Blue chip stocks are generally issued by large, well-established companies that have a history of reliable growth. These companies are often financially sound, they’re typically considered lower risk; many blue chip stocks also pay dividends.
In other words, blue chip stocks are the big, stable ocean liners of the equity markets. Dazzling outperformance is not what blue chip investors are after. Rather, you may want to consider these large-cap stocks in the slow-but-steady corner of your equity allocation, as part of your diversification strategy.
Key Points
• Blue chip stocks tend to be bigger, more stable companies, often with a long history and slow but steady growth.
• Because blue chip companies are typically past their rapid growth phase, many can afford to distribute some of their profits to shareholders via dividends.
• The advantage of investing in blue chips is that they have a low risk profile, and may provide stability in a portfolio — potentially with more growth than fixed-income securities.
• For some investors, the disadvantage of blue chips is that these companies tend to be in the low-and-slow category of returns.
What Is a Blue Chip Stock?
First, let’s answer the obvious questions: Why blue chips? The origin of the term “blue chip stocks” is believed to originate with the game of poker, where traditionally the blue chips have the highest value.
While there is no fixed definition for blue chips, generally speaking blue chip stocks are known for being large, stable, and reliable. Blue chip companies can also share some other characteristics.
Common Traits of a Blue Chip Stocks
• They’re well-known. Blue-chip stocks can be found in almost any sector, from consumer goods to big pharma. Companies like Morgan Stanley, Disney, Oracle, Coca-Cola, and Pfizer are considered blue chip stocks.
• They’re industry leaders. Most blue chip stocks are not newcomers. Rather they’ve demonstrated a history of innovation as well as financial stability, which makes them well-established industry leaders, and a potential anchor for a defensive investing strategy.
• They’re big. Many blue chip companies have a market cap of $10 billion or more, and many are larger. Market capitalization is a measure of a company’s value, and it’s calculated by multiplying the share price by the number of shares outstanding.
• They’re well established. Most blue chip stocks are not newcomers. Rather they’ve demonstrated a history of financial stability, which can make them an important part of a defensive investment strategy.
• They have a long track record. Owing to their longer histories, many blue chip stocks have overcome market challenges, but that does not make them “safe” investments. But they may be considered lower risk than, say, growth stocks.
• They meet certain standards. You’ll often find blue chip stocks listed on the Dow Jones Industrial Average, S&P 500 Dividend Aristocrats, or the Bridgeway Blue Chip 35 Index. Some of these indexes can have stringent rules that only the most financially stable companies could meet.
• They pay dividends. Blue chip stocks typically pay out dividends, or a share of the company’s profits, to shareholders.
Taken together, these qualities can make blue chips an important part of a defensive investment strategy.
Investors may want to consider them when they’re researching stocks to buy through an online brokerage or a traditional one.
10 of the Biggest Blue Chip Stocks
Here is a selection of 10 U.S. blue chip companies from Morningstar’s Best Companies to Own list. They are the largest by market cap, as of February 21, 2025.
These companies have been around for decades, and because of their consistent performance history, they’re considered blue chip stocks today. You may want to consider them when you’re thinking about portfolio diversification.
• Anheuser-Busch InBev (BUD)
• Pfizer (PFE)
• Nike (NKE)
• Taiwan Semiconductor Manufacturing (TSM)
• Roche Holding (RHHBY)
• Alphabet (GOOGL)
• Danaher (DHR)
• Caterpillar (CAT)
• Merck (MRK)
• Nestle (NSRGY)
Pros and Cons of Investing in Blue Chip Stocks
Like any investment, blue chip stocks have their potential benefits and drawbacks. Before investing in blue chip stocks, you may want to weigh the positives and negatives of these types of stocks on your overall investment strategy.
Benefits of Blue Chip Investments
Blue chip stocks can offer investors certain benefits:
• They’re here for the long term. Many of these companies are global in reach, with immense resources and real staying power. Thus, blue chip stocks may be more stable than smaller companies in their sectors — but with the ability to innovate and maintain their status.
• They can be lower risk. Blue chip stocks are often considered lower risk stocks because of their size and market history in the market. As noted above, many of them also pay dividends, which benefits investors.
• They’re highly liquid. Because these companies trade frequently, but are typically not volatile, investors can generally be confident in these stocks’ value when selling.
• They’re easy to follow. The companies behind many blue chip stocks tend to be well known, which means announcements and news around them is likely to make the front page of the financial section.
Potential Drawbacks of Blue Chip Stocks
There’s no such thing as a “sure thing,” especially in investing, and the drawbacks of blue chip stocks prove this point. Here are a few cons to keep in mind when considering blue chips for your portfolio.
• They may fall harder. The old adage “the bigger they are, the harder they fall” may apply here. Just because a blue chip stock has a solid history does not ensure a profitable future, and legacy brands can fall behind nimble newcomers.
• Limited growth. Though these companies typically have longevity on their side, they are often past their prime growth years. This is why blue chip companies also have a reputation for less volatile and lower risk.
• They may be expensive. Blue chip stocks tend to be well-known brands and can be a desirable part of people’s investment strategies. For that reason, you’re unlikely to get a deal on them.
Investing in Individual Blue Chip Stocks
Like a well-balanced meal, investing in blue chip stocks can be one part of a healthy portfolio. Those looking to make blue chip stocks a part of their balanced investment strategy may first consider investing in individual stocks.
If the price per share is too steep for an investor’s budget, investors can consider fractional share investing, which allows the purchase of a fraction of a stock instead of the whole share, starting at just $5. Restrictions do apply for fractional shares.
Choosing to invest in an individual stock might be a good way to get a feel for the market, or it might be a way to take a more active investment strategy. Either way, a brokerage can handle an investor’s single blue chip stock purchase.
Blue Chip Funds: An Alternative to Individual Stocks
If no individual stock strikes your fancy, but you still want to get into the blue chip game, you might consider investing in index funds or ETFs that focus on blue chip stocks.
Various index funds and ETFs typically hold a diversified basket of stocks, often in line with a stock market index that tracks a segment of the market. Choosing an index fund or ETF that tracks large-cap stocks, the S&P 500, or the Dow Jones Industrial average can be one way to invest in a wide range of blue chip companies and add diversification.
The Takeaway
A company’s stock may earn a blue chip designation when they have a strong performance history, consistent returns, excellent financials, and over time they’ve become industry leaders.
For investors who are ready to start investing, blue chip stocks can be a solid choice, offering reliable performance — but not one that’s likely to deliver a lot of growth. As such, blue chips are often viewed as being conservative (i.e., lower risk). Being conservative can be an important part of an investment strategy, and investors may want to include other investments as well.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
FAQ
Where did the term “blue chip” come from?
The term “blue chips” may have come from poker, where blue chips are traditionally worth more than other chips.
What are some examples of well-known blue chip companies?
There are blue chip companies in every industry. Some well-known blue chips include companies like Wells Fargo, Anheuser Busch, Nike, Caterpillar, and Pfizer.
What are the potential downsides of blue chip investments?
While blue chips are considered steady and reliable, they aren’t immune to market volatility, and can be vulnerable to more nimble competitors. Blue chips also tend to be expensive, and more conservative than, say, growth stocks — something to bear in mind when constructing a balanced portfolio.
How do I invest in blue chip stocks?
Blue chip stocks are generally available to investors directly through a brokerage account, as well as through mutual funds and ETFs, which offer a basket of stocks. It’s also possible to purchase fractional shares of blue chip stocks.
There are limitations with fractional shares to consider before investing. During market hours fractional share orders are transmitted immediately in the order received. There may be system delays from receipt of your order until execution and market conditions may adversely impact execution prices. Outside of market hours orders are received on a not held basis and will be aggregated for each security then executed in the morning trade window of the next business day at market open. Share will be delivered at an average price received for executing the securities through a single batched order. Fractional shares may not be transferred to another firm. Fractional shares will be sold when a transfer or closure request is initiated. Please consider that selling securities is a taxable event.
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