Investing in Blue-Chip Companies

Have you ever wondered what a blue-chip company is and where the term came from? It’s pretty simple – a blue-chip company is one of the largest and most prestigious in its industry. The term dates back to the late 19th century and refers to the highest-value chip at the poker table, which was always blue.

What Are Blue-Chip Companies?

Blue-chip companies generally are well-established household names with highly regarded management teams and large market caps. They have steady historical growth, excellent creditworthiness, and a bright future. Blue-chip stocks usually pay dividends offering consistent returns no matter the overall economic conditions. For all of these reasons, blue-chip companies are a strong investment choice.

Blue-Chip Companies’ Disadvantages

However, there are a couple of potential downsides to investing in blue-chip companies. Don’t forget that no investment is guaranteed and that even a company with a long, solid history could tank. Also, because the companies are so large and well known, their stock prices per share tend to be very expensive, and dividends usually aren’t that large.

Identifying Blue-Chip Companies

When it comes to identifying blue-chip companies, you already know many of them: 3M, Amazon, American Express, Costco, Disney, IBM, McDonald’s, Nike, Starbucks, and Walmart are just some examples. The Dow 30 and the S&P 150 have lots more large-cap, blue-chip companies.

And there’s a way to get more granular. The stock market can be broken down into eleven different sectors, each of which can include any number of industries. Since a blue-chip company is one that’s at the top of its industry, you can investigate certain industries and identify their heaviest hitters. The following list includes all eleven sectors and examples of industries within them. But any way you slice it, blue-chip companies are the closest thing to a sure thing that the stock market has to offer.

Technology Blue-Chip Industries

  • Software
  • IT services
  • Semiconductors
  • Hardware, storage, and peripherals
  • Communications equipment
  • Electronic equipment

Finance Blue-Chip Industries

  • Banks
  • Insurance
  • Capital markets
  • Diversified financial services
  • Consumer finance
  • Thrifts and mortgage finance
  • Mortgage REITs

Healthcare Blue-Chip Industries

  • Pharmaceuticals
  • Healthcare equipment and supplies
  • Biotechnology
  • Healthcare providers and services
  • Life sciences tools and services
  • Healthcare technology

Consumer Discretionary Blue-Chip Industries

  • Internet and direct marketing
  • Hotels, restaurants, and leisure
  • Specialty realty
  • Automobiles
  • Textiles, apparel, and luxury goods
  • Household durables
  • Multiline retail
  • Diversified consumer services
  • Auto components
  • Leisure products
  • Distributors

Communication Services Blue-Chip Industries

  • Interactive media and services
  • Diversified telecommunication services
  • Entertainment
  • Media
  • Wireless telecommunication services

Industrial Blue-Chip Industries

  • Aerospace and defense
  • Machinery
  • Road and rail
  • Industrial conglomerates
  • Professional services
  • Commercial services
  • Electrical equipment
  • Air freight and logistics
  • Airlines
  • Trading companies
  • Construction and engineering
  • Transportation infrastructure
  • Marine

Consumer Staples Blue-Chip Industries

  • Beverages
  • Food products
  • Food and staples retailing
  • Household products
  • Personal products
  • Tobacco

Energy Blue-Chip Industries

  • Oil, gas, and combustible fuels
  • Energy equipment and services

Materials Blue-Chip Industries

  • Chemicals
  • Metals and mining
  • Containers and packaging
  • Construction materials
  • Paper and forest products

Utilities Blue-Chip Industries

  • Electric utilities
  • Multi utilities
  • Independent power and renewable electricity producers
  • Gas utilities
  • Water utilities

Real Estate Blue-Chip Industries

  • Equity REITs
  • Real estate management and development

Investing in Blue-Chip Companies

Blue-chip companies are companies that you can typically rely on to thrive in good times and survive in the bad times.

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