“Blue-chips” are the shares of the largest liquid companies with stable returns. The term "blue chips" came to the stock market from casinos, where they have the most value.
Distinctive features of blue chips
Investors' special attention to “blue chips” is due to the fact that they usually act as a market indicator. It is believed that with an increase in the value of blue-chip stocks, the prices for shares of second-tier companies (with less liquidity) should also demonstrate positive dynamics; if they fall, the price of shares of smaller companies will decrease proportionally.
Blue chip stocks are considered more reliable due to the special key status of these companies in the country's economy. At the same time, the yield on such shares, although stable and has a general upward trend, is on average lower according to statistics than on shares of second-tier companies.
There are no generally accepted criteria by which stocks of companies are classified as blue chips. As a rule, these include the shares of the largest companies with positive development dynamics. The advantage of blue chips is their high liquidity. This means that an investor can buy or sell them on the stock exchange at any time without losing their price. A large number of transactions are made with these securities every day and there are always buyers for them.
The number of blue chips in each country is small because these include only the most famous, highly profitable and stable companies. But the share of their shares on the stock markets is higher, which is due to the fact that among the second-tier companies, shares are rarely traded on the free market.
There are other distinctive features of blue chips:
- these are large capitalization companies (an indicator that reflects the value of all shares on the market), often monopolists in their field;
- such companies are transparent, safe and understandable for investors, because provide all financial statements in the public domain;
- they are characterized by stable growth in the last period, their shares are correctly valued by the market without overstating or understating the value; thus, the determining factor in the growth of shares is not speculation, but the real dynamics of the company's financial results;
- they regularly and consistently pay dividends, value their reputation and do not violate the rights of minority shareholders.
Examples of blue chips
In Russia, blue-chip companies include the largest companies from various sectors of the economy. Among them are the oil and gas industry (Gazprom, Tatneft, Transneft, Rosneft, Lukoil, Surgutneftegaz, NOVATEK); banking (Sberbank, VTB); telecommunications industry (Rostelecom, MTS); retail (Magnet); metallurgy (Norilsk Nickel). Also among the Russian blue chips are Uralkali and AFK Sistema.
The MICEX calculates the Blue Chip Index based on the value of transactions with shares of the most liquid issuers of the stock market.
The composition of the index basket is quarterly revised based on 4 liquidity indicators.
In the US, blue chips form the Dow Jones. This includes Bank of America, Boeing, Coca-cola, Exxon Mobil, HP, Intel, Microsoft, Pfizer, Kraft Foods, McDonalds.
