Penny Stocks Vs. Blue-Chip Stocks – 5 Key Differences
Author: James Clark
Everything You Need to Know About Penny and Blue-chip Stocks
Penny and blue-chip stocks are two ends of a spectrum in the stock market. However, both stocks have unique characteristics that attract different types of investors, especially those looking to diversify their stock portfolios. Like every stock, they have certain pros and cons which is why we will share 5 differences between penny stocks vs blue-chip stocks to help you determine which one to opt for.
Let’s get started!
What Are Penny Stocks?
Penny stocks are essentially stocks that have a maximum price per share of $5. They generally belong to unpopular companies with little or no reputation in the market as most investors consider trading them no different from gambling. However, considering their low prices, new or speculative investors can purchase multiple penny stocks at low prices to spread the risk.
What Are Blue-Chip Stocks?
On the flip side, blue-chip stocks belong to word-renowned companies, such as Amazon, Facebook, Apple, Netflix, and Google, etc. These stocks are generally more expensive than other stock types and not suited for average traders. Not only do they carry less risk, but they also promise much greater returns than most stocks in the market.
Penny Stocks vs. Blue-Chip Stocks – 5 Key Differences
The following are the 5 key differences between penny and blue-chip stocks:
Penny stocks are extremely volatile, making them suitable for day traders who purchase and sell stocks on the same day. In contrast, blue-chip stocks are much more stable and offer steady or rising returns.
2. Starting Capital
By opting for penny stocks, you can purchase hundreds of shares at a time with limited capital, which is suitable for new and inexperienced investors. Blue-chip stocks generally have a market valuation of billions of dollars, meaning shares can easily cost hundreds of dollars, depending on the company and its performance and history.
Blue-chip stocks have much greater competition than penny stocks, especially when you’re dealing with multi-billion dollar funds. The penny stocks market includes a herd of inexperienced traders who don’t spend a lot of money on trades, so their losses are relatively lower in terms of value. Make no mistake: penny stocks can incur huge losses in the long run.
4. Long-Term Returns
Since penny stocks belong to new or unreputable companies, they don’t offer major long-term returns. Blue-chip stocks belong to companies with a history of profits and high performance going back decades. As a result, investors can manage risk better in volatile markets.
5. Types of Companies
Penny stocks generally belong to companies with riskier ventures, such as unproven technologies, marine or space exploration, mining, new software, etc. In contrast, blue-chip stocks belong to established companies with less risky ventures and conventional products or services.
Now that you understand the key differences when it comes to penny stocks vs. blue-chip stocks, you can choose which one to add to your stock portfolio. Both stock options offer unique perks and drawbacks, and you’ll need to consider your budget, trading skills, experience, and personality before investing.
1. Matson, Inc (MATX)
2. Grindrod Shipping Holdings Ltd (GRIN)
3. Louisiana Pacific Corporation (LPX)
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