DEFINITION of Blue Chip
Blue-chip stocks are the shares of companies that are reputable, financially stable and long-established within their sector.
It has a high price because of public confidence in the company’s long record of steady earnings.
WHAT IT IS IN ESSENCE
It is a stock in a corporation with a national reputation for quality, reliability, and the ability to operate profitably in good times and bad.
Blue-chip stocks are shares of very large and well-recognized companies with a long history of sound financial performance. These stocks are known to have capabilities to endure tough market conditions and give high returns in good market conditions.
These stocks generally cost high, as they have a good reputation and are often market leaders in their respective industries. Oliver Gingold, who worked at Dow Jones, coined this phrase in 1923. This term came into trend after Gingold, while standing near the stock ticker at a brokerage firm, noticed that several stocks traded at $200 or more per share. He called them ‘Blue Chip Stocks’ and wrote an article on them. That’s how the phrase was born.
Since then the term has been used to refer to highly-priced stocks, but now it is used more commonly to refer to high-quality stocks. These are stocks that generally deliver superior returns in the long run.
Blue chip company is very strong financially. It has a solid track record of producing earnings and only a moderate amount of debt. Typically, these companies are large corporations, mostly international.
HOW TO USE
Over time, the companies that are considered blue-chip tend to change. But the exact definition of what is required for blue chip status is vague. Such a company will be at or near the very top of its sector. It will feature on a recognized index and will be or have a well-known brand.