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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money.

Blue-chip stocks definition

What are blue-chip stocks?

Blue-chip stocks are the shares of companies that are reputable, financially stable and long-established within their sector. Over time, the companies that are considered blue chip tend to change, so the exact definition of what is required for blue-chip status can be vague. However, a company that is considered blue chip will tend to be at or near the very top of its sector, feature on a recognised index, and have a well-known brand.

What does it take to be blue-chip?

Exactly what a company needs to achieve to attain blue-chip status is vague, and varies from investor to investor. Broadly though, a blue-chip company will:

  • be at or near the very top of its sector
  • feature on a recognised index (like the FTSE 100, Dow Jones, S&P500 or DAX)
  • be a well-known brand, or own a well-known brand

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Examples of blue-chip stocks

There is not a formal list of blue-chip stocks but, typically, the components represented in a well-known index will be considered as such and are referred to as blue-chip indices – this includes global indices such as the Dow Jones, the DAX, CAC 40 and Euro Stoxx 50. Indices like the FTSE 100 and S&P 500 contain a mix of blue-chip stocks and large- or mid-cap companies that aren’t considered blue chip.

Blue-chip stocks are subject to change, but some common examples are below.

List of blue chip stocks

  • Apple

  • American Express

  • Astrazeneca

  • BP

  • Coca-Cola

  • Diageo

  • Disney

  • General Electric

  • IBM

  • Johnson & Johnson

  • McDonald's

  • Microsoft

  • Nike

  • Pfizer

  • Unilever

  • Verizon

  • Wal-Mart

Pros and cons of trading blue-chip stocks

Pros of blue-chip stocks

Blue-chip stocks are typically viewed as low risk because they tend to post steady earnings and, more often than not, pay out dividends to investors. A blue-chip stock tends to be trusted by investors, partly because it will have a large market capitalisation. They are the opposite of penny stocks, which tend to have a lower, less stable price and do not pay dividends as regularly.

Cons of blue-chip stocks

Blue-chip stocks are not immune to crashes or bankruptcy, but such occurrences tend to make the headlines. As these stocks are primarily owned by the investing public, if there is some bad news in the market, it could cause substantial damage to the share price.

Blue-chip stocks are good for investors who want to see steady gains to their portfolio, but for speculators, they don’t tend to have the short-term movement needed for many trading strategies. Short-term traders are unlikely to see drastic day-to-day movements in the price of a blue-chip stock because of its relatively stable market capitalisation.

The term blue chip has its origins in casino gambling, and the tradition that blue chips tend to be the most valuable in a set. First used to mean highly priced stocks, its definition has changed over time to mean what it means today.

Identifying a blue-chip stock

The companies considered to be blue chip will tend to change over time. 19 of the 30 companies listed on the Dow Jones Industrial Average – the most well-known blue chip stock index – in 1987, for instance, no longer feature more than 30 years down the line.

There are some major companies that would once have been considered blue chip among those 19 – companies like Kodak, General Motors, and Sears.

While it can be easy to lose your blue-chip status, it’s often much harder to finally become recognised as such. For example, Apple were not featured on the Dow Jones until 2015: three years after it first became the world’s biggest company by market cap.

Why are they called blue chips?

The term blue chip has its origins in casino gambling, and the tradition that blue chips tend to be the most valuable in a set. First used to mean highly priced stocks, its definition has changed over time to mean what it means today.

Is blue chip the same as large cap?

A blue chip stock will typically have a large market capitalisation, but that doesn’t necessarily mean that all large-cap stocks are also blue chip. This is because a company can have a high valuation but lack the stability and prestige to be considered blue chip.

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