What are Blue chip stocks?

The blue-chip stocks to buy are stocks issued by financially sound and fundamentally strong blue-chip companies with humongous market capitalization and enviable market reputation. Blue Chip companies refer to equity shares of companies with larger market capitalization. These companies have entrenched market operations running for many years. The best blue-chip shares to buy now usually are stocks of the bellwethers and trailblazers, currently occupying the highest ranks of any industry.

Given the large size, a Blue Chip company is easily recognizable and financially stable with a large distribution network. These companies typically sell quality products and services that are widely accepted across the country. Because of these qualities, such companies are more resilient to economic downturns. They may continue to grow or operate profitably, even in adverse market conditions. And this is one of the reasons these companies are relatively less sensitive to wide market fluctuations when compared to Mid Cap and Small Cap companies. 

Blue Chip companies are stalwarts in their own industry and belong to the mature lot on exchanges. The term ‘Blue Chip’ originates from the round of poker where the blue-colored chips are relatively more valuable. Similar to the game, these stocks are more valuable in the market and hence are termed Blue Chip stocks.

Characteristics of Blue chip Stocks:

• Consistent Returns

Blue Chip companies are large and pretty well-established, having a history of consistent performance. The best blue-chip stocks to buy have an enticing history of providing consistent returns to the shareholders in the form of considerable dividend payouts at regular intervals of time. Hence the best blue-chip stocks to buy have a glorious history of attractive returns and reasonable growth in the value of the share even in times of economic doom. Hence, we have dissected the history of the blue-chip companies and undertaken extensive analysis of past performance, in conjunction with the economic environment, and duly prepared a list of the best blue-chip shares to buy now.

• Financially Resilient

These companies are financially resilient with negligible to zero debt levels and are capable of surviving turbulent economic situations. Most of the best blue-chip stocks to buy are market leaders in their respective industries. Further, it is often seen that a Blue Chip business is less affected by unfavorable financial conditions during recessionary periods.

• Low Risk

Investing in Blue Chip stocks is recommended for investors with a conservative risk profile to meet their long-term goals of at least 5-7 years. But investing in these companies is ideal for all investors to grow their wealth over a long period without exposing themselves to a lot of risk and volatility. Some portion of an investor’s portfolio can always be exposed to blue-chip stocks for stable less risky returns.

• Portfolio Diversification

The blue-chip stocks to buy are stocks of well-diversified companies having multiple sources of revenue. Hence, the losses suffered by one channel are mitigated by the profits earned in another medium. Therefore, it allows the investors to diversify the associated risks in investing in blue-chip stocks as the companies have spread their tentacles in different sectors and industries. This not only serves as a cushion against losses suffered by one sector but also provides resilience in times of operational setbacks.

Apart from the characteristics discussed above, an investor must keep a few key financial characteristics of blue-chip companies in mind before investing. Most Blue Chip companies in Nepal have a market capitalization greater than Rs. 5000 Crs. These companies have a track record of consistently increasing their topline and operating margins on an upward trajectory. They are generally debt-free companies, however, a low and stable debt to equity ratio may also be considered as a significant characteristic. Blue Chip companies are known for rewarding their loyal shareholders with consistent and increasing dividends. Also, these companies should have a high return ratio (both return on equity and return on capital employed), high-interest coverage ratio, ability to consistently generate cash flows, etc.

In the case of Nepal, there are several blue cheap stocks that have provided generous returns to the investors over a long period of time. The best blue-chip shares in Nepal are listed below based on different sectors of the economy.

Banks/ Development Banks

• Nabil Bank Limited (NABIL)
• Nepal Investment Bank Limited (NIBL)
• Muktinath Bikas Bank (MNBBL)

Life Insurance

• Nepal Life Insurance Company Limited (NLIC)
• Life Insurance Corporation Nepal (LICN)

Non-Life Insurance

• Shikhar Insurance Company Limited (SICL)
• Sagarmatha Insurance Company Limited (SIC)

Microfinance

• Chhimek Laghubitta Bittiya Sanstha Limited (CBBL)
• Nirdhan Utthan Laghubitta Bittiya Sanstha Limited (NUBL)
• Sanakisan Bikas Laghubitta Bittiya Sanstha Limited (SKBBL)

Hydropower

• Chilime Hydropower Company Limited (CHCL)
• Butwal Power Company Limited (BPCL)

Others

• Salt Trading Corporation (STC)
• Citizen Investment Trust (CIT)
• Nepal Telecom (NTC)
• Unilever Nepal Limited (UNL)