What are blue chip stocks?
Blue chip stocks are shares of companies with an excellent reputation that are usually market leaders or titans in their sector. These companies are usually large, well-established, and financially sound. They are known to have been in operation for years and have dependable earnings. Hence, most blue chip companies pay dividends to investors.
The term blue chip stock originates from the card game poker, where different colors of chips are used to represent different dollar amounts. In the game of poker, the blue-chip surpasses the red and white chips and is usually the one with the highest value of all. In 1923, the blue-chip concept was first used to describe high values stocks, when Oliver Gingold (an employee at Dow Jones) observed certain stocks were trading at $200 and above. He referred to these stocks as blue chip stocks. Since then, the term has been used to describe quality stocks with high prices.
Blue chip stocks have a market capitalization of billions and are among the most popular stocks to be bought among investors. These companies are well-known, well-capitalized, and have solid financial prospects. These types of stocks can be found in top stock indices such as the S&P 500, DJIA (Dow Jones Industrial Average), and NASDAQ. Typical examples of blue chip companies include Coca-cola Co., IBM Corp, Apple inc., Boeing Co etc.
Blue chip investment
Blue chip investment entails investing in companies with large market capitalization and an excellent reputation. These stocks are quite the opposite of penny stocks which do not pay dividends and tend to have a lower and less stable price.
Blue chip stocks are usually called rock-solid securities because during a recession, inflation, depression, and other economic downturns, they exhibit stable performance. Blue chip investments are considered to be less risky compared to mid-cap and small-cap stocks. They can offer a lower-risk and less volatile investment opportunity and are usually considered safe as a result of their leadership status within their industries.
A blue chip company has impressive balance sheets, business models, cash flow, and growth rate that make them attractive to lots of investors. Blue chip investment is ideal for long-term investors that have a low-risk appetite. These stocks tend to grow steadily and offer high dividends. There are a lot of high dividend blue chip stocks that are sought after in the market.
How to invest in blue chip stocks
Investing in blue chip stocks is a safe option for many investors. These investors can depend on these stocks during times of economic uncertainty. Investing in blue chip stocks can involve buying and selling the stocks outright at a spot price or with forward contract. This forward contract is an agreement between two parties (buyer and seller) to exchange an asset at a specified price on a future date.
Also, how to invest in blue chip stocks can involve a method of investment known as derivative trading. This investment method is best suited for short-term traders. Derivative trading is an investment method whereby traders speculate on the future price action of an asset through buying and selling derivative contracts. The aim of this is to achieve enhanced gains compared to when the underlying asset is bought outrightly.
Furthermore, blue chip stocks are appropriate for use as a core holding within a larger portfolio. However, they shouldn’t be the entire portfolio. They can be included in the investment portfolio to mitigate risks since bluechip stocks are companies that are already established. Returns are guaranteed with blue chip stocks, though they are lower than the other high-performance stocks because the room for further growth in such companies is limited.
In order words, an ideal investment portfolio should include owning cash, bonds, and blue chip stocks as well as small-caps and mid-caps. Blue chip investments tend to be a safe option for risk mitigation and stability because they can survive tough market cycles. Nevertheless, this may not always be the case as there are still instances of blue chip companies struggling during periods of extreme stress. For example, during the global recession of 2008, blue chip companies like General Motors and Lehman Brothers faced severe challenges.
In conclusion, a diversified portfolio should include owning a rash of blue chip stocks, among a variety of other holdings. Investors can also seek to get blue-chip exposure via the purchase of exchange-traded funds (ETFs) or mutual funds. They can be assisted by investment advisors to select the right blue chip company. Therefore, when considering investing in blue chip stocks, it is advisable to thoroughly review the fundamentals of the company such as profitability, revenue, assets, liabilities, and growth potential. This will help to evaluate all elements that may affect one’s investment decision.
How to buy blue chip stocks
How to buy blue chip stocks would involve the market participant purchasing exchange-traded funds (ETFs) or mutual funds that invest in blue-chip stocks. Also, market participants can buy blue chip stocks individually.
Funds and ETFs, in some cases, will hold a variety of stocks and asset classes, including blue chips. Whereas, in other cases, the EFTs or funds may focus exclusively on blue chips. A typical example is an ETF that tracks the DJIA (Dow Jones Industrial Average) which has 30 of the largest top blue chip stocks.
Investors that are looking out to invest in blue chip companies should review the fundamentals of companies before making an investment decision. There are characteristics that are common among blue chip companies that can be easily observed.
Characteristics of blue chip stocks
- They are large-cap stocks
- These stocks have a low risk
- Blue chip companies have stable growth
- Long term perspective
- Most blue chip stocks pay a dividend
- Component of a market index
They are large-cap stocks
One of the characteristics of blue chip stocks is that they have large market capitalization. The market capitalization of a company is the total value of all the company’s shares. Blue chip stocks are categorized as large-cap stocks because they belong to companies with a large market capitalization (market cap). These stocks have a large cap, meaning that they have a market valuation of $10 billion and above.
These stocks have a low risk
One of the major characteristics of blue chip stocks is that they are low-risk investments. These stocks are usually considered safe investments. This is because the issuing blue chip companies are financially stable and are capable of clearing debts and liabilities.
Blue chip companies have stable growth
The companies that issue out blue chip stocks have a reliable and solid reputation for sustained growth. They are already established and have good future prospects. They are mostly already at the peak of their growth prospects.
Long term perspective
Blue chip investments are ideal for long-term investors that have a low-risk appetite. This is because, only when blue chip stocks are held long-term, do they provide the desired results.
Most blue-chip stocks pay a dividend
Not all blue-chip stocks pay dividends but the majority of them do. Dividends are the regular payment made to equity holders from the revenue that the company generates. Blue chip stocks with dividends are usually companies that are mature and no longer need to invest as much revenue back into their growth.
Even though dividend payments are not mandatory for a stock to be considered a blue chip, the majority of blue chip companies are known for paying stable and rising dividends. They usually offer dividend payouts to their stakeholders.
Component of a market index
Blue chips are a component of the most reputable market index. Blue chip stocks are traded on the major market indexes or averages such as the Standard & Poor’s (S&P) 500, the TSX-60 in Canada, the Dow Jones Industrial Average, the FTSE Index in the United Kingdom, the NYSE index in New York or the Nasdaq-100 in the United States.
Blue chip stocks examples
Examples of blue chip stocks include large companies with strong brands, businesses that are financially sound, and consistent cash flows and earnings. The majority of companies that fall under examples of blue chip stocks often pay sizable dividends and are typically leaders within their given market sectors. They are known to have successfully navigated economic downturns in the past. The majority of the largest companies in the S&P 500 or the Dow 30, such as Walt Disney Co, IBM, Walmart, Mastercard, Apple, etc. are such blue chip stock examples.
List of blue chip stocks examples
- Apple Inc. (AAPL)
- UnitedHealth Group Inc. (UNH)
- Visa Inc. (V)
- Mastercard Inc. (MA)
- Home Depot Inc. (HD)
- Thermo Fisher Scientific Inc. (TMO)
- Comcast Corp. (CMCSA)
- Accenture PLC (ACN)
- McDonald’s Corp. (MCD)
- Walt Disney Co. (DIS)
US News listed the blue-chip companies mentioned above as 10 of the best blue-chip stocks to buy in 2022. These top blue chip stocks listed, are blue chips to buy as recommended by CFRA analysts. This list of blue-chip stock examples has S&P Global Market Intelligence quality ratings of A or A+.
The table below shows a list of blue chip stocks examples with some of their fundamentals such as market capitalization, the price-to-earnings ratio (P/E), dividend yield, net Income, revenue, and diluted earnings per share (EPS), etc.
|List of blue chip stocks||Date founded||Market capitalization as of 26/07/2022||Dividend yield as of 26/07/2022||Price to earnings ratio (P/E) as of 26/07/2022||The stock price as of 26/07/2022||Revenue (Quarterly financials)||Net Income (Quarterly financials)||Diluted EPS (Quarterly financials)||Primary exchange|
|Apple Inc. (AAPL)||1 April 1976||2.48T USD||0.60%||24.86||152.95 USD||$97.28B (Mar 2022)||$25.01B (Mar 2022)||1.52 USD (Mar 2022)||NASDAQ|
|UnitedHealth Group Inc. (UNH)||January 1977||496.73B USD||1.25%||27.66||529.47 USD||$80.33B (Jun 2022)||$5.07B (Jun 2022)||5.34 USD (Jun 2022)||NYSE|
|Visa Inc. (V)||Sep 1958||446.36B USD||0.70%||35.17||214.27 USD||$7.19B (Mar 2022)||$3.65B (Mar 2022)||1.7 USD (Mar 2022)||NYSE|
|Mastercard Inc. (MA)||Nov 3, 1966||334.79B USD||0.57%||35.81||344.21 USD||5.17B (Mar 2022)||2.63B (Mar 2022)||2.68 USD (Mar 2022)||NYSE|
|Home Depot Inc. (HD)||Jun 29, 1978||314.65B USD||2.48%||19.43||306.15 USD||$38.91B (May 2022)||$4.23B (May 2022)||4.09 USD (May 2022)||NYSE|
|Thermo Fisher Scientific Inc. (TMO)||1956||222.13B USD||0.21%||29.55||567.44 USD||$11.82B (Apr 2022)||$2.22B (Apr 2022)||5.61 USD (Apr 2022)||NYSE|
|Comcast Corp. (CMCSA)||28 June 1963||190.27B USD||2.54%||13.67||42.47 USD||$31.01B (Mar 2022)||$3.55B (Mar 2022)||0.78 USD (Mar 2022)||NASDAQ|
|Accenture PLC (ACN)||1989||182.99B USD||1.34%||28.06||289.29 USD||$16.16B (May 2022)||$1.79B (May 2022)||2.79 USD(May 2022)||NYSE|
|McDonald’s Corp. (MCD)||15 April 1955||185.17B USD||2.20%||26.45||250.38 USD||$5.67B (Mar 2022)||$1.1B (Mar 2022)||1.48 USD (Mar 2022)||NYSE|
|Walt Disney Co. (DIS)||16 October 1923||187.05B USD||–||70.84||102.69 USD||$19.25B (Apr 2022)||$470M (Apr 2022)||0.26 USD (Apr 2022)||NYSE|
Pros of investing in blue chip stocks
The major advantage of blue chip stocks is that they are viewed as low-risk investments. This is because they tend to often have steady earnings and pay dividends to investors. These stocks are trusted by investors partly because of their large market capitalization. They are good for investors that want to see steady gains in their portfolio.
Blue chip stocks are more stable compared to smaller and newer companies that may struggle to cope with market changes and recessions. Investing in blue chips is advantageous because these companies are usually able to survive during the market cycles and continue to deliver returns.
One major pro of blue chip investment is the dividend payout that investors get. Blue chip companies usually pay dividends to shareholders. This steady and reliable income makes a blue chip company appealing to retirees and income investors. Also, investors can use a dividend reinvestment plan (DRIP) to automatically turn the earnings they get into more shares of the blue-chip stock. Hence, allowing compounding returns to grow even faster.
Blue chip stocks are not as volatile as other securities. Hence, they don’t need so much management, oversight, or worry. Hence, they can be extremely useful for a passive investor who just wants to set it and forget it.
Cons of investing in blue chip stocks
The cons of blue chips are that in as much as they are market leaders in their industry, they are not immune to crashes or bankruptcy. Sadly, such occurrences tend to make it to the headlines. These stocks are primarily owned by the investing public, thus, bad news in the market can cause substantial damage to the share price of these companies.
Another disadvantage of blue chips is that they can be costly. These companies are well established and as a result, their share prices tend to be higher than stock types such as growth stocks, value stocks, and penny stocks (smaller or newer stocks).
Furthermore, chances of experiencing exponential growth over the short term are low in blue chip companies. This is because these companies have been in business for a long time and command high share prices. Therefore, what one gets are just steady and less exciting returns built over decades.
FAQs on blue-chip stocks
What is an example of a blue chip stock?
An example of a blue chip stock might be McDonald’s. This company is the world’s largest fast-food company. According to Catherine Seifert, an analyst, the shares of McDonald’s are attractively valued, and despite multiple macroeconomic headwinds, the company reported impressive 12% same-store sales growth in the first quarter.
What is the definition of blue chip stocks?
We can define a blue chip stock as a company with an excellent reputation that is usually a market leader or titan in its sector. Blue chip stocks have a market capitalization of billions and are among the most popular stocks bought among investors. These companies are well-known, well-capitalized, and have solid financial prospects.
Is Cisco a blue chip stock?
Cisco Systems, Inc. can be considered a blue chip stock. This company commonly called Cisco is an American-based multinational technology conglomerate corporation headquartered in San Jose, California. This company was founded on 10 December 1984 and is well established. The company can be categorized as a large-cap company with a market capitalization of $184.07 Billion as of July 25th, 2022. This company also pays dividends.
Is IBM a blue chip stock?
According to www.stocknews.com, IBM (International Business Machines Corporation) is listed among the 5 best high-yield blue-chip stocks to buy now. This company is an American multinational technology corporation that has its headquarters in Armonk, New York, and operates in over 171 countries. As of 26th July 2022, this company has a market capitalization of 115.61B USD and a dividend yield of 5.13%, thus, it is well-capitalized. Moreso, the International Business Machines Corporation (IBM) began in 1911, so, it is well established and can therefore qualify to be called a blue-chip company.
Is Facebook a blue chip stock?
Facebook (now Meta), may be one of the best-known companies on the planet but can’t be classified as a blue chip company yet. The company is well-capitalized having reached a market capitalization of 450.52B USD as of July 25, 2022. However, it is not well-established to be considered a blue-chip company being that it didn’t exist until 2004.
Being that it was not well-established, it is more likely to be displaced by competitors, broken up by regulators, or suffer other unanticipated disasters. Moreso, Facebook has never paid a dividend to shareholders, they rather use the capital available to reinvest in the business and to generate high growth via acquisitions.
Is Pepsico a blue chip stock?
PepsiCo (PEP) can be considered a blue-chip stock. It was founded in1965 and is one of the largest companies in the world across several metrics. Hence, it is well-established and well-capitalized. As of 25th July 2022, this company has a market capitalization of 235.51B USD. Pepsico also pays dividends.
Is Apple a blue chip stock?
US News listed Apple Inc. (AAPL) among the 10 best blue-chip stocks to buy in 2022. This company is one of the most financially sound blue-chip companies globally. Apple Inc was founded on 1 April 1976 and is one of the largest technology companies by revenue with a total of $365.8 billion in 2021. This company as of June 2022 is the world’s biggest company by market capitalization and ranks by unit sales, as the fourth-largest personal computer vendor. With such achievements, it is unarguable that apple is a market leader in its industry and will competently pass as a blue chip company.
Apple happens to be the second largest mobile phone manufacturer and one of the big 5 American information technology companies alongside, Microsoft, Alphabet, Meta, and Amazon. More so, Apple is the largest stock holding of Warren Buffett’s Berkshire Hathaway Inc. (BRK.A, BRK.B). Warren Buffett is known for hunting down high-quality blue-chip value stocks.
What is the meaning of blue chip stocks?
Blue chip stocks are companies with excellent reputations that are usually market leaders or titans in their sector. These companies are usually large, well-established, and financially sound. They are known to have been in operation for years and have dependable earnings. Hence, most blue chip companies pay dividends to investors. An example of a blue chip stock might be Apple Inc.
What blue chip stocks have dropped the most?
There are instances of blue chip stocks struggling during periods of extreme stress. For example, during the global recession of 2008, and the COVID-19 pandemic, some blue chip companies faced severe challenges that caused their stock prices to drop. Let’s look at General Motors Company, for instance, in 2020 during the pandemic, the stock prices dropped to as low as $16.8 in the month of March 2020. From march- august, 2020, the stock prices ranged between $16.8 – $30.61. Around ending of November 2020 the stock price picked up to $40.56 and above.
What are some blue chip stocks with dividends?
The majority of blue-chip stocks pay dividends. Blue chip dividend stocks are usually companies that are mature and no longer need to invest so much revenue back into their growth. Examples of blue chip stocks with dividends include Coca-cola, Apple Inc. (AAPL), Visa Inc. (V), IBM, Mastercard Inc., McDonald’s Corp., UnitedHealth Group Inc. (UNH), PepsiCo (PEP), Cisco Systems, Inc., Amazon, Home Depot Inc., Thermo Fisher Scientific Inc., Comcast Corp., Accenture PLC, etc.
What blue chip stocks to buy now
Examples of blue chip stocks to buy now include Coca-cola, Apple Inc. (AAPL), Visa Inc. (V), IBM, Mastercard Inc., McDonald’s Corp., UnitedHealth Group Inc. (UNH), PepsiCo (PEP), Cisco Systems, Inc., Amazon, Home Depot Inc., Thermo Fisher Scientific Inc., Comcast Corp., Accenture PLC, etc.
However, it is important to note that the stocks listed are based on informational findings. Hence, you may need to consult a stock analyst with expertise and investment advisors to know which stock fit perfectly into your portfolio. Most importantly, before making any investment decision, ensure to carry out proper research to be sure these blue chip stocks align with your financial goals and risk tolerance.
Is Disney a blue chip stock?
Walt Disney Co. (DIS) was listed by US News among 10 of the best blue-chip stocks to buy in 2022 which were recommended by CFRA analysts. This company is an American multinational mass media and entertainment conglomerate. The Walt Disney Company was founded on 16 October 1923 and as of 26 July 2020 has a market capitalization of $187.05B. This stock is one of the non-dividend blue chip stocks. They don’t pay dividends to their shareholders.