Investing word of the day: Blue Chip stock

Tweet

 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.

PSE website: Company Stock Information part 2

Tweet

Lets check again the Philippine Stock Exchange's website this time at the Stock information. Will use Jollibee Food Corp(JFC) as an example(again I am not endorsing Jollibee)

See those arrows? Remember my post regarding PAR VALUE, BOOK VALUE, and MARKET VALUE if not click here to read my post. In addition to that are other values per share that an investor would like to know. We call these two 52 week High and 52 week low.

These two values represent the market price range of a certain stock for a given period which is a one year. If you look at it they are far apart that is the highest is Php 63.00 and Php 45.50. From this you have an idea regarding this particular stock's trending pattern. 

It means when the market is high and the stock is active the highest or the ceiling price that one can expect is at Php 63.00. On the other hand the lowest point is at Php 45.50 when the market is down.

Now again you might ask me, "Louis why is this important?" Say example you just joined the investing bandwagon and you wanted to check out stocks; of course you wanna buy stocks at a lower price right? So check out the best companies around that is companies in good financial standing and good performance which could be done by looking at the companies Balance Sheet and Profit and Loss reports. From the list you made you will now check their current prices and match it with the two figures. You buy a stock when it is near its 52 week low. This stocks are undervalued because as you have reviewed their financial statement you will know that these are performing well but the market has valued it lower thus the term undervalued.

The 52 week high gives you an idea until were this stock can go. Always remember the principle "buy low sell high." You are not in your right mind if you buy a stock at its highest price then sell it at its lowest price, that is insane. Remember this figures and add it to your guides in choosing the stock to invest into. 

And always remember, don't be ashamed to ask. You are the investor thus the brokers should pay well attention to you. And remember that information gives you an edge in investing.