In the esoteric parlance of the stock trading world, the color blue, as in blue market, is most often associated with what are called blue-chip stocks.
The phrase "blue chip" itself is an allusion to gambling, and is similar to placing a bet or wager on the performance of a particular a stock.
The realm of stock trading, bonds and mutual funds most likely co-opted the color blue because it has traditionally been used to denote the wagering chip that holds the highest intrinsic value, whereas other colored wagering chips, such as white and red, are obviously ascribed a lesser value. It stands to reason, then, that a blue market is one that's heavily influenced by blue-chip companies.
In a blue market, it is most likely that you will find that stocks rated as blue chippers will be not only your safest bets, but also some of the investments that have the best potential to provide you with solid returns.
In order to be ranked among the blue-chip stocks, regardless of whether the market as a whole is considered a blue market, a particular stock must have a well-established, stable and proven track record over a relatively long period. This shows that the company is fiscally and financially sound, as well as insulated to a certain extent from the fickle roller-coaster cycles inherent to the economy.
Planning for a Blue Market and Blue-Chip Stocks
Using our definition of a blue-chip stock as our foundation, it is time to figure out how the heck we're going to filter through all of the thousands of different stocks and separate the blue-chip stocks from the red and the white chips.
To accomplish this with any level of accuracy and expediency, we will enlist the services of a stock screener to help guide us down our soon-to-be primrose path into our blue market overflowing with blue-chip stocks. Here are some simple screens, if you will, to get you started.
Refine your definition of a blue market or blue-chip stock by identifying the main characteristics you want your blue-chip stocks to have. These generally include:
- A proven track record, often indicated by membership in the Standard & Poor's 500 index.
- Large companies with market capitalization in excess of $5 billion.
- Financially sound companies that consistently produce a profit, along with high dividend yields and earnings growth.
- Interest coverage that is greater than or equal to 4 percent.
- Companies with market specialization, leadership and a stellar reputation.
In general, bellwether is used to describe a leading company in its field; market capitalization refers to the number of outstanding shares of a company's stock multiplied by its most up-to-date or current price per share; and large cap usually means a company's overall market capitalization is quite high.
