Characteristics
UBS Financial Services, Inc. chose companies that have at least four of the six following characteristics to be considered a blue chip:
- Rated "Buy" by the Sponsor (See "UBS Investment Research Ratings System" in the prospectus);
- Market capitalization in excess of $5 billion;
- Financial strength, a record of profit growth and reputation for skilled management;
- Established, well-known company considered to be stable and mature with a reputation for providing high-quality goods and services; and
- Leader in its market niche.
- In addition, companies are analyzed for their record of earnings over a relatively long period of time and future potential. Dividend payments, while not required, are considered.
Other terms that are often used in conjunction with blue chip include "bellwether" and "large cap". Bellwether is any company that is recognized as the leader in its industry. For example, Microsoft would be considered a bellwether stock for computer software. Large cap is a reference to the size of a company in terms of total market capitalization. Market capitalization is simply calculated by taking the number of shares outstanding and multiplying by the stock's current price per share.
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