What Are Blue Chip Stocks?

Investing can be quite confusing, especially for beginners who are looking to get started. There are so many options, and of course everyone wants to choose the ones that will allow them to get the greatest return. Blue chip stock is a good choice for many investors of all types and experiences.

Many may wonder, “what are blue chip stocks?” Fortunately, these stocks are nothing unusual and nothing new. Blue chip is a term that refers to stocks trading the main market of United States trading, the New York Stock Exchange and that have a reputation for being large, stable, profitable corporations likely to remain in business for a long time to come. These companies are considered to operate in a quality oriented manner and are seen as more reliable than other stocks. They are a safer choice than the average stock for many investors, especially those who are not well versed in stock market dynamics.

Though this term may be somewhat opinion based, the Dow Jones Industrial Average is a tool that can help one select and analyze blue chip stocks. This number is a price-weighted calculation that gives investors the average price of the top thirty blue chip stocks in the market. This number has been used since October of 1928 and is still used frequently today. The word takes its root from the game of poker, in which the blue poker chips are worth the highest amount of money.

Blue chip companies often have certain characteristics. The companies are often the leader or one of the top performers in their industries. These companies are very well known, and are considered to be mature. They have reputations for hiring competent managers and employees, and often have a market capitalization (current shares multiplied by the current price per share) greater than five billion U.S. dollars. One might also hear blue chip companies referred to as bellwether, which in business terms translates to mean the leader in their specific industry.

One can get more information about blue chip performers from their stock broker (if you have one). The Internet also has a wealth of information about these companies, though one should make sure that their information source is reliable. Other factors should be taken into consideration along with a stock’s blue chip status, but this designation is often a good indicator or safety and performance.