How to Start Investing in Stocks in 2024 - Investopedia
Step 1: Set Clear Investment Goals · Step 2: Determine How Much You Can Afford To Invest · Step 3: Determine Your Risk Tolerance and Investing Style · Step 4.
blue chips
Blue chip stocks: Classic investing advice has been to buy shares of well-established, stable companies with a history of consistent growth and dividend payments. The <anchor>blue chips</anchor>—named for the traditional color of the highest-value poker chips—have strong brand recognition, a solid market position, and a track record of weathering economic downturns. Investing in them can provide you with stability and the potential for steady, long-term returns.
Blue Chip Meaning and Examples
- SearchSearch

Please fill out this field.

SearchSearch

Please fill out this field.

Investing

Simulator

Banking

Personal Finance

Economy

News

Reviews

Follow Us

Table of Contents

Expand

Table of Contents

# Blue Chip Meaning and Examples

By

James Chen, CMT is an expert trader, investment adviser, and global market strategist.

Updated July 09, 2024

Fact checked by

Fact checked byKatrina Munichiello

Katrina Ávila Munichiello is an experienced editor, writer, fact-checker, and proofreader with more than fourteen years of experience working with print and online publications.

Blue Chip:max_bytes(150000):strip_icc()/bluechip.asp-final-975f2fcda0824aaaa647e93734a9e373.png)

## What Is a Blue Chip?

A blue chip is a nationally or internationally recognized, well-established, and financially sound company that's publicly traded. Blue chips generally sell high-quality, widely accepted products and services.

Blue chip companies have reputable brands that have been built and maintained over many years. That and the fact that they've weathered multiple downturns in the economy make them stable companies to maintain in a portfolio.

Blue chip companies operate profitably despite adverse economic conditions. This helps to contribute to their long records of stable and reliable growth.

### Key Takeaways

- A blue chip stock refers to the shares of an established, profitable, and well-recognized corporation.
- Blue chips are characterized by a large market capitalization, a listing on a major stock exchange, and a history of reliable growth and dividend payments.
- Blue chip stocks are seen as relatively safe investments with proven track records of success and stable growth.
- Blue chips are reliably stable but they're unlikely to generate the same high returns as potentially riskier investments.
- Blue chip stocks can experience volatility and failure despite their stability. Some did so during the 2007-2008 financial crisis.

## Understanding Blue Chips

The term "blue chip" was first used in 1923 by Oliver Gingold, an employee of Dow Jones, to describe stocks that traded at $200 or more per share. It relates to blue, white, and red poker chips with the blue chips having the greatest value.

Blue chip stocks aren't necessarily stocks with a high price tag. They're shares of high-quality companies in healthy financial condition that have withstood the tests of time.

A blue chip stock is generally a component of the most reputable market indexes or averages such as the Dow Jones Industrial Average, the Standard & Poor's (S&P) 500 and the Nasdaq-100 in the United States, the TSX-60 in Canada, and the FTSE Index in the United Kingdom. They're usually listed on major stock exchanges such as the NYSE and the Nasdaq.

How large a company must be to qualify for blue chip status is open to debate. A generally accepted benchmark is a market capitalization of $10 billion although market or sector leaders can be companies of all sizes.

Benjamin Graham suggests in his book, The Intelligent Investor, that conservative investors look for companies that have paid dividends consistently for 20 years or more.

The Dividend Aristocrat stock list published by Standard and Poor’s is made up of large-cap blue chip companies in the S&P 500 that have increased dividends every year for 25 years.

## Examples of Blue Chip Stocks

A blue chip company can be a multinational firm that has operated successfully for several years, is a dominant leader in its industry, and is widely recognized.

Some examples include:

- Coca-Cola
- Berkshire Hathaway
- Amgen
- UnitedHealth Group
- PepsiCo
- Nike
- Proctor & Gamble
- Chevron
- Walmart
- IBM
- McDonald’s
- Caterpillar

The name "blue chip" comes from the game of poker in which blue chips have the highest value.

## Characteristics of Blue Chip Stocks

Blue chip stocks are seen as less volatile investments than shares in companies without blue chip status because of their noteworthy institutional profile and longstanding financial health. They share some other characteristics as well.

- Blue chips are highly liquid because they're frequently traded in the market by individual and institutional investors alike. Investors who need cash can therefore feel confident that there will be buyers for their shares.
- Blue chip companies are also characterized as having little to no debt, large market capitalization, stable debt-to-equity ratio, and high return on equity (ROE) and return on assets (ROA).
- Solid balance sheet fundamentals and high liquidity have earned blue chip stocks an investment-grade credit rating.
- Dividend payments aren't necessary for a stock to be considered a blue chip but most blue chips have long records of paying stable or rising dividends.

An investor can track the performance of blue chip stocks through a blue chip index and this can also be seen as an indicator of industry or economic performance.

## Blue Chips As Safe Investments

A blue chip company will have survived financial challenges and difficult market cycles over the years. It will have turned in a steady return and typically paid dividends year in and year out. It can be perceived as a safe investment as a result.

This doesn't make it bulletproof, however. The bankruptcies of General Motors and Lehman Brothers during the global recession of 2007-2009, as well as several leading European banks, show that even the best companies can struggle during periods of extreme stress.

Blue chip stocks can be appropriate for the core holdings of a large portfolio but they shouldn't be the only investments. A diversified portfolio usually has some allocation of bonds and cash in addition to stocks. A portfolio's allocation to stocks can be diversified among large-caps, mid-caps and small-caps as well as domestic and international stocks.

Younger investors can generally tolerate the risk of having a larger percentage of their portfolios in growth stocks that include some blue chips because they have years to invest and recover from market mishaps. Investors who are approaching retirement might choose to focus more on capital preservation by putting a larger percentage of their investments in bonds and cash.

## Advantages and Disadvantages of Blue Chip Stocks

Blue Chips come with pros and cons just as all investments do.

### Advantages

Low risk: Blue chip companies are considered to be low risk because they're industry leaders with reliable cash flows and long histories of paying their debts. They're unlikely to suffer from sudden credit or liquidity crunches.

Reliable return: Blue chip companies typically provide reliable growth potential as well as consistent dividend payments.

Low volatility: Blue chips are seen as stable companies/stocks due to their well-tested business models, established operations, dependable revenue, and long-lived brands.

Less effort: The dependability and lower volatility they offer can mean less need for concern and monitoring.

### Disadvantages

Lower returns: Returns can be reliable but well-established, mature companies such as blue chips offer more modest returns than smaller startups that have room for greater and more rapid growth.

More Expensive: Blue chips tend to be in greater demand and more expensive than stocks of other companies of comparable size because of their lower risk, reliable return potential, and lesser volatility.

Pros

- Lower risk than other stocks.

- Lower volatility

- Reliable returns and dividends

Cons

- Lower returns than less established companies

- Less room to grow so they're unlikely to see large gains

- Expensive due to high demand

## How to Buy Blue Chip Stocks

Investors can buy individual blue chip stocks through a broker. They can also invest in blue chips by buying a fund that targets large-cap companies or market leaders. Many of these companies may be considered blue chips but investors can also gain useful exposure to other companies.

Investors can also buy mutual funds and ETFs that specifically target blue chip companies, giving them exposure to an entire basket of blue chip stocks with a single investment. Most asset managers offer one or more blue chip-focused funds, including Fidelity and BlackRock.

## What Are Some Blue Chip Stocks?

Common examples of blue chip stocks include market leaders like IBM, Coca-Cola, and McDonald's. These are companies with long track records of steady growth and low volatility, suggesting that they're unlikely to face major problems in the near future.

Blue chips are characterized by a high credit rating, large market capitalization, and a listing on the NYSE or another major stock exchange. They're often listed in a major stock market index and compiled lists of large-cap stocks.

## What Is a Blue Chip NFT?

A blue chip NFT is a digital artwork or collectible issued by one of the more reputable players in the market for non-fungible tokens. These companies are relatively well-established in the NFT space so they're considered less risky than some of their upstart competitors. It may be a stretch to apply the blue chip label to such a speculative asset, however, because digital assets represent a risky market.

## How Can You Invest in Blue Chip Stocks?

You can invest in blue chip stocks through a stock brokerage such as Fidelity or Charles Schwab. Simply search for the company's ticker symbol in the broker's stock screener. Many asset managers also run mutual funds or index funds that specifically target blue chip securities, making it easy to invest in a basket of such companies.

## Where Do Blue Chip Stocks Get Their Name?

The term "blue chip" comes from the game of poker where blue chips are usually the most valuable ones on the table. It was first used by Oliver Gingold, an employee at Dow Jones, who observed that certain stocks reliably traded above $200 per share. Some blue chips trade in the thousands per share in the 2020s.

## The Bottom Line

"Blue chip" is an informal term for the most reliable and valuable companies on the market. They're usually companies with a long track record of financial stability. They're typically leaders within their industry so they're often sought after and considered to be low-risk investments.

Article Sources

Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our
editorial policy.

Take the Next Step to Invest

Advertiser Disclosure

×

The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.

Take the Next Step to Invest

Advertiser Disclosure

×

The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.

Related Terms

A special purpose acquisition company (SPAC) is a publicly traded company created to acquire or merge with an existing company.

A small-cap stock has a total share value of $250 million to $2 billion, although the precise figures used vary among brokerages.

The September Effect is a calendar anomaly that refers to historically weak stock market returns for the month of September.

A stock symbol is a series of letters assigned to a security for trading purposes. Investors started using them to streamline hundreds of trades being made by the minute.

The Canadian Securities Course (CSC™) is an entry-level program that helps an individual to become a qualified mutual fund representative.

Short interest is used as a market indicator and the total number of shares of a security that have been sold short and remain outstanding.

Related Articles

Partner Links

By clicking “Accept All Cookies”, you agree to the storing of cookies on your device to enhance site navigation, analyze site usage, and assist in our marketing efforts.

Cookies SettingsAccept All Cookies