The Best of Blue Chip Stocks
Investing in blue-chip stocks is like enrolling yourself in a top university. Blue-chip stocks are stocks from huge companies with an excellent reputation, and huge market capitalization- technically a market leader company in its sector. Investors turn to blue-chip stocks because they have dependable financials and often pay dividends.
Blue-chip stocks are popular among conservative investors due to their returns which consist of regular, growing dividend payments with a history of delivering strong returns over the long term. Although blue-chip stocks seldom give significant price shifts in capital gain compared to technological stocks the stability in their business model induces a better portfolio diversification environment and stability during the turbulent stock market. In other words, blue-chip stocks are defined as security.
How to Detect a Blue Chip?
Whether you had invested in the stock market or the blue chips themselves, you’ll recognise the names of the top blue-chip companies. These reputable companies provide products and services that are part of people in the world.
For example, you start your day shaving your stubble with Gillette, brush your teeth using Oral B and wash your hair using Head and Shoulders. These 3 brands are under the umbrella of Protect & Gamble (PG:US), paying your Starbucks (SBUX:US) with your Mastercard (MA:US) at the drive-thru while using driving your Tesla (TSLA:US) and talking on your iPhone (AAPL:US) With a bit more than just 7 in the morning, you had encountered 5 Blue-Chip brands.
What Makes Blue-Chip Stocks So Attractive?
From an investor satisfaction point of view, the thought of investing a piece bite of your favourite brand in your portfolio adds a sense of accomplishment and belonging. The mind game of claiming, I had a portion of every brand of clothing I wear today is what makes Blue Chips Stocks so tempting.
From an investment perspective, blue-chip stocks tend to be less volatile and prompt in their dividend payment and are appealing to mature investors who are soon to retire or retired. It is also seen as a good fit for the youngster who are seeking defensive advantages of diversification or who don’t have the time needed to adequately research individual stocks.
Blue Chips Stocks are not only attractive to retail investors but to institutional as well. Many exchange-traded funds (ETFs), mutual funds and hedge funds portfolios consist of blue-chip funds. These funds bundle blue-chip stocks into a single security, offering a simple way to diversify across many high-quality stocks.
If maximum growth of stock investing is the end goal, an investor should go beyond blue-chip stocks and look at some up-and-coming small-cap stocks of innovative new companies seeking to disrupt the old business mechanism. The idea behind these newflanged high-growth companies aims to be the blue-chip stocks of tomorrow.
The closest scenario can be seen is Zoom (ZM:US). The company had revolutionized the meeting sentiment and made the borderless interaction across the continent easier. The stocks traded at US$62 last 2019 and hit their peak in Oct 2020 at US$559. Even when most companies had demolished WFH and started to head to the office, the company still going strong. Today, at the time of writing, 13 June 2022, Zoom’s stock price is traded at US$ 109.
Is Blue Chip Companies Too Big To Fail?
While a blue-chip company may have survived several challenges and market cycles, leading to it being perceived as a safe investment haven. Sometimes, it might not always be the case. The 2008 Global Recession had led to the bankruptcies of General Motors and Lehman Brothers as well as many other leading European Banks are the proof that even large profitable corporations struggle during periods of extreme stress. With this, it offsets the perception of blue-chip investment can survive throughout all market challenges. It might be predominantly true but not guaranteed at all times. Thus, it is crucial to diversify beyond just blue-chip stocks.
Different investors will have different risk aspects they are willing to undergo. The more you want to preserve and protect your investment, the more attractive blue-chip stocks will be in meeting the objectives of long-term financial goals.
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