Blue Chip Stocks Explained For Beginners (2024)

FAQs

Blue Chip Stocks Explained For Beginners? ›

Key Takeaways. Blue chip companies are stable, profitable companies that are seen as safe investments in their industries. The term "blue chip" comes from the game of poker, where blue chips are the highest-value pieces. A company must be well-known, well-established, and well-capitalized to be a blue chip.

A blue chip stock is a company that typically has a large market cap, a sterling reputation, excellent financials, and many years of success in the business world. A blue-chip index seeks to track the performance of financially stable, well-established companies that provide investors with consistent returns.

Blue chip stocks are smart choices for investors of all kinds. Beginning investors are likely familiar with the products and services of blue chip companies. Familiarity with a company makes buying shares more comfortable, and it's exciting to become a partial owner of a business you know.

Stocks are a type of security that gives stockholders a share of ownership in a company. Companies sell shares typically to gain additional money to grow the company. This is called the initial public offering (IPO). After the IPO, stockholders can resell shares on the stock market.

Limited Growth Potential. While blue-chip stocks offer stability and consistent returns, their growth potential may be more limited compared to smaller, high-growth companies.

Penny stocks are generally riskier than other investments, and early success can (paradoxically) lead to big losses. On the other hand, blue chip investments are well-established companies with attractive business prospects. Penny stocks vs blue chip stocks is an easy comparison.

ROE and ROA

ROE checks a company's profitability as compared to its shareholder equity. ROA checks a company's assets and liabilities – it evaluates whether a company is utilising its assets wisely. Blue chip companies will usually display a higher ROE and ROA.

You can purchase stocks individually through a brokerage firm or buy a basket of stocks by investing in mutual funds or ETFs. If you are buying stocks through a brokerage, you can choose an online broker, a full-service broker, or discount broker depending on the level of personal service you desire.

For example, Coca-Cola is a blue chip company that might not suffer from a recession because many choose to drink its products, regardless of economic conditions. Blue chip companies have generally demonstrated stable growth rates throughout their history.

What is the easiest way to learn the stock market? ›

One of the best ways for beginners to learn how to invest in stocks is to put money in an online investment account and purchase stocks from there. You don't have to have a lot of money to start investing. Many brokerages allow you to open an investing account with $0, and then you just have to purchase stock.

“Ideally, you'll invest somewhere around 15%–25% of your post-tax income,” says Mark Henry, founder and CEO at Alloy Wealth Management. “If you need to start smaller and work your way up to that goal, that's fine. The important part is that you actually start.”

Blue-chip stocks are from companies that are large, well-established, and financially sound. These companies have strong brand names and reputations, and they generate dependable earnings. Blue-chip companies usually boast consistent dividends and are often considered to be less risky, given their financial stability.

Blue-chip stocks have long been a favored investment for conservative equity investors. Many blue-chip companies distribute regular, quarterly dividends to their shareholders. Dividends provide investors with dependable current income.

Three of the best blue chip stocks to buy, whether you're a seasoned investor or new to Wall Street, are Walmart (NYSE: WMT), Apple (NASDAQ: AAPL), and Eli Lilly (NYSE: LLY). Here's a closer look at these stocks to see why they can make for solid investments in the long run.

Income stocks provide regular income by distributing a company's profits, or excess cash, through dividends that are higher than the market average. Blue-chip stocks are shares of well-established companies with a large market capitalization.

Some examples of blue chip stocks are IBM Corp., Coca-Cola Co., Microsoft, American Express, McDonald's, and Boeing Co.

A blue-chip stock is a stock that comes from a well-known, established company. Blue-chip stocks have a strong history of performance and often pay dividends.