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Blue-Chip Stocks Or Green-Chip Stocks: Which One Is Better?

Stocks can be a profitable part of your diversified portfolio that may include other low-risk investments such as bonds or real estate. And understanding a company's business plan can give you a glimpse of how it plans to grow and raise capital. But, between blue-chip stocks and green-chip stocks, which one is a safer investment?

Posted: 18th July 2022 by
Finance Monthly
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Green Stocks

Green-chip stocks, also called clean energy stocks, are investments in renewable energy projects such as wind, solar, hydroelectric, and geothermal energy generation. These projects aim to reduce the impact of climate change.

Investing in green stocks puts the depletion of fossil fuels like coal, oil, and natural gas in perspective, making you more conscious of the environmental impact of using these fuels.

Like any other investment, green-chip stocks carry a significant level of risk. And yet emerging trends show that investors can invest in sustainable projects and reap big with green zone fortunes. Many green stocks continue to be driven by policy rather than market dynamics, as is the case with blue chips.

Blue Stocks

Blue-chip stocks, on the other hand, are stocks of large, highly valued companies and corporations that can easily withstand market fluctuations and shocks. Since these companies have existed for a relatively long period, their stocks are safe to invest in, with significantly limited risk.

However, blue chips have a limited growth potential due to their low risk, while green chips have huge growth potential but a relatively higher risk than the former.

Emerging Trends In Stock Investing

Interestingly, there has been an emerging trend of blue-chip companies pursuing sustainability and renewable energy, which offers the opportunity to invest in green and blue stocks to balance the risk.

Unilever brand, for instance, recently announced plans to venture into climate-focused investments, intending to shift to net-zero carbon emissions by 2030. In a bold move, the company opened its transition plans to a vote by all shareholders, which is a significant shift in how blue-chip organisations see the future of investing as more giant companies follow suit.

Socially conscious stock investors are now adding green chips to their investment portfolios as part of a new wave towards environmental sustainability.

Since green chips have their ups and downs, consider companies with stable leadership and structure with proven success in green technologies. Look at the companies that are growing fast, without much reliance on government subsidies to raise income.

How To Identify Top Performing Green-Chip Stocks

Green startups may take a considerable time to attain consistently profitable levels, owing to the high initial costs or uncertain government subsidies. As such, they may offer limited investment potential. Here are the pointers to consider when identifying a well-performing green company.

  • A company that has a strong balance sheet and a relatively low debt; such a company has no immediate need to sell shares at a low price, as it's already well-financed.
  • A company with a strong management team and the skills to develop energy systems.
  • A green company that has its headquarters in a politically stable country with high respect for property rights.
  • A company with steady spending on energy research to develop pioneering technological advances.

Green-chip companies that show these pointers can be a great place to start investing. And although some of these green stocks may appear expensive at first glance, they are likely to bring in good returns in the long term.

To Sum Up

Consider green companies that already have a diversified investment portfolio in other operations. To minimise risk, choose green stocks with different but steady revenue streams. For instance, subsidy costs by the government may increase a company's operating costs and reduce potential profit margins.

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