Definition of 'Blue Chip'
A nationally recognized, well-established and financially sound company.
Blue chips generally sell high-quality, widely accepted products and
services. Blue chip companies are known to weather downturns and
operate profitably in the face of adverse economic conditions, which helps
to contribute to their long record of stable and reliable growth.
Investopedia explains 'Blue Chip'
The name "blue chip" came about because in the game of poker the blue
chips have the highest value.
Blue chip stocks are seen as a less volatile investment than owning shares
in companies without blue chip status because blue chips have an
institutional status in the economy. Investors may buy blue chip
companies to provide steady growth in their portfolios. The stock price of a
blue chip usually closely follows the S&P 500.
Sheer size may be enought to offer investors some stability. The market assigns the highest
values to both the biggest and the best companies. So market value is still a good indicatios of
what investorsmost believe in.
Montgomery explains these companies in relation to the 2008 bailouts, that even underscored
the significance of the old reliables. „That's one of the reasons they were blue-chip – they
were too big to fail“. – John Montgomery, Bridgeway blue chips 35 Index founder
If a company has a competitive advantage, it's going to survive a lot longer than a company
that doesn't have it.
-- Paul Larson, a Morningstar equity strategist
What remains the classic measure of a company's strengths is the ability to generate enough dollars to
pay the bills, invest in the business and still have something left over. High (or rising) dividends are
considered to be a good sign of health.
In addition to cash flow, investors also look for low debt and low appetite for new dept. That is why
companies like Google Inc. and Apple Inc. have some bluechip honor even though their stocks are very
volatile these days.
Identifying the blue chips
This article by Karel Blumenthal is taken from The Wall Street Journal (January 14, 2009; page
D1). It has its full copyright! As they claim: copyright 2008 Dow Jones & Company, Inc. All
Are there any blue-chip stocks left?
Across many industries, the nation's most reliably profitable companies are looking more black-
and-blue than blue-chip. Longtime stalwart General Motors Corp. is idling near bankruptcy
court. Companies from Alcoa Inc. to Intel Corp. to Wal-Mart Stores Inc. are cutting profit
View Full Image Identifying Blue Chips, Post-Meltdown Associated Press
Long-reliable companies like Wal-Mart are now trimming their profit projections. Identifying
Blue Chips, Post-Meltdown Identifying Blue Chips, Post-Meltdown
And while government support has stabilized giant financial concerns like Citigroup Inc. and
American International Group Inc., can an entity that's eating at the bailout trough really retain
The question is entirely serious. Blue chips are the bedrock of our stock portfolios, the shares
we most need to believe in. We buy them hoping they will be as safe and solid as any stock can
be, freeing us up to chase riskier, higher-yielding investments.
Blue chips got their name in the 1920s when a markets reporter for this newspaper noticed
some stocks trading north of $200 a share and compared them to the blue poker chips that
then carried the highest value in the game. Over time, the definition evolved to signify large
companies that regularly report increasing profits and dividends – the sorts of shares that small-
time investors could buy and forget about.
„Twenty years ago, a stock was considered a suitable blue chip if it was in the Standard &
Poor's 500,“ says Mark M. Adelmann, a portfolio manager at Denver Investment Advisors who
helps manage the Westcore Blue Chip Fund.
No more. So many big names have tumbled and the short-term outlook is so dreary that
it's hard to have confidence in today's giants of industry. But stock-market professionals believe
that there are still a number of blue-chip stocks. Some are relative newcomers, like Cisco
Systems Inc. and Intel Corp. But investors shouldn't count out yesterday's favorites. either;
AT&T Inc., for one, has endured setbacks in the past but is now on many lists of top stocks.
Here's what the market pros look for:
Cash flow – the ability to generate enough dollars to pay your bills, invest in the business and
still have something left over – remains a classic measure of a company's strength and is often
the first place investors look. Rising dividends, a byproduct of strong cash flow, have long been
considered a sign of health.
True, Standard & Poor's reported last week that 288 companies cut their dividends in the fourth
quarter, making it the single worst quarter since S&P began keeping track in 1956. But
475 companies raised their payouts.
Those with strong cash flow aren't always obvious. Boeing Co. has seen commercial orders fall
and is planning cutbacks but has maintained or raised its quarterly dividend for decades now,
as has AT&T. Jeremy Siegel, finance professor at Wharton School, has long been a fan of using
dividends as an investing strategy and still advocates it. Still, he cautions against chasing the
highest dividends – which could be ripe for an imminent cut. „You should be very, very
diversified,“ he adds.
In addition to cash flow, investors also look for low debt – and, maybe more important, a low
appetite for new debt. Such factors have won technology companies like Google Inc. and Apple
Inc. blue-chip honors, even though their stocks are more volatile than those of old-line
companies and they eschew dividends.
Along with cash flow and a strong balance sheet, many managers weigh the big economic
picture. This has to do with not only the prognosis for the company's business but also its
capacity to respond to changing conditions. Derek Young, portfolio manager of the Fidelity
Strategic Dividend & Income Fund, says investors need to regularly re-evaluate their holdings.
„Markets change, companies change, and opportunities change,“ he says.
John P. Calamos Sr., chief executive and chief investment officer at Calamos Investments,
which owns 97 stocks in its Blue Chip Fund, tries to identify where business is going in the next
few years. On the Calamos short list: infrastructure world-wide, health care and the kind of
global reach that Nike Inc. and Coca-Cola Co. offer.
Management strength can help in a crisis. True blue chips have managers who have earned
investors' trust and „have the integrity to report what you need know to evaluate the business,“
says Mr. Adelmann of Denver Investment Advisors.
Morningstar, the financial-research firm, looks for companies with astrong competitive
advantage – an „economic moat“ – such as the low prices of Wal-Mart or the market share of
Campbell Soup Co. or Microsoft Corp. „No business is in a great position today given the
environment,“ says Paul Larson, a Morningstar equity strategist and editor of the StockInvestor
newsletter. But, he says, „if a company has a competitive advantage, it's going to survive a lot
longer than a company that doesn't have it.“
Sheer size may be enough to offer investors some stability. The market, at least in theory,
assigns the highest values to both the biggest and the best companies. So market value – the
number of shares times stock price – is still a good indicator of what investors most believe in.
The Bridgeway Blue Chip 35 Index Fund includes the 26 companies with the highest stock-
market value, with the rest chosen for both size and their ability to diversify the index. John
Montgomery, Bridgeway's founder, says the 11-year-old index is re-evaluated every two or
three years and typically starts with 36 stocks because one is expected to merge or fail.
He says that these big stocks outperform the S&P 500 not only in years when large-cap stocks
do well, but also in half the years when small-cap stocks outperform the big ones.
In a way, he says, the 2008 bailouts even underscored the significance of the old reliables.
„Uncle Sam stepped in,“ he notes. „That's one of the reasons they were blue-chip – they were
too big to fail.“
Macro chips refer to the big economic picture. The ability of companies to respond
to changing conditions of the world's markets is beared in mind when investors need to
regularly re-evulate their holdings.
Where the buines is going in the next few years is very important.Management strength can
help in a crisis, but only if managers have earned investor's trust.
It seems that companies like Nike Inc. and Coca-Cola Co. understand pretty well
History of blue chips
Do you want to know the history of blue chip stocks?
The phrase was coined by Oliver Gingold of Dow Jones about the year 1923. Gingold was
standing by the stock ticker at the brokerage firm that later became Merrill Lynch. Noticing
several trades at $200 or $250 a share or more, he said to Lucien Hooper of W.E. Hutton & Co.
that he intended to return to the office to “write about these blue chip stocks.” The phrase has
been in use ever since, originally in reference to high-priced and high-quality stocks.
Blue chip indices
There are many indices that consist of blue chip stocks. The well known is the Dow Jones
Industrial Average that is a price-weighted average of 30 blue chip stocks.
Some countries have their special index. One of the examples is: Dow Jones India Titans
30 that is a price-weighted average of 30 blue chip stocks.
CAC 40 index
Deutscher Aktien IndeX 30
Dow Jones India Titans 30
Dow Jones Industrial Average
Dow Jones STOXX blue chip family
Standard & Poor’s 500
Standard & Poor’s ASX 20
India's Mumbai Stock Exchage SENSEX
India blue chips
Best blue chips in India.
The very well-known stocks are included in the Dow Jones India Titans 30 or Bombay Stock
Exchange Sensex index.
Most liquid stocks are listed on the Bombay Stock Exchange and theNational Stock
Exchange of India.
This index represents top 30 indian companies. The top three companies in the BSE Sensex
index by market capitalization are:
1. Reliance Industries Ltd.
2. Infosys Technologies Ltd.
3. ICICI Bank Ltd.
See more about BSE Sensex blue chip companies.
Dow Jones India Titans 30
The top five companies in the Dow Jones index by market capitalization are:
1. Reliance Industries Ltd.
2. Infosys Technologies Ltd.
3. HDFC Ltd.
4. Bharti Airtel Ltd.
5. Larsen & Toubro Ltd.
See more about Dow Jones India Titans 30 – blue chip companies.
The most prominent sectors in the index are financials, basic materials and oil and gas.
Dow Jones India Titans 30
The Dow Jones India Titans 30 Index includes 30 largest and most liquid stocks traded in India.
The selection to the index is based on rankings by float-adjusted market capitalisation and
12 month average daily trading volume. The index will track share prices of leading players
across various business segments incorporated on the index and will be a basis for investment.
Calculated in US dollar and Indian rupee, it will be reviewed every March.
The index has been created by financial information company Dow Jones Indexes, a business
unit of Dow Jones & Company, a News Corporation company.
Companies listed in the index
Infosys Technologies Ltd. 11,88%
Reliance Industries Ltd. 9,09%
Bharti Airtel Ltd. 8,28%
Housing Development Finance Corp. Ltd. 7,60%
ITC Ltd. 6,80%
Larsen & Toubro Ltd. 5,68%
ICICI Bank Ltd. 5,62%
State Bank of India 5,21%
Oil & Natural Gas Corp. Ltd. 4,68%
Bharat Heavy Electricals Ltd. 3,48%
Cairn India Ltd. 3,40%
DLF Ltd. 3,02%
Reliance Communications Ltd. 2,79%
Satyam Computer Services Ltd. 2,75%
Mundra Port & Special Economic Zone Ltd. 2,23%
Tata Consultancy Services Ltd. 2,01%
Jindal Steel & Power Ltd. 1,54%
Hindalco Industries Ltd. 1,48%
Essar Oil Ltd. 1,45%
Tata Steel Ltd. 1,39%
Reliance Petroleum Ltd. 1,24%
Suzlon Energy Ltd. 1,17%
Reliance Capital Ltd. 1,13%
Infrastructure Development Finance Co. Ltd. 1,11%
Reliance Infrastructure Ltd. 1,10%
Sterlite Industries (India) Ltd. 1,09%
Jaiprakash Associates Ltd. 0,90%
Reliance Natural Resources Ltd. 0,74%
Tata Motors Ltd. 0,60%
Unitech Ltd. 0,54%
UBS Financial Services, Inc. chose companies that have at least four of the six following characteristics to
be considered a blue chip:
Rated "Buy" by the Sponsor (See "UBS Investment Research Ratings System" in the prospectus);
Market capitalization in excess of $5 billion;
Financial strength, a record of profit growth and reputation for skilled management;
Established, well-known company considered to be stable and mature with a reputation for providing
high-quality goods and services; and
Leader in its market niche.
In addition, companies are analyzed for their record of earnings over a relatively long period of time and
future potential. Dividend payments, while not required, are considered.
Other terms that are often used in conjunction with blue chip include "bellwether" and "large cap".
Bellwether is any company that is recognized as the leader in its industry. For example, Microsoft would
be considered a bellwether stock for computer software. Large cap is a reference to the size of a
company in terms of total market capitalization. Market capitalization is simply calculated by taking the
number of shares outstanding and multiplying by the stock's current price per share.
Most professional investors agree that blue chips share several important characteristics including:
An established record of stable earning power over several decades
An equally long record of uninterrupted dividend payments to common stock holders
A history of regular increases in the dividends payable to each share
Strong balance sheets with a moderate debt burden
High credit ratings in the bond and commercial paper markets
Large size relative to American businesses as a whole in terms of revenue and market capitalization
Diversified product lines (e.g., General Electric) and / or geographic location (e.g., Coca-Cola).
A competitive advantage in the market place due to cost efficiencies, franchise value or distribution
A blue chip is a nationally recognized, well-established and financially sound company. The termcomes from blue poker chips,
which have the highest value in the game.
Definition of 'Blue Chip'
A nationally recognized, well-established and financially sound company. Blue chips generally sell high-quality, widely accepted
products and services. Blue chip companies are known to weather downturns and operate profitably in the face of adverse
economic conditions, which helps to contribute to their long record of stable and reliable growth.
Features of Blue Chip Stocks
There are no specific criteria for blue chip stocks. The most common characteristics of such stocks include:
1. Revenues: Companies with revenues higher than that generated by industry peers.
2. Earnings: Companies that have been generating healthy earnings on a consistent basis.
3. Dividends: Companies that pay regular dividends to common stockholders, even if their performance has been unsatisfactory in a
particular period. Moreover, the dividend payout is raised at regular intervals.
4. Balance Sheet: The balance sheets are robust and their debt liabilities are not extensive.
5. Credit Rating: Their credit ratings in the bond and unsecured debt markets are high.
6. Size: The market capitalization of these companies is higher than that of other companies in the same industry.
7. Product Portfolio: They have extensive and diversified product lines. They also have a wide global presence.
8. Competition: They are cost efficient, with high distribution control and excellent franchise value, all of which contribute towards
their competitive advantag