Blue chip companies – definition and meaning
Blue chip companies are businesses that investors see as reliable and profitable. Not only do these companies operate profitably in good times but also in bad times. Additionally, they more likely to survive market fluctuations. In other words, they are large and extremely creditworthy businesses.
From an investor’s point of view, blue chip companies are much less risky than start-ups. In fact, we see them as a safer bet than any other public company. They also have a moderate amount of debt.
A blue chip company is famous for the quality and wide acceptance of its products. Additionally, people know it always makes money and pays dividends.
However, there are no formal requirements for being a blue chip.
Cambridge Online Dictionaries has the following definition for blue-chip:
“A blue-chip company or investment is one that can be trusted and is not likely to fail.”
We call the shares of the largest blue-chip companies large capitalization stocks. More specifically, the stocks of companies with a market capitalization of at least $5 billion.
When many investors sell aggressive growth stocks and purchase blue-chip ones, we call it a flight to quality. This can happen when investors are worried.
Origin of the term ‘Blue-Chip Stock’
The simplest poker betting discs include white, red, and blue chips, worth $1, $5 and $25 respectively. The ‘blues’ have the highest value and are therefore the ones everybody wants.
Historians believe that Oliver Gingold coined the term ‘blue-chip stocks’ either in 1923 or 1924. Gingold was editor of the Wall Street Journal’s ‘Abreast of the Market’ column.
Gingold was standing by the stock ticker at a brokerage company that later became Merrill Lynch. He saw several trades at $200 or more per share. He subsequently said that he would return to his office and “write about these blue-chip stocks.”
Mr. Gingold’s new usage of the term caught on rapidly. Today, it is used by investors across the world to describe quality stocks. In this article, stocks means the same as shares.
These types of companies used to have a long history of sound financial performance. However, today this is not always the case.
Microsoft Corp. and Apple Inc., for example, are blue chip, but they are relatively young companies. In fact, most high tech giants today are less than forty years old. For example. Amazon.com, Google, and Facebook are less than 25 years old.
Not only does the term refer to companies, but also their shares. Hence, the terms blue chip stocks and blue chip companies.
US blue chip companies
Here are a few American blue chip companies. There are, in fact, hundreds of them.
- American Express Co.
- AT&T Inc.
- Bank of America Corp.
- Boeing Co.
- Citigroup Inc.
- Coca-Cola Co.
- Exxon Mobil Corp.
- General Electric Co.
- General Motors Corp.
- Johnson & Johnson
- JPMorgan Chase & Co.
- Microsoft Corp.
- Pfizer Inc.
- Procter & Gamble Co.
- Wal-Mart Stores Inc.
- Walt Disney Co.
UK blue chip companies
- Royal Dutch Shell (Half Dutch)
- Vodafone Group
- BG Group
European blue chip companies
- BCO Santander
- BNP Paribas