When people talk about investing in blue chip stocks, they typically mean buying shares in a large and well-established stock company known for its reliability and capacity to generate a profit throughout the various cycles of the economy.
The term ”blue chip” is derived from the poker table. One of the most commonly available traditional poker chip set types in the United States features white, red and blue chips, and the blue chips are the most valuable ones. (Example $1 white chips, $5 red chips and $25 blue chips.) As early as the 1800s, the term ”blue chip” was in use in the United States to denote something of superior value, such as a ”blue chip property”, but it would take until the 1920s before investors started talking about blue chip stocks.
According to Dow Jones & Company legends, it was Oliver Gingold who coined and helped popularize the term blue chip stock. Allegedly, Gingold was watching the stock ticker at a brokerage firm (the predecessor of Merill Lynch) when he noticed several shares trading above $200 and some even over $250. Impressed, he turned to Lucien Hooper – who worked for the stock brokerage W.E. Hutton & Co – and told him that he intended to go back to the office to write about these ”blue chip stocks”.
Originally, the term blue chip stocks simply denoted high-priced stocks, but today, being high-priced is not enough for a share to be considered worthy of the designation blue chip. As mentioned above, the term has come to denote shares in a large and well-established stock company known for its reliability and long-term profitability. Nowadays, a share that suddenly shoots up like a rocket will not be considered blue chip even if it becomes very high-priced.
Investing in blue chip stocks
If you are interested in investing in blue chip stocks, a good place to start your research is with companies included in the Dow Jones Industrial Average. This is a price-weighted average of 30 companies – all considered blue chip and upper echelon names in their respective industry.
Two other examples of indices worthy of your time is FTSE100 and DAX30. FTSE100 includes plenty of blue chip stock companies listed on the London Stock Exchange. (Important: Inclusion in the FTSE100 is based on market capitalization.) DAX30 is a blue chip stock market index comprised of the 30 major German companies listed on the Frankfurt Stock Exchange. They represent the base of blue chip companies in the DACH region, i.e. Germany, Austria and Switzerland.
Examples of stock companies that are considered blue chip
British American Tobacco
Fresenius Medical Care
Johnson & Johnson
Merck & Co.
MTU Aero Engines
Procter & Gamble
Royal Dutch Shell
The Coca-Cola Company
The Home Depot
The Travelers Companies
The Walt Disney Company
Volkswagen (VW) vz.
Walgreens Boots Alliance
Based on the idea of ”blue chip stock”, other similar terms have evolved among investors and stock brokers over the years. Here are a few examples:
Green chip stock: Shares in a green industry company (environmentally friendly, etc)
Red chip stock: Shares in a Chinese company listed in Hong Kong
Purple chip stock: Shares in a company that is both blue chip and red chip