Hello friends, how are you? In this article, today I am going to write about Blue chip Companies. So without wasting your precious time, let’s go on the topic.
Blue chip companies
A blue chip is a nationally recognized, well established and financially strong company. Blue chips typically sell high quality, widely accepted products and services. Blue chip companies are known for adverse weather conditions and operate profitably in the face of adverse economic conditions, helping to contribute to their long record of steady and reliable growth.
A corporation has the blue chip stock with a national company for ability, reliability, and quality to work profitably in both (good and bad) times. The most popular index that follows blue chips from the United States is the Dow Jones Industrial Average, a price-weighted average of 30 blue-chip stocks that are typically their industry leader. All companies in the Dow Jones Industrial Average are blue-chips, but the Dow Jones Industrial Average is an index that does not include all companies with blue chips. Nevertheless, it is a widely followed indicator of the stock market since October 1, 1928.
What is the meaning of Bluechip?
The term ‘blue chip‘ was first used to describe high-value stocks in 1923; when Oliver Gingold, an employee of the Dow Jones, traded some shares at $ 200 or more per share. Poker players place bets in blue, white and red chips, with blue chips containing both red and white chips, too. Also, Today, blue chip stocks do not necessarily refer to stocks with a higher price tag. But are more accurate for stocks of high-quality companies that have stood the test of time.
Blue-chip stocks are typically a component of the most prestigious market averages or indices, such as the Dow Jones Industrial Average, Standard & Poor’s (S&P) 500 and the Nasdaq-100 in the United States, the TSX-60 in Canada. Or the FTSE Index in the United Kingdom. How big a company must be to qualify for blue-chip status is open to debate. So, A generally accepted benchmark is a market capitalization of $ 5 billion, although market or sector leaders can be companies of all sizes.
Some small notes:
- A blue chip refers to a stable, established and well-recognized corporation.
- Blue chip stocks are seen as relatively safe investments, with a record of success and steady growth.
- Blue chip stocks are still subject to volatility and failure, such as the collapse of Lehman Brothers or the impact of the financial crisis on GM.
A blue chip company is a multinational company which has been in operation for many years. Think of companies like Coca-Cola, Disney, PepsiCo, Wal-Mart, General Electric, IBM and McDonaldtoo that are leaders in their respective industries. Blue chip companies have built a reputable brand over the years. And the fact that they have survived multiple declines in the economy makes them one of the stable companies in the portfolio.
Conservative investors with a low-risk profile or near retirement will usually go for blue chip stocks. Also, These stocks are great for capital protection and their continuous dividend payments not only provide income; but also protect the portfolio against inflation. In his book The Intelligent Investor, Benjamin Graham explains that conservative investors should look for companies that have paid dividends for 20 consecutive years or more. The Dividend Aristocrat list published by Standard & Poor’s includes the large-cap blue chip companies of the S&P 500; which have increased dividends every year for the past 25 years.
Building blocks of a blue chip company:
- Hazardous size: You can use the company’s sales turnover and EBITDA as your yardstick for screen companies. So, Companies with high turnover and high EBITDA should give priority over others.
- Established Company: An established company defined by the point that it is capable of maintaining or developing its EBITDA for a long period of time. This is when they enjoy a competitive advantage, a feature that should be classified as a blue chip company.
- Powerful management: A strong management report card reads a profitable balance sheet. Overall, The profitability of a company can establish by looking at its margins.
- Price Valuation: Shares of large multi-nationals also did not attract investors if the price was not right. Take a look at a company’s PEG ratio before buying its shares. Low PEG (<1) is what investors prefer.
Top blue chip companies in India
A list of blue chip companies is a great start for any investor. The Dow Jones India Index contains the largest and most liquid stocks traded in India. Also, The selection of the index is based on float-adjusted market capitalization and ranking by a 12-month average daily trading volume. Finally, the index created by the financial information company Dow Jones Index, a business unit of Dow Jones & Company, a company of News Corporation.
|Infosys Technologies Ltd.||11,88 %|
|Reliance Industries Ltd.||9,09 %|
|Bharti Airtel Ltd.||8,28 %|
|Housing Development Finance Corp. Ltd.||7,60 %|
|ITC Ltd.||6,80 %|
|Larsen & Toubro Ltd.||5,68 %|
|ICICI Bank Ltd.||5,62 %|
|State Bank of India||5,21 %|
|Oil & Natural Gas Corp. Ltd.||4,68 %|
|Bharat Heavy Electricals Ltd.||3,48 %|
What makes blue-chip stocks a good investment?
There are some parameters that give blue-chip qualification to a company. Blue-chip stocks are stocks of established companies. Most of these stocks generate stable returns for investors. Because of this stability, investors are protected from the market slowdown, inflation, and economic slowdown. These companies record consistent annual returns over an extended period with stable debt-to-equity ratios. Average returns on equity (ROE), the price-to-earnings ratio (PE) and an interest coverage ratio of blue-chip companies record steady performance. As blue-chip companies provide regular dividends to shareholders, it helps them earn a regular income. Also a strong financial position, an excellent balance sheet, a steady growth rate, and the best managerial team are some of the characteristics of a blue-chip company that makes it’s stock a worthy investment.
Thus, Now You all know that What is Blue chip companies and top blue chip stocks. Read this article also – Economic growth | Top 10 factors of economic growth.