A blue chip stock is commonly a familiar, household name. It is one of the top two or three in its sector, has been paying dividends for years if not decades, and has a market cap in the tens of hundreds of billions. Blue chips have generally passed through a phase of impressive growth years ago and now are the “value” stocks that older investors prefer for security in their portfolios. Although these stocks are generally not very volatile for the day trader, they trade in very high liquidity and huge volume. Both of these qualities make technical analysis when day trading blue chip stocks more accurate and more reliable.
Benefits of Blue Chip Stocks
The benefits of blue chip stocks depend on whether you are investing for the long term or day trading them. A blue chip company like Coca Cola, Microsoft, or Apple is a dominant company in its market niche. It reliably generates cash flow year in and year out and in down markets and is a stock that you want in your portfolio forever. The benefits of day trading blue chip stocks lie in their high trading volume and the ability to enter and exit positions without fail even in panicked markets.
Blue Chip Dividend Stocks
A substantial and reliable dividend from a blue chip stock is preferable in retirement. However, blue chip dividend stocks are usually not sufficiently volatile for gaining impressive day trading profits. Because these companies are so large and often so diversified, they tend to track with the US economy as much as with their sectors. Thus, when you are trading Microsoft, Apple, or Coca Cola you are also trading the US economy like when trading the S&P 500.
Blue Chip High Dividend Stocks
When a blue chip stock enters into hard times its stock price falls. However, the company may choose to keep its dividend at the same level. This results in a higher-than-normal dividend yield. Many investors will keep the stock simply based on the impressive dividend. The problem in this case is that the company is like to continue to have problems and continue to lose value. This situation provides the day trader with an opportunity as he or she can expect and successfully trade as recurring downward trend in the stock price.
Beaten Down Blue Chip Stocks
Some beaten down blue chip stocks have been unfairly judged as the market has fallen and the “falling tide” has taken down all ships. Others are beaten down by the market because they no longer have a viable business plan for making money and growing their business. It is useful when trading such stocks to understand which interpretation to apply to the stock. The sound stocks will rebound at some point and provide the day trader with profit potential. The justly beaten down stocks can provide profits as well provided that the day trader realizes that their stock price is only heading down over the longer term. The one exception is when the beaten down blue chip stock is subject to a buyout which will commonly result in a one time increase in the price.
Blue Chip Stocks Undervalued
Half-way through 2022 there are many undervalued blue chip stocks. The combination of inflation, fear of a recession, war in Ukraine, and interminable lockdowns in China have taken their toll on Microsoft and Apple but not Coca Cola. Over the long term companies like Apple and Microsoft are undervalued because they are simply enduring a market downturn and are not having any intrinsic problems with their businesses. Day traders can look to make profits both on the way down and on the way back up as the market and these stocks recover.
Worst Performing Blue Chip Stocks
The worst performing blue chip stocks fall into two categories. There are stocks that have been taken down by normal market cycles and those that are heading down because their businesses are failing. A classic example of the latter case is Eastman Kodak. The rise of digital photography took the heart out of Kodak’s business model and they never recovered. This is not the same situation as companies like airlines that suffered during the pandemic and now have the potential for recovery.
Blue Chip Stocks at All Time Low
Blue chip stocks tend to suffer less in tough economic times than other companies. And when they recover, they tend to go higher than before. Apple fell 27% from the first of the year to mid-June 2022 before starting its recovery. Buying blue chips at their all time lows is how successful long term investors make their money. However, a day trader who has learned the discipline to enter, manage, and exit trades most efficiently can make almost as much money as a long term investor and not have to wait years for the payoff!