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Monday, August 2, 2010

What are Blue Chips?

Blue Chip is a term, which is widely used and perhaps the least understood by novices.

It basically refers to large, stable stocks that are well known, have had great earnings in the past, and will continue to do so in the future.

The term "Blue Chip" is derived from casino gambling, in which the blue chips are typically the ones with the highest value.



The following are two more terms with the somewhat similar meaning:

Bellwether:

Is the stock of a company, which is recognized as a leader in its industry. For example, Infosys is considered a bellwether stock in the computer industry.

Often times, the performance of a bellwether is an indication of how that industry is doing as a whole.

Large Cap:

These are companies who have extremely large market capitalizations. Market cap is simply the number of shares outstanding x the price of the stock.

For example, if a stock is selling for 1, and it has 10 million shares outstanding, then its market cap is 10 million.