Meaning of a Blue Chip Company or Stock

“Always invest in Blue Chip Stocks” is the trade mantra for many investors and traders. Every new investor gets the suggestion of investing in blue chip companies at least once. But, it’s never a good idea to follow any investment or trading tips without understanding the logic and basic concepts behind those tips.

In this write-up, we are explaining the concept of Blue Chip Company and stock to help you clear your understanding.

What is a Blue Chip Company?

A Blue Chip Company is one that is financially strong, stable, well-established, and recognized. These companies normally deal in products and services that have high sell value. Blue chip companies tend to perform well even during economically adverse conditions and hence exhibit reliable growth patterns.

It is their financial stability and reliable growth pattern due to which stocks of these companies are considered good for investment.

Blue chip companies are generally multi-national firms that have been in operation for many years. These companies have the reputation of surviving many downturns in the economy without being affected too much.

Examples of Blue Chip Companies in USA

Coca-Cola (KO), Tesla (TSLA), Alphabet (GOOGL), Costco (COST), Amazon (AMZN), American Express (AXP), Apple (AAPL), Home Depot (HD), IBM (IBM), Disney (DIS), Goldman Sachs (GS), McDonald’s (MCD), Microsoft (MSFT), Nike (NKE), Starbucks (SBUX), Visa (V), Walmart (WMT)

Examples of Blue Chip Companies in the UK

AstraZeneca, BP, Diageo, HSBC, Reckitt Benckiser, Unilever, Rio Tinto, GlaxoSmithKline, Tesco, Royal Dutch Shell, Vodafone

Examples of Blue Chip Companies in India

Reliance Industries (RIL), Infosys (INFY), State Bank of India (SBIN), Hindustan Unilever (HINDUNILVR), Bharti Airtel (BHARTIARTL), Tata Consultancy Services (TCS), HDFC Bank (HDFCBANK), ITC, ICICI Bank, ONGC

Examples of Blue Chip Companies in Australia

BHP Group Ltd (BHP), Commonwealth Bank of Australia (CBA), CSL Ltd (CSL), National Australia Bank Ltd (NAB), Westpac Banking Corporation (WBC), Australia and New Zealand Banking Group Ltd (ANZ), Macquarie Group Ltd (MQG), Fortescue Metals Group Ltd (FMG), Wesfarmers Ltd (WES), Telstra Corporation Ltd (TLS)

Examples of Blue Chip Companies in Japan

Fast Retailing, Fanuc, Softbank, Kyocera, Honda Motor, KDDI, Shin-Etsu Chemical, Canon, Secom, Toyota Motor

Origin of the Term Blue Chip Company

The term ‘blue chip’ has its origin in the game of poker where players bet in blue, white, and red chips with blue chips having the greatest value.

It was in 1923 when Oliver Gingold, an employee of Dow Jones, used the term for the first time when he observed a few shares trading above $200. He termed those stocks as blue chip stocks based just on their trading price. But today a blue chip stock refers to stocks of high-quality companies that have proved their performance even in adverse situations and not just shares with the current high market rate.

The exact criteria for a company to be qualified as a Blue Chip Company is still a matter of debate. However, a market capitalization of $5 billion is a benchmark that is generally accepted in the market. But again, this is not a hard and fast rule.

Characteristics of a Blue Chip Company

As explained above, there is no set definition of a blue-chip company. But, there are a few defining characteristics that are found commonly in blue-chip companies.

• Well recognized – Blue chip companies have institutional status in the economy. They are not seen just as a company but as an institution that has stayed for a long and is going to stay in the future as well. Think Coca-Cola, IBM, Google, etc.
• Highly liquid – Since blue chip stocks are frequently traded in the market, these are highly liquid. You can buy and sell these shares whenever you want during the trading hour.
• Large market capitalization – Blue chip companies have large market capitalization. As a general convention companies with $5 billion and higher market capitalization are considered blue-chip companies.
• Little to no debt – Blue chip companies are typically debt-free. Even if they have certain debts, the value of the debt is very low.
• High return on equity – Blue chip companies is high-performing companies that provide a high return on equity.
• Stable rising dividend – Most of the blue chip companies have a track record of providing a stable rising dividend to the investors continually over years.