Blue-Chip Stocks Versus Penny Stocks

  • Feb 03, 2019 AEDT
  • Team Kalkine
Blue-Chip Stocks Versus Penny Stocks

The stocks of large and big enterprises are usually considered as Blue-chip stocks. In Poker, Blue chips are the most expensive chips; likewise, in a stock market, blue-chip stocks are the most valuable stocks in the market with the attitude of ‘buy it and forget it’ for at least five years to ten years. Blue chips stocks are the ones that generally have a market capitalization of over $10 billion on the stock exchanges. On the other hand, Penny stocks are the ones that are typically priced less than $1 with a low market capitalization varying between $50 million and $300 million.

Penny stocks are more volatile than Blue-chip stocks. It means that a Penny stock can witness a lot of variation in its price in a day’s trade. As there is a lot of sudden movement in the Penny stocks prices, many investors try to take advantage of this opportunity to make quick money. However, there is an equal chance of losing money while trading in Penny Stocks. Penny stock’ investors don’t hold these stocks for a longer duration.

In the case of the Blue-chip Stocks, the prices are more stable than Penny stocks, and there are hardly any sudden changes in the prices.  To earn a significant amount of return from these stocks, investors need to hold these stocks for a longer duration.

As penny stocks are very volatile stocks and they witness a lot of sudden movement in their prices, Penny stocks are considered riskier than Blue chip stocks. Further, Penny stocks have some exceptionally basic qualities, for example, low delivery in %, low liquidity, driven by manipulators and speculators and most suitable for days’ trading. Although these stocks are very risky, these can help investors in making quick cash. Some notable Penny stocks which are currently trading on ASX are –

  • BrainChip Holding Ltd (ASX: BRN)- it is traded at $0.088 with the market capitalization of around $98.69 million (as of February 01, 2019);
  • Fluence Corporation Ltd (ASX: FLC)- it is traded at $0.360 with the market capitalization of around $194.53 million (as of February 01, 2019);
  • LiveTiles Limited (ASX: LVT) it is traded at $0.390 with the market capitalization of around $212.17 million (as of February 01, 2019).

On the other hand, Blue chip companies are generally large multinational firms. Investors considered these stocks as more trustworthy and less risky. Blue-chip stocks are generally backed by large capital which helps the company to sustain even if they are incurring losses. Some examples of blue-chip stocks are RIO Tinto Limited (ASX: RIO), Woodside Petroleum Limited (ASX: WPL), BHP Group Limited (ASX: BHP), etc.

Although there are differences in the Blue-chip and Penny Stocks and they attract a different type of investors, but there is no guarantee that either of these stocks will provide a positive return to an investor. An investor should understand the differences between these types of stocks and should learn about the opportunities that these stocks can provide, in order to make a better return.


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