Blue chip” is a term referring to the stocks of well-known companies that have

“Blue chip” is a term referring to the stocks of well-known companies that have a reputation for being financially sound. Stocks for companies such as IBM (International Business Machines Corporation), McDonald’s, Microsoft, ExxonMobil, Berkshire Hathaway, and Walmart are considered “blue chips.” The term is derived from poker, in which the most valuable chips were blue.

Blue chip stocks can usually face economic adversities and remain profitable even during economic recessions or downturns. They tend to be more attractive to investors because they have a proven track record of being stable and reliable and they pay dividends regularly. Such companies usually have good bond ratings.

Small cap stocks are stocks from companies that have a smaller business value. The term is short for small market capitalization. Market capitalization is the value of the company and is determined by multiplying the stock price of the company by the number of shares outstanding.

Small cap stocks are more volatile and are, therefore, regarded as a riskier investment than blue chip stocks. These stocks can yield high growth and earnings, but they are more susceptible to changes in the market than blue chip stocks. Any change in the economy can cause small cap stock prices to soar or plummet.

An economic downturn usually has more adverse effects on small cap stocks than blue chip stocks. As a result, small cap stocks tend to be less attractive to investors who are looking for constant revenue. Also, these stocks may not pay dividends as their profits are sometimes reinvested in the company for growth.

The criteria for classifying stocks varies slightly between brokerage firms. However, most brokerages consider small caps as companies with a market capitalization between $300 million to $2 billion. Mid caps range between $2 billion to $10 billion. Blue chip companies, also known as large caps, are worth over $10 billion.

You can get the latest news on small caps and blue chip stocks on www.foxbusiness.com, www.bloomberg.com, and www.intelligentinvestor.com