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Difference Between Blue Chip and White Chip Stocks

There are various types of investments. While choosing the type of investment, investors analyze the possible rate of growth of income, the cost of the investment as well as the risk profiles. Stocks have become a very popular investment option as a result of its ability to generate over time. However, they also carry some risks such as the decline in the value of the stocks. Stocks are categorized based on the size of the company, industry, location and style. Among common types of stocks include blue-chip and white chip stocks as described in this article. 

What is Blue Chip?

The history of blue chips stocks dates back in 1923 when an employee of DowJones, Oliver Gingold observed the trading of certain stocks equivalent to and more than $200 per share. Poker players then bet in red, blue and white chips whereby the blue had more value as compared to the red and white chips. 

Blue chips stocks refer to stocks of stable, well established, large and nationally recognized companies with a record history of stable earnings. The stocks hence have the potential of high growth and high returns. These socks are also known to operate profitably in adverse economic conditions. 

Examples of blue-chip companies include Disney, Wal-Mart, Coca-Cola, IBM, McDonald’s and General Electric. 

Characteristics of blue-chip stocks

  • Highly liquid stocks as they are frequently traded by institutions and individuals
  • Less volatile 
  • High return on investment
  • High return on assets and equity
  • Stable equity-to-debt ratio
  • Stable and rising dividends

A blue-chip index, which is used as an indicator of economy and industry performance can also be used to track the performance of blue-chip stocks. 

What is White Chip?

This is a stock of low quality, usually of less value as well as fewer yields. These stocks are characterized by less liquidity, low return on investment, low return on assets and equity, unstable debt-to-equity ratio as well as declining or plateaued dividends. 

Often, these are stocks for developing or poorly performing companies and have low growth potential. 

Similarities between Blue chip and White chip stocks

  • Both are investment options with an expected return on investment

Differences between Blue chip and White chip stocks

Definition

Blue-chip stocks refer to stocks of stable, well established, large and nationally recognized companies with a record history of stable earnings. On the other hand, white chip stocks refer to a stock of low quality, usually of less value as well as fewer yields. 

Qualities

Blue-chip stocks are characterized by high return on investment, high return on assets and equity, stable equity-to-debt ratio and stable and rising dividends. On the other hand, white chip stocks are characterized by less liquidity, low return on investment, low return on assets and equity, unstable debt-to-equity ratio as well as declining or plateaued dividends. 

Blue-chip vs. White chip stocks: Comparison Table

Summary of Blue chip and White chip stocks

Blue-chip stocks refer to stocks of stable, well established, large and nationally recognized companies with a record history of stable earnings. Although expensive, they have high returns on investment, stable debt-to-equity ratio and rising dividends. On the other hand, white chip stocks refer to a stock of low quality, usually of less value as well as fewer yields. Although they may be cheaper to purchase, they have low returns, have less liquidity not to mention low returns on assets and equity. 


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References :


[0]Alicia Duchak. An A-Z of Modern America. Routledge Publishers, 2002. https://books.google.co.ke/books?id=M-GFAgAAQBAJ&pg=PA37&dq=Difference+between+blue+chip+and+white+chip+(stock+market)&hl=en&sa=X&ved=2ahUKEwjYgKiU6MDqAhWU3oUKHRjeCHMQ6AEwAnoECAYQAg#v=onepage&q=Difference%20between%20blue%20chip%20and%20white%20chip%20(stock%20market)&f=false

[1]Ray H & Branch B. Bankruptcy Investing - How to Profit from Distressed Companies. Beard Books, 2007. https://books.google.co.ke/books?id=LOYRN3-uIt8C&pg=PA305&dq=white+chip+stocks&hl=en&sa=X&ved=2ahUKEwj88IXp48DqAhVHx4UKHU-nBNAQ6AEwAHoECAUQAg#v=onepage&q=white%20chip%20stocks&f=false

[2]Seth Godin. If You're Clueless about Mutual Funds and Want to Know More. Dearborn Trade Publishing, 1997. https://books.google.co.ke/books?id=h_AZkv6EZ0kC&pg=PP14&lpg=PP14&dq=white+chip+stocks&source=bl&ots=kQ3WdhiXwW&sig=ACfU3U0rcFHQQkcwJA3STiJ3joP35EFmSg&hl=en&sa=X&ved=2ahUKEwjGrLHrtL_qAhVD4eAKHSwiDusQ6AEwD3oECAoQAQ#v=onepage&q=white%20chip%20stocks&f=false

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