Penny Stocks vs Blue Chip: Mini Guide for 2022
You might have heard about Bluechip stocks and Penny Stocks if you are a stock market trader or investor. Well, both have their own advantages and disadvantages. But what are penny stocks and bluechip stocks? And how do they differ from each other? Let’s find out!
What are Blue Chip Stocks?
Blue chip stocks are the stocks of big and well-established companies and that have been carrying on their operations for years and feature a large marked capitalisation. Trading shares of these companies is relatively safe as they are not very sensitive to market fluctuations due to their large market cap.
For example, the share of Tata Consultancy Service (TCS) is a blue chip and despite the COVID-19 pandemic, which affected all stock markets badly all over the globe, managed to give a 3-year return of 16.98% to its investors. The current TCS share price is INR 3,288 (as of May 24, 2022).
Similarly, if you had invested in Vodafone Idea Ltd last year, you would have earned a 1-year return of 5.26%. The current Vodafone idea share price is INR 9 (as of May 24, 2022).
Characteristics of Blue Chip Companies
Blue Chip Companies have some different characteristics, to choose the right stock you ned to check the further requirements for them. Blue Chip Companies are considered as risk feww investment companies.
These companies are large scale companies, there growth is steady but not fast.
- Large Market Capitalization
- Brand Name in the Market
- Good Financial Health
- Record of long term and stable growth
- Highly valued by the market
- Indices rate is good
- Good Investment rate
- Good Credit Worthiness
- Old and Well-Reputed Companies
- Consistent Dividends
When you are buying any blue chip stocks, you need to consider High Profitability, High Dividend Payout and Good Investment Credit Rating. Considering these factors will have a safer side for any investor. Blue Chips are highly recommended to newbies who are not ready to take a risk.
See : Top 10 Most Expensive Stocks in the World
What are Penny Stocks?
Penny Stocks are much hyped in the Indian stock market for retail investors. However, the share prices of the companies are low. Public companies with a lower price of shares are generally called penny stocks. In India, penny stocks are small company stocks traded at a lower rate of price, generally for lower than INR 10.
These companies might be a new enterant into the market or feature a very low market capitalisation. Investing in Penny stock is a quite risker as compared to the blue chip stocks as they are highly sensitive to market volatilities.
Do Penny Stock Ever Becomes Big?
Haven’t you heard about Eiche Motors, Kotak Mahindra Bank, UPL, Titan Company. These companies are a part of elite Nifty 50 today. Others which made their investors millionaires are Shree Cement, Bajaj Finance, Gruh Finance, etc. But not every time, if you are considering any penny stock you have to research a lot.
Blue Chip Stocks Vs Penny Stock
| Basis | Blue-Chips Stocks | Penny Stocks |
| Investment | Ideal for long-term investments. | Ideal for short-term trades. |
| Risk | The risk Involved in blue chips stock is lower than penny stocks. | Penny Stocks feature a high level of risk. |
| Dividend | Many blue chip stocks also provide dividend payouts. | Penny stocks generally do not provide any dividend payout. |
| Liquidity | They are highly liquid owing to large trading volumes. | Penny stocks are highly illiquid due to low trading volumes. |
| Market Capitalisation | Market Capitalization is quite high for these stocks. | Market Capitalisation is very low for these stocks. |
| Sensitivity to Volatility | Low | High |
Investing in blue chip or Penny Stocks totally depends on your investment style and risk appetite.If you are a trader who is comfortable taking huge risks for huge rewards, you can go for the penny stock, whereas if you don’t want to take much risk, then bluechip stocks are more suitable for you. Or, if you are just beginning with the stock market, go with the bluechips those who are beginning with this stock market, and try your hand with penny stocks once you have gained some exposure.
If you wish to trade in both, it is advised that you should ensure an optimal proportion basis your risk profile.
See also: Investor are more focused towards Dividend rather than Growth
Which one to consider Blue Chip Stock or Penny Stock?
Investing in a particular stock depends on the type of investor you are. If the investor is comfortable for taking a risk, he can definitley on for the penny stock.
However if the investor is not ready to take the risk at all, then considering blue chip stocks is the best option for him. Therefore for the fund managers dealing with both stocks, they should be ensure about the adequate proportion while considering two. For the beginner who are ready to invest, in my recommendation, they should go with blue chip stocks to avoid the risk associated with penny stocks.
Best Penny Stocks in 2022
In my opinion, the best penny stocks in 2022 are:
- Manali PetroChemical
- NHPC
- Morepan
- HBL
- Vi
NOTE : These all suggestions are for study purpose no business or paid suggestion.
If you would like to know more about the multibaggers list, stay connected with us! We will soon be revealing some of our favorite stocks on the basis of research and expertise.
Happy Investing!
