Can Internet Stocks Be Blue Chips?

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Can Internet Stocks Be Blue Chips?

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Original Article: MarketWatch  |   Written By: Jeremy Olshan


Already looking beyond his company’s planned initial public offering next year, Mark Zuckerberg has reportedly said he wants Facebook to grow into a pillar of the U.S. economy — a blue chip stock.

But can a website that depends largely on advertising – and its growing number of “friends” — join the ranks of General Electric, Johnson & Johnson, Pfizer, Intel, and Microsoft? Possibly, economists and financial advisers say. And propelling Facebook, Google, and other Internet companies into that position, would represent the completion of the economy’s transformation from the manufacture and distribution of goods to provider of services.

“It’s not the definition of blue chip that is changing so much as the definition of our economy,” says Professor Robert Mittelstaedt, dean of the W. P. Carey School of Business at Arizona State University. “If you look at the Dow 30, these are no longer all manufacturers or sellers. American Express, much like Facebook, deals mostly in bits and bytes – and doesn’t have face to face contact with customers.”

The New York Stock exchange says a blue chip is a “stock in a company with a national reputation for quality, reliability and the ability to operate profitably in good times and bad.” Right now, “Microsoft is the youngest company on the list, and it’s 30 years old,” Mittelstaedt says. “Amazon, Google and Facebook haven’t shown that kind of reliability yet. Google doesn’t yet pay a dividend, which blue chips usually do. Right now for companies like Facebook, this is little more than a nice aspiration.”

Jon Ulin, a financial adviser in Boca Raton, Fla., thinks the path to blue chip status for Facebook and Google  may be easier than the industrial companies of the past, since they don’t depend on “costly physical structures or physical resources to build a product or hold inventory — and are providing essentially a ‘free’ resource to the consumer,” he says.

At the same time, says Ulin, the risk of investing in the social network could be high. It would be easier “for the next Zuckerberg to come along in the future and build a better network than for someone to figure out or invent a better formula for Coke.”

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