Blue-chip stocks are stocks of well-established and financially strong companies, which are usually leaders in their respective sectors. These companies typically perform exceptionally for many years and are able to endure periods of turmoil significantly better than other, smaller companies.
Blue-chip companies also have significant market valuations, high share prices, pay dividends regularly and are among the most popular investment choices. Most of these companies are tracked by benchmark market indexes like the S&P 500, Dow Jones Industrial Average (DJIA), and FTSE, among others. A few examples of such companies are Apple, Microsoft, IBM Corp., The Coca Cola Company, and more.
Even though there are no clear requirements a company must fulfill to become a blue-chip stock, the majority of these companies have a market valuation of at least £5 billion. However, it is safe to say that all blue-chip companies have resilient, financially-sound businesses, and are leaders in their respective industries.
Blue chip stocks are commonly highly liquid because there is a constant supply and demand for these stocks on the market. Because of their stability and performance, blue-chip stocks are significantly less volatile than growth stocks and are a preferred investment choice for those that like low-risk assets. Due to their high liquidity, investors who urgently need cash can usually sell their blue-chip shares very fast because there are always buyers interested in acquiring these stocks.
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