Blue Chip Companies
A blue-chip is usually a countrywide well-established, recognised and financially sound company. These types of companies generally sell high-quality products and services. Blue Chip stocks do not get affected by adverse economic conditions. The term âBlue Chipâ was derived from the Poker Game wherein, they have the highest value. The companies categorised under Blue Chip are generally a component of most reputable market indices. These types of companies have their market capitalisation in billions and have a long history of sound financial performance.
The reason why Blue-Chip companies are given a high status is because of their nature of the business, which includes the sale of widely acceptable goods and services and their sound management.
How to select Blue-Chip stocks?
- Research and determine goal â The first step, here would be to determine why one needs Blue Chip stocks. The investment criteria would differ from an investor to investor. The investors whose focus is on the capital appreciation or preservation, their investment criteria would be different. Also, heavy returns come with a heavy cost. Blue Chip stocks are costlier in comparison to mid-cap stocks.
- Investment Strategy - There should be a clear picture in an investorâs mind with regards to the approach they would follow while investing, whether to employ an aggressive approach or conservative approach. An aggressive approach would probably give more return to the investors compared to a conservative approach.
- Sector - The investor is advised to do a deep study on various sectors and select the most appropriate sector they want to invest in and look out for Blue Chip companies. Investment in different sectors is always considered a viable option by the investors. The investor can also select various companies based on the dividend declared by them over a period of time.
- Amount - The third most important element is to determine the amount one wants to invest in the stocks. Blue Chip companiesâ stocks are generally costlier. The profit percentage derived from these companies is directly proportional to the amount invested in the company.
- Investment Advisor - Investment advisor is a professional who is specialised in making investment decisions based on his past experiences. It is always beneficial for an investor to consult or hire an investment advisor, so that they would be able to select the best stocks.
Blue Chip Stocks â A Good Decision?
Blue Chip stocks are the stable stocks that declare dividend to the investors on a regular basis. In case of economic slowdown, these stocks are less impacted and are considered to be the best investment option. These types of companies have a strong management team and can easily recover in case of any adverse situation.
When the Blue-Chip companies generated a sufficient amount of profit, they have an option to share that profit with their stockholders or to keep that money as earnings, to be used by the company for reinvestment. These companies, pay a portion of its profit to the shareholders, allowing them to maintain a steady stream of income. These companies pay a dividend to their shareholders on a regular basis and have a good track of distributing dividends.
Return on Investment
- The performance of these Blue Chip companies, is the main motive of every investor for earning maximum return on their investment. Therefore, the investors enjoy high return on capital particularly measured by return on equity.
- Regular Re-purchasing of the stocks
Blue Chip companies regularly buy back their own shares from the marketplace. The buyback of shares is done either because of the managementâs decision or to increase the demand of the shares. These programs help an investor to earn more, as the company buys the shares at a premium price.
- Investment grade bond ratings
The strong balance sheet essentials combined with elevated liquidity have earned all Blue-Chip companies, the investment grade bond ratings.
Let us discuss the stock performance for 4 Blue Chip companies:
Rio Tinto Limited
Rio Tinto Limited (ASX: RIO) is an Australian based, metals and mining company, formed in 1873.
The stock of RIO last traded at $91.09 on 02 October 2019, dipping by 1.631 percent compared to the last close. The company has approx. 371.22 million outstanding shares and a market cap of $34.37 billion. The 52-week low and high value of the stock is at $68.169 and $106.922, respectively. The stock has generated a negative return of 6.03 per cent in the last six months and a positive return of 26.45 per cent on a year-to-date basis.
BHP Group Limited
BHP Group Limited (ASX: BHP) is an Australian based, international leader in resources space. BHPâs global headquarter is in Melbourne.
The stock of BHP last traded lower at $36.30 on 02 October 2019, slipping down by 1.892 per cent from its previous closing price. The company has approx. $2.95 billion outstanding shares and a market cap of $109 billion. The 52-week low and high value of the stock is at $29.062 and $42.330, respectively. The stock has generated a negative return of 5.25 per cent in the last six months and a positive return of 14.58 per cent on a year-to-date basis.
Afterpay Touch Group Limited
Australia based, Afterpay Touch Group (ASX: APT) is a financial technology entity, which provides payment services globally. The company has more than 30,600 merchants.
The stock of APT last traded at $35.360 on ASX on 2 October 2019, moving up by 0.198 per cent from its previous closing price. The company has approx. $252.68 million outstanding shares and a market cap of $8.92 billion. The 52-week low and high value of the stock is at $10.360 and $37.120, respectively. The stock has generated a positive return of 57.62 per cent in the last six months and a positive return of 194.08 per cent on a year-to-date basis.
Woodside Petroleum Limited
Australia based, Woodside Petroleum Limited (ASX: WPL) is oil and gas entity with an international presence, with world-class expertise.
The stock of WPL last traded at $31.740 on ASX on 2 October 2019, declining by 1.429 per cent from its previous closing price. The company has approx. $942.29 million outstanding shares and a market cap of 30.34 billion. The 52-week low and high value of the stock is at $29.330 and $39.380, respectively. The stock has generated a negative return of 6.90 per cent in the last six months and a positive return of 6.20 per cent on a year-to-date basis.
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