Definition 

Blue chips are those organizations which are financially sound, well established, and nationally recognized.

These organizations usually

• sell widely accepted and
• high quality products and services and
• operate in the market
• for a long term period.

These organizations are mainly known for their financial stability and reliable growth in the unfavorable condition of the economy.

Word “Blue Chip” derived from

The name Blue Chip has been derived from the Poker where, blue chips have the highest value.

Market Leaders

Market capitalization of blue-chips is high and these organizations are the market leader in the respective sectors. The dividend policy of blue-chip is mostly stable or rising, depending on the company policy and economic condition.

Explanation

The stock of blue-chip is usually a part of the renowned averages or indexes, such as S&P 500, Nasdaq-100, and Dow Jones in the United States, the FTSE index in the United Kingdom. Blue-chip companies face several challenges in order to survive in the market by investing safely. But, it is not always the same case. The bankruptcy of Lehman Brothers and General Motors in global recession of 2008 is a proof that even the most stable company may collapse.

Most Popular Index

Dow Jones Industrial Average is the most popular index of United States for blue-chips. Dow Jones Industrial Average is based on price weighted average of thirty blue chip stocks, which are market leaders of their industry. Dow Jones is consisting of all the blue chip companies, but this index does not include all the blue chip companies.  On the other hand, this index is the widely followed stock market indicator.

Examples

Some of the blue-chip companies include

• Coca-Cola,
• Procter & Gamble,
• Microsoft,
• Walt Disney, and
• Johnson & Johnson.