Which Companies Qualify As Blue-Chip?
Author: James Clark
Amazon, Netflix, Facebook, and Apple. These are just a few examples of blue-chip companies that share common characteristics from a stock investor’s perspective.
What do Facebook, American Express, Coca-Cola, Shell, and Walmart have in common in the stock market? Even though they’re in different GICS sectors, they’re categorized as blue-chip stocks on the NYSE or Nasdaq syndicate. Blue-chip companies are among the leaders in their respective industries, and their stocks generally pay high and stable dividends, making them the most secure stock investments for stock traders.
In this post, we’ll share the characteristics of companies that qualify as blue-chip to help new or inexperienced investors understand what it takes to rank in this elite stock category.
What are Blue-Chip Companies and their Characteristics?
The term blue-chip relates to blue poker chips, ranked the highest in terms of value in the game. Similar, blue-chip stocks belong to companies with a stellar reputation, global reach, and massive market capitalization. Here are the main characteristics of blue-chip stocks:
They are generally large, well-established, and financially stable enterprises.
Blue-chip companies sell some of the most popular and widely used products and services in the world.
These companies fare much better than others during economic downturns in terms of losses and performance.
Blue-chip stocks are usually less volatile than other stocks, meaning they offer stable growth for long-term investors.
The market capitalization of blue-chip companies is generally in the billions of dollars.
All stocks that qualify as blue-chip are members of the S&P 500 index and the Dow Jones Industrial Average.
Blue-chip companies usually don’t have any debt, and even if they do, they have a stable debt-to-equity ratio. A solid balance sheet means that most of their assets can be liquidated.
The Importance of Blue-Chip Stocks
Stock investors looking for long-term, stable dividends consider blue-chip stocks their go-to choice when expanding their stock portfolios. Due to this reason, these stocks are often more expensive to purchase than cyclical, tech, income, speculative, and Penny stocks, etc. Conservative investors with low-risk tolerance and traders close to retirement often seek blue-chip stocks due to their high capital preservation rates, even during inflation. However, considering their low-risk nature, these stocks don’t produce massive yields. If you’re planning to invest in them, we recommend investing in other stock types for diversification.
To track the performance of these stocks, you can check the blue-chip index on NYSE and Nasdaq or any other major exchanges in the world.
Today, hundreds of blue-chip stocks are available to purchase in global stock exchanges, with more players coming in now and then. Even if you don’t invest in shares of these companies or their derivatives, you can anticipate the performance of other stocks that can potentially enter the S&P index. For example, Apple did it in 2015 after decades since its inception, and Tesla almost made it into the mix in 2020. So, the possibilities are endless.
1. Petróleo Brasileiro S.A. Petrobras (PBR)
2. Danaos Corporation (DAC)
3. Ally Financial Inc. (ALLY)
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