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Blue Chip Stocks

Updated on May 16, 2024
Article byWallstreetmojo Team
Edited byAaron Crowe
Reviewed byDheeraj Vaidya, CFA, FRM

Blue Chip Stocks Meaning

Blue chip stocks are issued by companies possessing large market capitalization. Blue chip companies are market leaders. They provide good returns on stocks, offer dividends, and are considered safe investments.

These stocks are included in the investment portfolio to mitigate risk. According to legend, blue chip securities are named after the highest value chips used in the game of poker. Blue chip companies are already established; therefore, room for further growth is limited. While returns are guaranteed, they are lower than the other high-performance stocks.

Key Takeaways

  • Blue chip stocks are publicly listed securities issued by leading companies that possess large market capitalization. 
  • Blue chip investments provide the desired results only if held long-term. They provide guaranteed but low returns in the form of dividends.
  • These stocks are found on top stock market indices—S&P 500, Dow Jones Industrial Average (DJIA), NASDAQ, and National Stock Exchange (NSE).

Explanation

Blue Chip stock

The blue chip concept was first introduced in 1923 by Oliver Gingold. He was employed by Dow Jones. Some stocks were trading at sky-high prices, $200 and above—Oliver called them blue chip stocks. Since then, the term has referred to quality stocks with high prices. Therefore, blue chip securities are found in top stock indices—S&P 500, NASDAQ, NSE, and DJIA.

Portfolio managers include blue chips for risk mitigation and stability. Ideally, investment portfolios should include diverse components—bonds, cash, blue chip securities, mid-caps, and small caps. Blue chip shares are a safe option—they can survive tough market cycles.

Even so, during the global recession of 2008, many so-called blue chip companies went bankrupt—General Motors, Lehman Brothers, and several leading European banks. This indicates that even the best stocks struggle in extreme economic downturns. Among blue chip institutions, JP Morgan Chase managed to survive the 2008 crisis.

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Blue-Chip Stocks in Video

 

Characteristics

The various features of blue chip securities are as follows:

  1. Large Cap Stocks: These securities are categorized as large-cap stocks—belong to companies with larger market capitalization
  2. Low Risk: They are often considered safe investments—issuing companies are financially stable—efficient in clearing liabilities and debts.
  3. Stable Growth: The blue chip companies are already established, further growth prospects are limited.
  4. Limited Assured Returns: These stocks often offer dividends
  5. to the stockholders. While returns are guaranteed, they are lower than other high-performance stocks.
  6. Long-term Perspective: Blue chip investments provide the desired results only if held long-term. 
  7. Dividend Payout: Most blue chip securities have a history of paying stable and rising dividends. Yet, dividend payouts are not mandatory for a security to be considered a blue chip.

Investing in Blue Chip Stocks

They are often called “rock-solid securities.” They show a stable performance during inflation, recession, depression, and other economic downturns. Even so, stability during market fall is not guaranteed. They are considered less risky when compared to small-cap and mid-cap.

Blue chip companies have impressive balance sheets, cash flows, business models, and growth rates. Therefore, It is the go-to option for long-term investors who have a low-risk appetite. With time, blue chips grow steadily and offer high dividends. Investment advisors assist investors in selecting the right blue chip company.

List of Blue Chip Stocks

The US News lists the ten best blue chip stocks of 2022:

  1. Verizon Communications Inc. (ticker: VZ)
  2. Visa Inc. (V)
  3. Global Payments Inc. (GPN)
  4. Hormel Foods Corp. (HRL)
  5. Clorox Co. (CLX)
  6. Coca-Cola Co. (KO)
  7. Brown-Forman Corp. (BF.B)
  8. Becton, Dickinson, and Co. (BDX)
  9. Lockheed Martin Corp. (LMT)
  10. Walmart Inc. (WMT)

Some of the other promising blue chip stocks include:

  • Apple (NASDAQ: AAPL)
  • Berkshire Hathaway (NYSE: BRK.A) and (NYSE: BRK.B)
  • Johnson & Johnson (NYSE: JNJ)
  • American Express (NYSE: AXP)

Frequently Asked Questions (FAQs)

What companies are blue chip stocks?

Blue chip companies are financially stable business entities. Most of them are market leaders. Since these organizations have a large market capitalization, superior reputation, and strong performance record, they are extensively safe for investment. 

How to buy blue chip stocks?

An investor can directly approach a brokerage firm to purchase blue chip security. Alternatively, one can invest in exchange-traded funds or mutual funds. ETFs pool investors’ funds into a basket of securities; this includes blue chip securities, as well.

Which blue chip stocks to buy?

Following are the best blue chip securities for 2022:
– Verizon Communications Inc. (ticker: VZ)
– Visa Inc. (V)
– Global Payments Inc. (GPN)
– Hormel Foods Corp. (HRL)
– Clorox Co. (CLX)

This article has been a guide to what is Blue Chip Stock & definition. Here we explain Blue Chip Stocks, their features, investing, and the list of examples from Canada, India, and the US. You can learn more about Equity Research from the following articles –

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