A blue chip stock is a term used to describe a stock from a well-established company. These companies typically have minimal outstanding liabilities and a strong history of stable earnings.
Blue chip stocks are considered financially sound and are often regarded as safe investments. Companies with blue chip stocks share common characteristics, such as being leaders or dominant players in their respective industries and consistently paying dividends to shareholders, even during periods of weaker business performance.
For decades, investors have highly valued blue chip stocks, which are known for their solid growth and substantial market capitalization. Examples of blue chip stocks include Coca-Cola, Wal-Mart, McDonald’s, Berkshire Hathaway, IBM, Gillette, and ExxonMobil.
Blue chip stocks are sometimes also referred to as bellwether issues. The term “blue chip” originates from casinos, where blue chips represent the highest value among the various chip colors. The phrase “blue chip stock” was first coined in 1923 or 1924 by Oliver Gingold of Dow Jones.
According to Dow Jones company history, Gingold first used the term while observing stocks trading at $200 to $250 per share or higher. He mentioned to Lucien Hooper from Hutton and Company that he would return to his office to “write about these blue chip stocks,” and the term has been used to describe successful stocks ever since.
Initially, blue chip stocks referred to those with high prices, but today, they are more commonly associated with high-quality stocks and their respective companies. Financial channels and newspapers frequently display the performance of blue chip stocks alongside major stock market indices like the NYSE and the Dow Jones Industrial Average, which is why these stocks are also known as bellwether issues.
