are considered a safe investment.

Examples:

  • AT&T
  • Microsoft
  • Verizon
  • Walmart
  • Coca-Cola
  • IBM
  • Wells Fargo
  • ExxonMobil
  • Home Depot
  • GE


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Investors may buy blue-chip companies to provide steady growth in their portfolios. The stock price of a blue-chip company usually closely follows the S&P 500, but blue-chip stocks shouldn’t compose the entire portfolio, which should be diversified, with a broad mix of stocks to spread out risk.

Not Guaranteed to Increase in Value

Although blue-chip companies have survived challenges and market cycles, they may not always be a safe investment. The bankruptcies of General Motors and Lehman Brothers during the recession of 2008 prove that even the best companies may struggle.

Fun Facts:

  • The name “blue chip” comes from poker. Blue chips have the highest value.
  • To track blue-chip stocks, keep a close eye on “blue chip” indices, such as the Dow Jones Industrial Average, Standard & Poor’s (S&P) 500, and the NASDAQ-100.
  • Apple was given blue chip status in 2015.
  • After the stock market crash in 1987, it took two years for blue-chip stocks to recover, but many other companies did not recover for several years.

References

  1. http://www.investopedia.com/terms/b/bluechipstock.asp
  2. http://www.investopedia.com/terms/b/bluechip.asp
  3. http:// www.wyattresearch.com/stocks/blue-chip-stocks/
  4. http://www.fool.com/investing/general/2015/09/04/what-is-a-blue-chip-stock.aspx

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