Blue-chip stocks

Businesses that are well-established, financially stable and profitable are often referred to as “blue-chip companies” and form a major sector of the stock exchange across the globe. Usually, these brands were established many years ago and consistently boast a large consumer following. In comparison to other stocks, blue-chips can offer a lower-risk and less volatile investment opportunity.

Blue-chip companies characteristically boast a high market capitalization of over one billion dollars. Market capitalization is the value of a publicly traded company and its shares on the stock market, which can be calculated by multiplying the current share price with the total number of shares. In turn, available shares from these established companies are often called blue-chip stocks and can be a particularly good investment for traders with a balanced portfolio. Blue-chip companies tend to have stable balance sheets and cash flows, meaning that even in uncertain times, they are likely to bounce back quickly from a bearish market.

For example, throughout the global recession of 2007-2008, some international blue-chip companies that thrived on the stock market collapse include IBM, Procter & Gamble and PepsiCo. This meant that successful brands were making enough profit to be able to increase dividend payouts to shareholders, increasing brand reputation and stability.

Some traders choose to invest in blue-chip shares alongside other markets and assets in the trading industry as this can lead to a diversified portfolio, meaning that the risk of losses is at a lower level. Read our complete guide to share trading here.

blue chip stocks

Blue-chip meaning

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.

What is a blue-chip company?

A blue-chip company is typically well-known and highly respected by both customers and business analysts alike. Blue-chip companies are sometimes perceived as “safe havens” due to their stability within the financial industry. In periods of market uncertainty, investors may reallocate their assets to hold a larger percentage of blue-chip stocks, as investors may look to reduce their total risk exposure. Many blue-chip companies also pay out dividends to their investors, whereas a smaller business would usually retain their earnings until they are of a greater size and significance.

Blue-chip stocks to watch

Below is a list of businesses with blue-chip status that are considered some of the wealthiest and most successful around the world with large market capitalizations. A good indicator of blue-chip status is if the company is listed on a renowned trading index. A distinguished list is the Dow Jones Industrial Average index, or Dow Jones 30, which highlights the 30 best blue-chip stocks in the US on an updated basis.

Please note that blue-chip companies are consistently fluctuating in value, along with their share price in the stock market, therefore this list is not in order.

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3M

This is one of the most prosperous companies in the industrial sector with blue-chip status. 3M has become a valued provider with businesses and customers alike due to their inventions of new health and safety products.

Market cap: $88 billion
Founded in 1902

Amazon

Amazon is a pioneer in the e-commerce industry and one of the major online retail stores. It offers everything from homeware to electronics, from healthcare products to subscription TV services.

Market cap: $1.07 trillion
Founded in 1994

Apple

One of the “Big Four” technology companies (or five if you consider “GAFAM”), Apple is well-known for the development of iOS products and is the creator of the most popular phone used by consumers worldwide, the iPhone.

Market cap: $1.27 trillion
Founded in 1976

Berkshire Hathaway

Slightly different to others on this list, Berkshire Hathaway is an American holding company owned by Warren Buffet, who is one of the most famous global investors, which holds shares in many international blue-chip stocks, including those from Apple, American Express and United Airlines.

Market cap: $505 billion
Founded in 1839

Coca-Cola

This is one of the most recognised brands across the globe, due to their success in manufacturing and retailing of soft drinks and syrups. They have been producing Coca-Cola since 1892 and still have a large market share in the industry.

Market cap: $237 billion
Founded in 1892

Facebook

A more recent company to acquire blue-chip status is the social media giant Facebook. First created merely as a method of communication between students of Harvard University, it now boasts almost 2.5 billion users as of 2020.

Market cap: $528 billion
Founded in 2004

Johnson & Johnson

Johnson & Johnson belongs to the healthcare sector, where they manufacture medical devices, pharmaceuticals and consumer packaged goods, headquartered in New Jersey, USA.

Market cap: $374 billion
Founded in 1886

Merck

Merck is a multinational pharmaceutical company that has headquarters in New Jersey, and has provided medicines and vaccines for the world's deadliest diseases for over a century. It is one of the most popular pharmaceutical stocks in history.

Market cap: $197 billion
Founded in 1891

Microsoft

Microsoft is known for inventing some of the most widely used operating systems throughout the world, including Windows, MS Office and the Internet Explorer browser. It is officially the world’s largest software maker.

Market cap: $1.3 trillion
Founded in 1975

Visa

Credit cards, debit cards and prepaid cards are mainly the product of financial services corporation Visa, which was founded by Bank of America in 1958. It has operations across all six continents.

Market cap: $409 billion
Founded in 1958

High dividend blue-chip stocks

The majority of blue-chip shares pay consistent dividends, which can contribute to a balanced trader’s investment portfolio. Some high dividend stocks branch from blue-chip companies including BP, Vodafone, GSK and Shell. The dividend yields for these stocks vary in percentage, with some offering a high figure of around 15%, although these percentages can predict future stock prices of blue-chip companies, with high dividends suggesting that the stock price may increase significantly.

Due to their long-standing financial security within the market, many traders consider blue-chip stocks to be a worthwhile investment, especially those with high dividend payout ratios. However, if you are considering investing in blue-chip companies, you should thoroughly review a company’s fundamentals in order to evaluate all elements that may affect your decision.

blue chip shares

How to trade blue-chip stocks

You can start trading blue-chip companies within the share market by opening a live account for spread betting or trading CFDs. Please note that these are both leveraged products, therefore, this can greatly magnify any profits from the markets moving favourably in your direction, but in turn, it can also magnify the losses, as trading with leverage only requires a trader to place a deposit of the full trade value while giving increased exposure to the market.

You can trade on a variety of stocks, such as those blue-chip mentioned above, and we encourage you to carry out some thorough research on which particular blue-chip shares are well suited for you. We have created a specific news and analysis section to keep our clients up to date with market changes and opportunities.

Penny stocks vs blue-chip stocks

It happens to be that many of the blue-chip companies on major exchange lists originated from small shares of public companies, referred to as “penny stocks”. The name derives from the stock being valued at less than one dollar, therefore these types of shares are considered highly speculative, as many traders will invest in the hopes that they continue to grow to the high quality level of blue-chip stocks.

Penny stocks are also available on our online trading platform, Next Generation, where we offer a vast number of shares in the stock market worldwide to invest in. Read our complete guide to trading penny stocks here.

Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

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