BlueChip

Blue-chip stock is a term used in finance to describe shares of large, well-established, financially sound companies with a history of reliable performance. The term originates from gambling, where blue chips are the highest-valued chips; in markets, blue-chip companies are seen as high-quality, stable investments.

Blue-chip companies are typically large-cap, multinational corporations with robust balance sheets, strong cash flow, and diversified operations. They often have long records of dividend payments and the ability to endure economic downturns. They are commonly included in major indices and form the core of many conservative portfolios.

Investors favor blue chips for lower volatility, liquidity, and income from dividends, along with the potential for steady capital appreciation. They are often viewed as relatively safe during market stress, though no stock is risk-free, and prices can still fall in recessions or during sector-specific shocks.

Limitations include higher valuations relative to growth stocks, slower growth, and sensitivity to macroeconomic factors. The focus on stability may limit upside during strong upswings, and these stocks can suffer from sector concentration and dividend cuts in extreme conditions.

Examples of commonly cited blue chips include Coca-Cola, Johnson & Johnson, Procter & Gamble, IBM, Microsoft, and Exxon Mobil.