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Question:
Am
I mistaken? Or is there a group of stocks called light
blue chips? Are they a good investment?
Lauren
Philips
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Answer:
Dear Ms. Philips,
Yes,
you are right. There is a group called Light Blue
Chips, but it's not a phrase you hear very often.
However, that doesn't mean you should ignore the concept.
In fact, these stocks could indeed be winners as they
are seen to be the blue chips of the future.
Except
for the conservative type, most investors hope to
find the next General Electric or Coca-Cola, the true
blue chips of the stock universe. And that's what
light blues are. They are smaller than the big blues
that seemingly have huge potential.
Chuck
Carlson, editor of Drip Investor, has come
up with the best definition of light blue chip stocks
that I've seen. He notes that they have:
-
Outstanding financial positions
- Manageable
debt levels
- Substantial
cash flow
- Strong
liquidity.
Those
four characteristics enable any company, excluding
an unexpected disaster, not only to grow but to make
smart acquisitions when appropriate.
Carlson
adds that blue chips also are:
-
Leaders in attractive market niches
- Strong
market positions
- The
ability to cope with competition
- The
ability to weather various economic cycles.
And
finally, blue chips have increasing net profit margins,
solid earnings growth and good returns on equity.
There
is no official listing of light blue chip stocks,
but you can begin drawing up your own list by studying
smaller companies that are turning in impressive results.
The financial news reports quarterly results for key
companies. Track them to discover potential "blues."
In addition, compile your own list based upon the
products and services that you personally are involved
with or that you use.
You
can also consult the reports issued each week by Value
Line Investment Survey (www.valueline.com).
Good
luck!
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