A Better Bet From Investment Standpoint: Blue-Chip Vs Mid-Cap!

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A blue-chip stock is a stock of a large and a well established and financially sound company that is operational for many years. Blue-chip is generally a market leader and has survived several challenges and market cycles to be perceived as a safe investment. Generally, blue-chips have a record of paying stable dividends. Market Capitalization of blue-chip stocks is over $10 billion, but market leaders can be of all sizes.

It is key to note that the younger generation has the appetite to take the risk that is carried while investing in a portfolio consisting of blue-chip stocks or mid-cap stocks. There is a blue-chip index that tracks shares of the company that are top-performing and are giving consistent returns. These factors make blue-chip stocks as desirable investments. But this may not be the case always as Blue-Chip companies are also vulnerable to bankruptcy if not handled well. Few examples of the category include, General Motors and Lehman Brothers that got bankrupt during the global recession period in 2008. These were in the top 100 by capitalization on the index. Few blue-chip companies which are trading well on ASX include BHP Billiton, Telstra, National Australia Bank and many more, wherein investments have been delivering or are expected to give steady returns over the years. Businesses of these companies are well known and widely accepted.

On the other hand, Mid-Cap Companies are the companies that typically have a market capitalization between $2 billion and $10 billion and fall between large cap and small cap. Usually, mid-cap companies are towards their middle or later phase of the growing trajectory and are soon expected to increase the profits and market share. So, being into that growing stage, they are less risky than small-cap but still more than large caps. Hence, mid-cap stocks are a combination of both, growth and stability, so these can be the emerging companies with risk and reward both. These are generally in the next 200 by capitalization. It is seen that risk in mid-cap companies is more than blue-chip and returns are also more volatile.

These classifications can change over the time as it depends upon the market capitalization, which can change over the period of the time as it depends upon the market price movement. The key thing to investment is based on scrutiny given the horizon and risk appetite. With moderate risk profile, investors generally seek for safer options, which belong to the blue-chip sector. Shorter- or longer- term horizons with stable dividends and less volatility are thus generally focussed on large-cap investments. All in all, one can have a diversified portfolio, consisting of small-, mid- and large- cap stocks as market conditions keep on changing.