Blue chip stocks are issued by large companies renowned for excellent performance – both on Wall Street and off. Typically considered leaders in their industries, these firms are often household names, and as such are well-positioned to navigate tough climates.
Blue chip stocks come from large, well-established firms with a history of excellent reputations and sound financials. Most are industry leaders and household names that can weather all kinds of economic climates. The majority of blue chips pay dividends on their stocks, though not all do.
The term “blue chip” is believed to hail from poker, where blue chips are the most expensive bets. True to form, many blue chips trade in excess of $100, $200, or even $400. Several blue chips (think Apple, Google, Kellogg and IBM) have initiated stock splits in recent years to increase affordability.
There’s no official list of criteria to qualify as a blue chip – in fact, there’s no official list of blue chips. To borrow from Supreme Court Justice Potter Stewart’s infamous statement about explicit content: You’ll know a blue chip when you see it.
Most blue chip stocks share a set of similar characteristics, including:
Blue chips can offer safety and long-term growth – but they’re less likely to add short term rocket fuel to your portfolio. Here’s what to consider when investing in these titans of industry.
Blue chip stocks are generally the top performing titans of their respective industries. Chances are, you know them already: names like Google, Amazon, Bank of America, Costco, Goldman Sachs, McDonald’s, Microsoft, Verizon and Visa.
But even among the giants, a few particularly notable names stand out:
Apple is arguably the pinnacle of blue chip royalty.
The famed iPhone maker is renowned for its history of innovation and product excellence. In 2018, it became the first company to reach a $1 trillion market cap. In 2022, it broke its own record when it topped $3 trillion.
The company has split its stock five times in its history and in 2021 generated $365.82 billion in global revenue. Between October 2017 and October 2022, this blue chip appreciated over 272%. Since 1982, those gains have neared 137,773%.
Amazon is one of the largest, most successful retailers in the world. It’s so big, in fact, it initiated an astonishing 20-for-1 stock split to bring its share price down from an eye-watering $2,450 in 2022. Between October 2017 and October 2022, Amazon stock grew nearly 119%. Hailing back to 1997, its gains topped 133,558%.
Though the company experienced some post-pandemic turbulence, it continues to command the online retail space. And as more people gravitate to online shopping, it’s unlikely to relinquish its position anytime soon.
Coca-Cola is a well-known international brand. The soft drinks giant boasts over 200 companies in its portfolio and revenues of $38.66 billion in 2021. The company is also a “Dividend King,” meaning it’s raised dividends for over 50 consecutive years.
From October 2017 to October 2022, Coca-Cola stock grew 27%. And between 1982 and 2022, its returns exceeded 6,312%. Though it’s not the largest or fastest-growing blue chip, its ubiquity and history of long-term profits makes it a unique top performer.
Costco is famous for delicious hotdogs and cheap prices. But it’s the warehouse retailer’s ability to maintain profits in all weather that excites investors. In 2022, the company raked in a whopping $227 billion in revenues.
The firm is so sure of its long-term prospects that CEO Bob Nelson said in 2022 it plans to keep its famous hot dog and soda combination priced the same “a little longer – forever.” It’s this confidence and savvy that saw Costco stock grow 206% between October 2017 and October 2022 – and top 25,260% growth since 1982.
Proctor & Gamble is a consumer-facing company that makes…well, everything, from toilet paper to toothpaste. Its enormous portfolio and product necessity all but ensures the giant’s long-term success, regardless of current headwinds.
As a result, P&G’s revenues and stock price tend to remain steadier, making it even less volatile than other blue chips. In 2021, the household name boasted revenues of $76.1 billion. Between October 2017 and October 2022, its stock rose around 50%; since 1982, P&G has appreciated over 3,870%.
And as of October 2022, P&G maintains one of the most impressive dividend records around: 132 years of consecutive payments, with raises for the last 66.
“Safe” is a relative term in investing.
For instance, bonds are often viewed as safer than stocks, though they experience their own volatility. CDs and high-yield savings accounts are “safe” because of their FDIC insurance, though interest rate fluctuations can mess with your long-term profits.
Similarly, blue chips’ safety is also relative.
One of the hallmarks of blue chip stocks is that their sheer bulk helps them more easily weather downturns and maintain dividends. But even titans can fall – and when they do, they hit the ground hard.
For example, Blockbuster Video was once the undisputed king of cheap entertainment – until Netflix stole the crown.
GM and Lehman Brothers, crowned kings at the top of their industries, went bust under the financial pressures of the Great Recession.
In 2012, photography leader Kodak filed for bankruptcy, and the stock has never recovered. And American retail pioneer Sears never broke 30 cents per share in 2022.
In other words: yes, blue chip stocks can be “safer” than their smaller, more volatile cousins. But in investing, there’s no such thing as a sure thing, and in the right conditions, even a giant can collapse.
Investing in blue chips is similar to investing in most equities: you just need a brokerage or retirement account to get started.
From there, you can decide if you want to curate your own blue chip holdings or opt for a blue chip-focused ETF.
Large-cap index funds and funds that track the S&P 500 or Dow provide passive exposure to blue chips while minimizing costs. Funds also come with the benefit of automatic diversification, which can spread your dollars (and risk).
However, these options rarely come with the power of artificial intelligence to help you find the right mix of blue chip and non-blue chip investments. Here at Q.ai, that’s exactly what we provide.
Whether you want to hand the wheel to our in-house AI or opt for a DIY approach, our Investment Kits make investing simple, easy and fun. Our Large Cap Kit provides plenty of blue chip exposure, while the rest let you round out your portfolio to your preferred diversification.
It’s AI-based investing, your way.
There’s no official list of blue chip stock qualifications. But generally, blue chips are well-established, relatively stable firms that dominate their industry. They often have market caps in the billions and pay dividends to investors.
Generally, yes –investors often consider blue chip stocks good investments. Their diminished risk profile, consistent performance and slow-but-steady growth make them ideal “core” holdings for many portfolios.
You can buy blue chips individually, or else buy ETFs, mutual funds or index funds that contain blue chips. If you want “pure” blue chip exposure, the Dow Jones Industrial Average contains 30 of the largest bellwether blue chips in the U.S.
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