Blue Chip Stocks Investment Strategy

Blue Chip Stocks Investment Strategy

Blue chip 

“The risk of paying too high a price for good-quality stocks while a real one —is not the chief hazard confronting the average buyer of securities. Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favorable business conditions.” Benjamin Graham, The Intelligent Investor

Blue Chip Company have very strong financial, solid track record and able to give good earning over a period of time. As per New York Stock exchange – “blue chip” companies are the stock of a corporation with a national reputation for quality, reliability, and the ability to operate profitably in good times and bad. These company has long long standing history of growth and stability. These company usually pay regular dividends & also usually maintain a fairly steady price trend. Blue Chip Company has 1) long history of earning 2) Stability of earning 3) higher dividend payout and 4) stability in profitability.

With this, let’s look at advantage of Blue chip company investing –

  • Blue chip company have good long term track record of doing business and producing a scalable and reliable earning over a period of time
  • Blue-chip companies are large corporations with stable business model and in business for many years.
  • Blue Chip Company enjoy higher branding and market share in their respective product area. Sometimes, we have observed that they command virtual monopoly in the business.
  • Blue chip pays good dividend paying company. Apart from the dividend payout, the blue chip company enjoys higher / premium valuation in the market.
  • This company is usually doing have high Price to earnings ratio (P/E) ratio.
  • This company is operating profitably even in the face of adverse economic conditions.
  • In price performance, blue chip stocks are less volatile in nature compared to other stocks.

However, there are few argument goes against blue chip company investment strategy.

  • Slow Growth – There is common believe that once blue chips grow so big, they cannot give higher growth, innovate more and gain more market share. Due to this stock underperform its peer.
  • High valuation Second disadvantage is expensive pricing of the blue chip stock. , which can also become a hurdle / disincentives to some investors when considering blue chip shares.

Conclusion

Blue Chip Companies are considered for safe investment and advisable for conservative class of investor. This companies are more stable in earnings and price. The decision to invest in blue chip stocks is entirely depending on the “risk profile” of the investor.

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