Investing word of the day: Blue Chip stock

by Louis Delos Angeles, CPA • September 6, 2010 • 0 Comments

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source: http://beginnersinvest.about.com/

You probably heard this already specially if you are playing in casinos but for newbie stock investors I got this definition from Wikipedia:

A blue chip stock is the stock of a well-established company having stable earnings and no extensive liabilities. Blue chip stocks pay regular dividends, even when business is faring worse than usual. The term is derived from casinos, where blue chips represent the greatest value among the many colors of chips.

The phrase was coined by Oliver Gingold of Dow Jones sometime in 1923 or 1924. Company folklore recounts that the term apparently got its start when Gingold was standing by the stock ticker at the brokerage firm that later became Merrill Lynch. Noticing several trades at USD$200 or USD$250 a share or more, he said to Lucien Hooper of W.E. Hutton & Co. that he intended to return to the office to “write about these blue chip stocks.” Thus the phrase was born. It has been in use ever since, originally in reference to high-priced stocks, more commonly used today to refer to high-quality stocks. In contemporary media, Blue Chips and their daily performances are frequently mentioned alongside other economic averages like the Dow Jones Industrial Average.

There is no specific criteria or standard that is generally followed but I got this guidelines from EconomyWatch

1. Revenues: Companies with revenues higher than that generated
by industry peers.

2. Earnings: Companies that have been generating healthy earnings
on a consistent basis.

3. Dividends: Companies that pay regular dividends to common

stockholders, even if their performance has been unsatisfactory in

a particular period. Moreover, the dividend payout is raised at

regular intervals.

4. Balance Sheet: The balance sheets are robust and their debt

liabilities are not extensive.

5. Credit Rating: Their credit ratings in the bond and unsecured

debt markets are high.

6. Size: The market capitalization of these companies is higher than

that of other companies in the same industry.

7. Product Portfolio: They have extensive and diversified product

lines. They also have a wide global presence.

8. Competition: They are cost efficient, with high distribution

control and excellent franchise value, all of which contribute

towards their competitive advantage.

About the blogger

Louis Delos Angeles is a Certified Public Accountant, blogger behind Investing in Philippines, and author of Investing in Stocks: Preparing for the future small amount at a time. Check him out in Google+ Learn more about Louis and his financial freedom advocacy here.

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