Purple Chips vs. Blue Chips
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Purple Chips vs. Blue Chips
TRANSCRIPTION. Welcome to the Purple Chips Tutorial webinar; I am John Schwinghamer the author of Purple Chips published by John Wiley &Sons and available everywhere.
First I would like you to pause this disclaimer screen here and just read through the disclaimer so if you can do that for a second than we will move on. Thank you.
Today’s Tutorial webinar is about Distinguishing between Purple Chips and Blue Chips. The terms are often confused and this is the reason why I came up with Purple Chips because there is a huge difference and you will see that in a moment.
To start with, I would like to go through some of the basic criteria. There are three basic criteria when we talk about Purple Chips;
There is the steady and predictable earnings per share (EPS).
We should have seven years or more of growing EPS (earnings per share).
The minimum market capitalization should be about 1 Billion Dollar or more and that is because we want to look at big companies that are not going to be changing their direction or their strategies very quickly. We want things to be steady as she goes. We are looking for low risk investments that have good to reasonable returns.
In this tutorial, I want to highlight the differences between some common Blue Chips and some exceptional Purple Chips. Specifically we will talk about AT&T (T), DuPont (DD) and about Verizon (VZ) which are commonly referred to us Blue Chips and then we will talk about Wal-Mart (WMT), Aflac (AFL) and Johnson and Johnsons (JNJ) which you may know are among the top 25 Purple Chips. I think very quickly you will see the difference in these stocks.
Let’s start with a quick visual examination of AT&T (T); here you are looking at a 20 year chart of AT&T and it becomes fairly obvious when you look at this that the purple heavy line is the earnings per share line over the last 20 years and you can see that what’s happens is that (I am going to highlight it here) as we speak here AT&T is earning somewhere in the neighborhood of $2.29 per share but if you look back let’s say 10 years ago; in around 2000; AT&T was earning approximately the same amount so in effect we are still earning the same amount as we were ten years ago and therefore it comes as no surprise that this stock is still at the same level as it was ten years ago. We had gyrations in earnings, the earnings have gone up and down and actually if you put an average through there they have actually gone sideways. So, AT&T is a classic blue chip, it has got a nice dividend and people think that it’s a great stock but I would argue that it’s not a very good stock; certainly not the kind of stock that I am looking for.
Let’s look for another one here, another classic blue chip; let’s talk about DuPont (DD). Again let’s look at the earnings where had they gone in the last ten years? In fact if I said ten years ago what were the earnings compared to today they have only progressed very, very slightly. We had ups and down, the earnings have gone all over the place but in fact we are just slightly higher. Today we are sitting at this level here which is around $4.13 a share compared to what we were ten years ago which was about $3.75, $3.80 a share. So, this is not a great company. Again DuPont pays a high dividend; if I looked at the actual dividends per share (I will just show this, this is from my Thomson Reuter screen) the yield is 3.5% so not a Purple Chip Stock.
Let’s look at another one, the last one in my example is Verizon (VZ). Verizon pays 4.5% that’s the yield on the stock and at this point it comes as no surprise that we have not had any growth in earnings; in fact it’s been quite the opposite, the earnings have been going down for the last ten years. So, since 2000 earnings used to be around this level around $3.10 and they are currently around the $2.30 mark so we had a situation where earnings have gone in fact down so it comes in no surprise again that this stock is down.
Let’s talk about some really fantastic stocks which are Purple Chips. This is why we came up with the book and why we got a website and why we believe that investing in Purple Chips is absolutely the smartest thing that an investor can do because why would you invest anywhere else.
Let’s look at Wal-Mart (WMT); now this is a Purple Chips Stock, look at the earnings progression over the last 20 years, never a hiccup even when times were bad periods for Wal-Mart (WMT) the earnings were flat but if you look at the last 20 years they have got a beautiful upward progression in earnings. That’s the sort of thing that you are looking for. You can make money on the stock like this. If the earnings keep going the chances are that at some point those earnings will propel the stock price higher.
Let’s look at another stock; we are going to look at Aflac (AFL); Again Aflac is one of the top 25 Purple Chips. Very similar profile; look at the earnings growth, you have got the last 20 years earnings moving up beautifully. That’s what you are looking for because the beautiful wise in earnings is what will move the price higher. The earnings is what determine the price alternately so again this is a hallmark of a Purple Chips Stock.
Let’s move over to another stock that we like a lot which is Johnson and Johnsons (JNJ). Look at its profile again. The thing that these Purple Chips stocks have in common is that they always keep building their earnings. If the company keep making more money its worth more money; that’s the whole theory behind Purple Chips so look at the earnings progression on this stock. You have got Johnson & Johnsons, rising earnings all the time so this stock keeps rising. So if you buy at the right valuations and when you understand the rules of the Purple Chips Model and then you will understand that you are also buying at the low valuation. The low valuations in the case of Johnsons and Johnsons are right where I have drawn this red line.
So, that’s pretty much it. That’s all for now and now you can see the differences between Blue Chips and the Purple Chips. Purple Chips are far superior. The Purple Chips paid good dividends because don’t forget that the dividends are the result of growing earnings so a company that has growing earnings will keep raising dividends and this is a hallmark that we often see. It doesn’t mean that every Purple Chip pays a dividend but a great company starts with great earnings.
That’s all from now; I am John Schwinghamer, the author of Purple Chips. Thank you for watching. [/vc_column_text][/vc_column][/vc_row]