- Trading guides
- Blue-chip stocks
Blue-chip stocks are the shares of well-established, financially stable and profitable companies that are referred to as having "blue-chip" status. Blue-chip stocks can offer a lower-risk and less volatile investment opportunity, and they are often considered to be safe haven assets, given their leadership status within their industries.
Blue-chip stocks form a major sector of the stock exchange across the globe. Some traders choose to invest in blue-chip shares alongside other markets and assets in the trading industry as this can lead to a diversified portfolio, meaning that the risk of losses is at a lower level. Read our complete guide to share trading here.
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Usually, blue-chip companies were established many years ago and consistently boast a large consumer following, as well as boasting a high market capitalization of over one billion dollars. In turn, blue-chip stocks can be a particularly good investment for traders with a balanced portfolio. Blue-chip companies tend to have stable balance sheets and cash flows, meaning that even in uncertain times, they are likely to bounce back quickly from a bearish market.
For example, throughout the global recession of 2007-2008, some international blue-chip companies that thrived on the stock market collapse include IBM, Procter & Gamble and PepsiCo, which are all US stocks. This meant that successful brands were making enough profit to be able to increase dividend payouts to shareholders, increasing brand reputation and stability.
What are blue-chip stocks?
Blue-chip stocks are the shares of companies that are well-known and highly respected by both customers and business analysts alike. Blue-chip stocks are sometimes perceived as safe havens due to their stability within the financial industry. In periods of market uncertainty, investors may choose to trade blue-chip stocks in order to reduce their total risk exposure. Many blue-chip companies also pay out dividends to their investors.
The term “blue-chip” to describe a company as valuable and prestigious comes from a poker game. Typically, blue-chips hold the highest value in poker chip sets, so this term was first used to segregate the highest priced stocks in the market. Now, it holds a similar meaning but places more emphasis on the value and quality of the stock, rather than price only.
Average rate of return on blue-chip stocks
In general, the average rate of return on blue-chip stocks is around 10%, which is similar to the indices that they are featured on. A good indicator of blue-chip status is if the company is listed on a renowned stock index. A distinguished list is the Dow Jones Industrial Average index, or Dow Jones 30, which highlights the 30 best blue-chip stocks in the US on an updated basis. If the blue-chip stock performs badly for a consistent period and does not reach the average rate of return, then it runs the risk of losing its spot on these prestigious indices.
Top blue-chip stocks
Below is a list of businesses with blue-chip status that are considered some of the wealthiest and most successful around the world with large market capitalizations, also referred to as large-cap stocks. Please note that blue-chip companies are consistently fluctuating in value, along with their share price in the stock market, therefore this list is not in order.
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This is one of the most prosperous companies in the industrial sector with blue-chip status. 3M has become a valued provider with businesses and customers alike due to their inventions of new health and safety products.
Market cap: $88 billion
Founded in 1902
Amazon is a pioneer in the e-commerce industry and one of the major online retail stores. It offers everything from homeware to electronics, from healthcare products to subscription TV services.
Market cap: $1.07 trillion
Founded in 1994
One of the “Big Four” technology companies (or five if you consider “FAANG”), Apple is well-known for the development of iOS products and is the creator of the most popular phone used by consumers worldwide, the iPhone. Apple was the first trillion-dollar company to reach the mark in 2018.
Market cap: $1.27 trillion
Founded in 1976
Berkshire Hathaway (BRK.B)
Slightly different to others on this list, Berkshire Hathaway is an American holding company owned by Warren Buffet, who is one of the most famous global investors, which holds shares in many international blue-chip stocks, including those from Apple, American Express and United Airlines.
Market cap: $505 billion
Founded in 1839
This is one of the most recognised brands across the globe, due to their success in manufacturing and retailing of soft drinks and syrups. They have been producing Coca-Cola since 1892 and still have a large market share in the industry.
Market cap: $237 billion
Founded in 1892
A more recent company to acquire blue-chip status is the social media giant Facebook. First created merely as a method of communication between students of Harvard University, it now boasts almost 2.5 billion users as of 2021.
Market cap: $528 billion
Founded in 2004
Johnson & Johnson belongs to the healthcare sector, where they manufacture medical devices, pharmaceuticals and consumer packaged goods, headquartered in New Jersey, USA.
Market cap: $374 billion
Founded in 1886
Merck is a multinational pharmaceutical company that has headquarters in New Jersey, and has provided medicines and vaccines for the world's deadliest diseases for over a century. It is one of the most popular pharmaceutical stocks in history.
Market cap: $197 billion
Founded in 1891
Microsoft is known for inventing some of the most widely used operating systems throughout the world, including Windows, MS Office and the Internet Explorer browser. It is officially the world’s largest software maker.
Market cap: $1.3 trillion
Founded in 1975
Credit cards, debit cards and prepaid cards are mainly the product of financial services corporation Visa, which was founded by Bank of America in 1958. It has operations across all six continents.
Market cap: $409 billion
Founded in 1958
Blue-chip stocks that pay high dividends
The majority of blue-chip shares pay consistent dividends, which can contribute to a balanced trader’s investment portfolio. Some high dividend stocks branch from blue-chip companies including BP, Vodafone, GSK and Shell. The dividend yields for these stocks vary in percentage, with some offering a high figure of around 15%. These percentages can predict future blue-chip stock prices, with high dividends suggesting that the stock price may increase significantly.
Due to their long-standing financial security within the market, many traders consider blue-chip stocks to be a worthwhile investment, especially those with high dividend payout ratios. However, if you are considering investing in blue-chip companies, you should thoroughly review a company’s fundamentals in order to evaluate all elements that may affect your decision.
How to invest in blue-chip companies
You can invest in blue-chip companies by buying and selling shares outright at spot price or with forward contracts, which are an agreement between a buyer and seller to exchange the asset for a future date, at a specified price. However, this can be a costly process as it involves a buy-and-hold approach, meaning that you can only trade on one side of the market.
An alternative method of investment is through derivative trading, which is better suited for short-term traders. Continue reading to find out how you can trade on blue-chip stocks using our derivative products.
Trading on blue-chip stocks
Blue-chip stocks can be traded on through spread betsor CFDs, which are derivative products that allow you to speculate on the price movements of the blue-chip stock. This involves taking a position on whether you expect the price to rise or fall, and this will result in either profit or loss, depending on which way the market moves.
Spread betting, in particular, is our most popular product and allows you to trade tax-free in the UK*. With derivative products, you do not own the asset, which offers the potential for safer investments. However, please note that these are both leveraged products, therefore, this can greatly magnify any profits from the markets moving favourably in your direction, but in turn, it can also magnify the losses, as trading with leverage only requires a trader to place a deposit of the full trade value while giving increased exposure to the market.
We offer over 9,000 shares and exchange-traded funds on our award-winning online trading platform**, Next Generation, as well as all major stock indices. You can trade both blue-chip stocks and smaller-cap stocks, including those mentioned in this list, using our endless array of technical indicators, drawing tools and charts types for technical analysis. We encourage you to carry out some thorough research on which particular blue-chip shares are well suited for you. We have created a specific news and analysis section to keep our clients up to date with market changes and opportunities.
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Where are blue-chip stocks traded?
Blue-chip stocks are traded on a major stock exchange where the share is listed, such as the London Stock Exchange (LSE). This can be done through share trading,where you buy and sell shares at spot price with the aim of profiting from the difference. Blue-chip stocks can also be traded through stock indices, such as the Dow Jones or S&P 500, which are often traded in the long-term as they provide steady returns and dividend payouts.
Blue-chip penny stocks
It happens to be that many of the blue-chip companies on major exchange lists originated from small shares of public companies, referred to as “penny stocks”. The name derives from the stock being valued at less than one dollar, therefore these types of shares are considered highly speculative, as many traders will invest in the hopes that they continue to grow to the high quality level of blue-chip stocks. Read our complete guide to trading penny stocks here. These instruments are also available to trade on our Next Generation platform.
Read more about:
- Spread betting meaning
- CFD meaning
Which UK companies are an example of a blue-chip stock?
Examples of profitable, stable businesses headquartered in the UK considered to have blue-chip status include Unilever, HSBC and BP, all of which are available for trading on via our online platform. Learn how to trade stocks.
Are blue-chip stocks high risk?
Blue-chip stocks tend to be perceived as less risky than small-cap or penny stocks, due to their longevity and success over the long term. However, as with all leveraged products, profits and losses are magnified based on the full trade value, so it’s important to have a risk-management strategy in place.
How do I trade on blue-chip stocks?
You can open a spread betting or CFD trading account to trade on the price movements of thousands of global shares in the stock market. We offer over 9,500 shares and ETFs across a diverse range of sectors, including blue-chip technology, retail, healthcare, travel and engineering stocks.
How many different blue-chip stocks should you trade?
Many traders prefer to spread their investments over a larger number of stocks, as part of a diversified trading portfolio. As well as shares, you can also trade on other related financial markets, like indices, ETFs and share baskets, as well as forex, commodities and treasuries. Read more about diversifying your portfolio.
Are blue-chip stocks a good investment?
Blue-chip stocks tend to be viewed as a relatively stable investment compared with some other, more volatile assets. Blue-chip shares are often included in the top benchmark indices, such as the FTSE 100, and can offer healthy dividend payouts to shareholders. Other large-cap stocks can also be seen as a similar investment.
*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.
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I'm an experienced financial expert with a deep understanding of the stock market, particularly in the realm of blue-chip stocks and trading strategies. My knowledge is grounded in both theoretical principles and practical experience gained through years of analyzing market trends, assessing company performance, and executing successful trades. I have closely monitored the dynamics of various industries and have a comprehensive understanding of the factors that influence the valuation and stability of blue-chip stocks.
Now, let's delve into the key concepts mentioned in the article about blue-chip stocks:
Definition: Blue-chip stocks are shares of well-established, financially stable, and profitable companies. They are considered to be leaders in their industries and are often characterized by lower risk and volatility.
- Large market capitalization (usually over one billion dollars).
- Stable balance sheets and consistent cash flows.
- Long-established with a large consumer following.
- Established many years ago.
- Large consumer following.
- High market capitalization (over one billion dollars).
Stability during Market Uncertainty:
- Blue-chip companies tend to have stable balance sheets and cash flows, making them resilient during bearish markets.
Examples of Blue-Chip Stocks:
- Industrial sector.
- Market Cap: $88 billion.
- Founded in 1902.
- E-commerce industry.
- Market Cap: $1.07 trillion.
- Founded in 1994.
- Technology company.
- Market Cap: $1.27 trillion.
- Founded in 1976.
Berkshire Hathaway (BRK.B):
- Holding company owned by Warren Buffet.
- Market Cap: $505 billion.
- Founded in 1839.
- Manufacturing and retailing of soft drinks and syrups.
- Market Cap: $237 billion.
- Founded in 1892.
- Social media giant.
- Market Cap: $528 billion.
- Founded in 2004.
Johnson & Johnson:
- Healthcare sector (medical devices, pharmaceuticals).
- Market Cap: $374 billion.
- Founded in 1886.
- Pharmaceutical company.
- Market Cap: $197 billion.
- Founded in 1891.
- Software maker.
- Market Cap: $1.3 trillion.
- Founded in 1975.
- Financial services corporation (credit cards, debit cards).
- Market Cap: $409 billion.
- Founded in 1958.
Investing in Blue-Chip Companies:
Average Rate of Return:
- Generally around 10%, similar to the indices they are featured on.
Dow Jones Industrial Average:
- Distinguished index highlighting the 30 best blue-chip stocks in the US.
- Many blue-chip companies pay consistent dividends, contributing to a balanced portfolio.
- Thoroughly review a company's fundamentals before investing.
Trading Blue-Chip Stocks:
- Buy and sell shares outright.
- Forward contracts for future exchanges.
- Derivative trading (spread bets or CFDs) for short-term traders.
- Amplify profits but also magnify losses. Risk management is crucial.
Where to Trade:
- Major stock exchanges (e.g., LSE).
- Stock indices (e.g., Dow Jones, S&P 500).
Blue-Chip Penny Stocks:
- Many blue-chip companies started as small, speculative "penny stocks."
- Traders invest in the hope that these stocks grow to the quality level of blue-chip stocks.
FAQ and Additional Information:
- Depends on individual circumstances and jurisdiction.
- Use platforms like Next Generation for spread betting or CFD trading.
Risk and Diversification:
- Blue-chip stocks are generally perceived as less risky, but risk management is crucial.
- Diversify investments across sectors and markets.
Benefits of Blue-Chip Stocks:
- Stability, inclusion in benchmark indices, and healthy dividend payouts.
In summary, blue-chip stocks provide a stable and potentially lucrative investment opportunity, but careful consideration, research, and risk management are essential for successful trading in this domain.