Most people, whether they are investors or not, have heard the term “blue chip stocks.” But what are blue chip stocks? How do you know if a stock is blue chip — and what difference does it make?
Here’s what investors need to know about blue chip stocks and whether they’re good investments.
What Is a Blue Chip Stock?
A blue chip stock is the stock of a company that is considered to be a solid performer, with a history of solid growth. This doesn’t mean a blue chip stock will earn money every year, or that it will never decline in value. But blue chip stocks rise in value over time — and often outperform other companies in their industry. Because they perform well, blue chip stocks are usually relatively high in price.
No specific list of blue chip stocks exists. The term simply refers to those companies that have a history of strong performance and have given every indication that their success will continue. These are companies with well-known, world class product offerings and top management teams.
And if you’re wondering where the term “blue chip” came from, it refers to blue poker chips, which are typically high-value chips. Some might say the gambling metaphor is appropriate for stocks.
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Which Stocks Are Blue Chip Stocks?
Because there is no specific criteria to be labeled a blue chip company, there’s no listing of all blue chip stocks. All 30 of the Dow stocks are typically considered to be blue chips, including IBM, Exxon Mobil, Boeing, AT&T and Walt Disney. Apple stock would certainly be considered blue chip. A blue chip stock doesn’t have to be in manufacturing or technology, however. Goldman Sachs stock is considered blue chip, as is Walgreens stock.
How Do You Buy Blue Chip Stocks?
Like any other stock, you can purchase blue chip stocks through a broker. As with any investment, you should understand what you are buying. Because blue chips have products that are so well-known, it’s easy to find a company whose products you recognize. That’s a good place to start.
Because they tend to be large companies, blue chip stocks tend not to be too volatile, so most people purchase them with the intention of holding them for a long period of time. Because they tend to appreciate over time, investors are rarely disappointed with this strategy.
Blue chip stocks are a good place to start if you want to invest in a recognizable company that has a good chance of performing well. As with any other investment, you should understand what you are buying, diversify your holdings and be aware of fees.
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