It’s easy and instant diversification — at least, of course, among blue-chip companies. As befits the sometimes high-risk nature of stock picking, the term “blue chip” derives from the card game poker. The simplest sets of poker chips include white, red, and blue chips, with sales returns and allowances journal entry definition & explanation American tradition dictating that the blues are highest in value. The company has been in operation since 1902 and enjoys a strong position in the retail market. With the exception of a one-off net loss in 2015, the company has been consistently profitable for decades.

• It will have turned in a steady return and typically paid dividends year in and year out.
• Blue chip-focused ETFs and mutual funds bundle numerous blue chip stocks into a single security, offering a simple way to diversify across many high-quality stocks.
• They have been producing Coca-Cola since 1892 and still have a large market share in the industry.
• Wells Fargo stock trades 29% below our fair value estimate of $58.
• Continue reading to find out how you can trade on blue-chip stocks using our derivative products.

Additionally, Target reliably pays a dividend and has increased its payout annually for 55 years straight. However, just about every investor can benefit from having a portion of their portfolio invested in blue chip stocks. It doesn’t have to be a set percentage; investors will have varying viewpoints about how much risk they want to assume. A blue chip firm must also be well-capitalized in at least two ways.

Characteristics of a blue chip stock

Now, it holds a similar meaning but places more emphasis on the value and quality of the stock, rather than price only. As a result – it is evident that if a stock has stable earnings, it is backed by a strong management team that is doing something right to keep the company’s growth on a steady track. The first and greatest expectation of any investment is to earn high profits on your investment portfolio. Gambling chips in poker have different dollar values depending on their color.

They represent the crème de la crème of equities — the biggest, richest companies. Trading 35% below our fair value estimate of $60, Comcast is the most undervalued stock on our list of blue-chip stocks to buy. Growth in Comcast’s cable business has slowed, and we expect it to continue to slow as more customers access fiber and wireless network alternatives. We nevertheless think Comcast will be able to limit broadband share losses in the coming years while enjoying solid pricing power, says Morningstar director Mike Hodel. NBCUniversal is more challenged, however, though we like the idea of expanding the theme park business around key content franchises, he adds.

Blue chips in a well-balanced portfolio

Besides actually buying the stocks, you can also buy CFDs, futures, options and even binary options on the respective stock. The biggest drawback of blue chips is that they don’t grow as fast as smaller companies. Every year, technology companies’ stocks outperform blue chips, though it comes with increased volatility and risk. 77.77% of retail investor accounts lose money when trading CFDs with this provider.

A blue chip stock is a large, financially-sound, nationally-recognized and well-established business that trades on public markets. Blue chip companies usually sell high-quality and broadly-used products and services. They are known for their long-term track records of stable and reliable growth, helping them operate profitably regardless of current economic conditions. Common examples of blue chip stocks are market leaders like IBM, Coca-Cola, and McDonald’s. These are companies with a long track record of steady growth and low volatility, suggesting that they are unlikely to face major problems in the near future.

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Examples of blue chip stocks include Coca-Cola, IBM Corporation and Morgan Stanley. A blue chip stock is a share of a large, well-established and financially secure company that has operated for many years. Typically, blue chip stocks have a market capitalisation in the billions of dollars. Investors may also want to consider exchange-traded funds (ETFs) and mutual funds. Blue chip-focused ETFs and mutual funds bundle numerous blue chip stocks into a single security, offering a simple way to diversify across many high-quality stocks. Beginning investors are likely familiar with the products and services of blue chip companies.

Examples are hypothetical, and we encourage you to seek personalized advice from qualified professionals regarding specific investment issues. Our estimates are based on past market performance, and past performance is not a guarantee of future performance. Financial giant American Express (AXP 0.35%) is another blue chip stalwart to consider. Its main revenue generators include credit card fees and transaction processing fees.

What does it mean to be a blue chip?

The investing information provided on this page is for educational purposes only. NerdWallet, Inc. does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments. A blue chip company is famous for the quality and wide acceptance of its products.

• The stocks of these high-quality companies with large market capitalizations look undervalued today.
• Secondly, a company must have a sufficiently high credit rating to qualify as a blue chip.
• Investors may also want to consider exchange-traded funds (ETFs) and mutual funds.
• Dividends are especially attractive if you’re investing for income, as many investors do in retirement.

Blue chips are characterized by a high credit rating, large market capitalization, a listing on the NYSE or another major stock exchange, and are often listed in a major stock market index. Then, the number of hedge fund investors in the top 20 companies was determined for the funds’ second quarter of 2023 investment portfolio, and the top 12 stocks are listed below. The term was first coined in the 1920s by Oliver Gingold, who worked for Dow Jones, and is a reference to poker chips—wherein blue chips hold the highest value. At the time, the term was used to describe stocks of particularly high value, but these days blue chip refers less to the price of the stock itself and more to the stature of the company. Having said that, you can certainly expect blue chip stocks to come with a hefty price tag.

Blue-chip stocks

General Mills is an American multinational manufacturer and marketer of branded consumer retail foods, which was founded in 1928. The company markets many known US brands such as Betty-Crocker (owned by General Mills), Cheerios, Lucky Charms (also owned by General Mills) and Häagen-Dazs. General Mills has a history of a strong stock performance during recessions due to the nature of the products it sells, so it is a sensible choice when economies start to slow. Long-term investors are facing headwinds with many blue chip stocks, as evident by the S&P 500 index’s five year change of -0.3%; up only 4.5% annually over the previous ten years. Investors also appreciate the dividends blue-chip stocks typically pay. Dividends are especially attractive if you’re investing for income, as many investors do in retirement.

The company wears the blue-chip title with ease, as it traces its roots back to 1885, producing a predecessor to the modern thermostat, explains Morningstar senior analyst Josh Aguilar. We view Honeywell as one of the highest-quality companies in the diversified industrials space, he adds. The company boasts an exceptionally strong balance sheet and management practices a disciplined M&A process that doesn’t overpay for growth. Honeywell stock is 12% undervalued relative to our $225 fair value estimate. Pfizer stock offers the highest trailing yield among our list of the best blue-chip stocks to buy for the long term. We don’t think the market fully appreciates the pharmaceutical giant’s ability to offset major patent losses over the next five years, argues Morningstar director Damien Conover.