Blue chip companies are well-known as leaders in their respective industries. They are considered prestigious organizations that have stood firm against the test of time, and are well-respected among stakeholders, whether they are investors, customers, employees, or suppliers. These companies possess strong business models and deliver impressive returns to their investors.
Blue Chips – Term Explained by William Schantz
The phrase “blue chip” was coined by Oliver Gingold, an employee of Dow Jones, in 1923 when he saw some stocks being traded at over $200. As you may have already guessed, the term chip comes from poker, but why blue? As per William Schantz, back in the old days, players used three colors for chips when playing poker; red, white, and blue. Blue chips were always valued more than red or white chips.
However, the trend has changed a little over the years regarding stocks. Blue chip stocks are not always the highest-priced ones, but they certainly are stocks belonging to highly valued companies that have stood firm through the ups and downs of time. These stocks are known to produce the highest returns over time.
Characteristics of Blue-Chip Companies
According to William Schantz, there are no criteria for a company to become a blue chip. But most blue-chip companies have the following characteristics:
- They are valued in billions. Many blue chips are valued in hundreds of billions
- They are well-established and have been around for several years
- They are a household name – everyone knows about their products
- They have an excellent reputation for providing top-notch products and services
- Their leadership is accepted and respected in the industry
- They pay respectable dividends
Blue chip stocks are far less volatile when compared to other companies. This gives the investors a chance to earn a steady income and growth in their investment portfolios. Blue chip stocks are also among the favorite investment of risk-averse investors, who prefer to have a steady income while playing safe. They are highly popular among people who are about to retire or have retired.
William Schantz believes most investors turn to blue chip stocks during economic crises. The main reason behind this is that these companies are financially sound and are usually the least impacted by economic trends. Their products have become a necessity for their consumers, so people are likely to purchase from them even in bad economic times. For instance, regardless of the conditions, people will continue to buy Band-Aids from J&J and diapers from P&G.
Common Industries of Blue-Chips
It is well-known that some industries are more stable than others. But you will find most blue chip companies in the following industries:
- Healthcare: No matter the circumstances, people still need medicines and prescriptions. It is no wonder that many pharmaceutical companies such as Pfizer, GlaxoSmithKline, and Johnson & Johnson are among the blue chips
- Fast Moving Consumer Goods: Companies producing consumer staples are more likely to be among the blue chips. You can think of Proctor & Gamble, Unilever, and even Walmart.
- Software and IT Specialists: Technology has become increasingly common. It is no wonder that investors are putting a lot of trust in technology companies such as Google, Apple, and Microsoft.
William Schantz’s Final Thoughts
It is important to understand that blue chip companies are considered a secure investment over time. They are not a magic pill to double your investment in a few months. Instead, they ensure stable income in a diversified portfolio.
However, according to William Schantz, these companies can also suffer when the economic times turn rough or if something changes in the market trends. So, it is crucial to do your research before you dump your investments in blue chip stocks.