What are blue-chip stocks?
Blue-chip stocks are the shares of companies that are well-known, highly respected by both customers and business analysts alike, and have a large market capitalization. Blue-chip stocks are sometimes perceived as safe havens due to their stable cash flows and valuable brands. In periods of market uncertainty, traders may flock to brands that they think will weather the storm, for example in 2008 companies such as IBM, Procter & Gamble and PepsiCo thrived while the rest of the market collapsed. Many blue-chip companies also pay out dividends to their investors.
The term “blue-chip” to describe a company as valuable and prestigious comes from a poker game. Typically, blue-chips hold the highest value in poker chip sets, so this term was first used to segregate the highest priced stocks in the market. Now, it holds a similar meaning but places more emphasis on the value and quality of the stock, rather than price only.
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