In this article, we discuss the differences between Blue Chip and White Chip stocks. There are various types of investments. When choosing the type of investment, the investor analyzes the possible income growth rate, investment costs and risk profile. Stocks have become a very popular investment choice as a result of their ability to earn over time. However, they also carry a number of risks such as a decline in the value of the stock.
Stocks are categorized by company size, industry, location and style. Among the common types of stocks include blue-chip and white-chip stocks as described in this article.
Definition of Blue Chip Stock
Blue chip stocks are stocks of very large and well-known companies with a long history of good financial performance. These stocks are known to have the ability to withstand difficult market conditions and provide high returns in good market conditions. Blue chip stocks are generally expensive, because they have a good reputation and are often market leaders in their respective industries.
The history of blue chip stocks dates back to 1923 when a DowJones employee, Oliver Gingold, observed trades in certain stocks that were equal to and over $200 per share. Poker players then bet on red, blue and white chips where blue has more value than red and white chips.
Blue chip stocks refer to stocks of stable, well-established, large, and nationally recognized companies with historical records of stable earnings. Stocks therefore have high growth potential and high returns. This Blue Chip stock is also known to operate profitably in poor economic conditions.
Examples of blue-chip companies include
Disney, Wal-Mart, Coca-Cola, IBM, McDonald’s and General Electric.
Characteristics of blue-chip stocks:
Highly liquid stocks because they are often traded by institutions and individuals
- Not easy to evaporate
- High return on investment
- High return on assets and equity
- Stable equity to debt ratio
- Stable and increasing dividend
The blue-chip index, which is used as an indicator of economic and industrial performance, can also be used to track the performance of blue-chip stocks.
Also read: Differences in Equity and Preference Stocks
Definition of White Chip Stock
These are low-quality stocks, usually of lower value and less yield. These stocks are characterized by poor liquidity, low return on investment, low returns on assets and equity, unstable debt to equity ratio and declining or unchanged dividends.
Often, these are stocks for companies that are developing or underperforming and have low growth potential.
Red thread | Blue chip stocks are considered a safe haven for investing. This stock is ideal for investors who have a long-term investment strategy.