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Difference between Blue Chip and White Chip Stocks
There is a wide variety of each kind of investment. When deciding what kind of investment to make, investors consider factors such as the potential rate of income growth, the cost of the investment, and the risk profiles of the various investment options. Because of their potential to produce profits over a period of time, stocks have emerged as a prominent choice among investors. However, they are not without dangers, such as the possibility of a fall in the value of the stocks. The size of the firm, its industry, location, and style all play a role in categorizing stocks. According to the information presented in this article, two of the most popular categories of stocks are blue-chip and white-chip stocks.
What are Blue Chip Stocks?
The first mention of blue chip stocks was made in 1923 by Oliver Gingold, an employee of DowJones. Gingold observed the trading of certain stocks with a price per share of $200 or more. This was the beginning of blue chip stocks. Poker players would then place their bets using red, blue, and white chips, with the blue chip having a higher value than the red and white chips combined.
Blue chip stocks are large, well-established, nationally known corporations with a historical history of consistent profitability. These companies are considered to be very stable. As a result, the stocks have the potential to see rapid growth as well as large returns. It is also well known that a profitable business can sell these socks even in poor economic situations. Disney, Wal-Mart, Coca-Cola, IBM, McDonald's, and General Electric are all examples of blue-chip firms. Other examples are McDonald's and IBM.
Blue-chip stocks are distinguished by certain characteristics −
Highly liquid equities due to the high volume of transactions that take place between people and institutions.
Less volatile
Excellent return on the capital expended.
A high rate of return on both the assets and the equity
Maintaining a stable ratio of equity to debt.
Stable and growing dividends
In addition to its function as an indication of the state of the economy and the industry as a whole, a blue-chip index may be put to use to monitor the performance of blue-chip companies.
What are White Chip Stocks?
This is a stock of poor quality, and as a result, it often has less value and produces fewer yields. A reduced level of liquidity distinguishes these companies, a low return on investment, a low return on assets and equity, an unstable debt-to-equity ratio, and dividends that are either decreasing or have plateaued.
Most of the time, these stocks belong to firms that are still in the process of growing or are performing poorly and therefore have a limited possibility for development.
Differences between Blue Chip and White Chip Stocks
The following table highlights how Blue Chip stocks are different from White Chip stocks −
| Characteristics | Blue Chip Stocks | White Chip Stocks |
|---|---|---|
| Definition | The term "blue-chip stocks" refers to shares issued by big, reputable, well-established, and nationally known corporations that have a track record of consistently high profitability. | White chip stocks are companies that are considered to be of poor quality. These stocks often have less value and produce lower yields. |
| Importance | A high return on investment, a high return on assets and equity, a steady equity-to-debt ratio, and stable and growing dividends are the hallmarks of blue-chip companies. | White chip companies are distinguished by a lower level of liquidity, a low return on investment, a low return on both assets and equity, an unstable debt-to-equity ratio, and dividends that are either decreasing or have plateaued. |
Conclusion
The term "blue-chip stocks" refers to shares issued by big, reputable, well-established, and nationally known corporations that have a track record of consistently high profitability. They have a steady debt-to-equity ratio, growing dividends, and strong returns on investment, despite the fact that they are pricey.
In contrast, "white chip stocks" are equities that are of poor quality, and they often have less value and fewer yields than blue chip stocks. They may be more affordable to acquire, but they have low returns, less liquidity, and low returns on assets and equity. Despite this, their cost to purchase may be lower.
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