Why Are Some Stocks Called Blue Chips?

Why not white chips? Why not green chips? Or red chips? If you are a new stock market investor you may be wondering why there are companies or stocks that are called blue chips.

Okay, I’m not into gambling but it seems like the history of the term “blue chips” actually came from game of poker. In this type of card game, the blue chips are considered to have the highest value. Having blue chips in your game means you are playing with the safest bets.

In the stock market, blue chip stocks are those that are very much likely to make an investor earn money over time.  They are the elites and the most popular companies listed publicly. But what really are blue chip stocks and how do we recognize one?


What is a Blue Chip Stock?

A blue chip stock is a company that has been established for a relatively long period of time already. It is very much recognized locally and overseas and have sound financial status.

Their products and services are also the most popular in its country of origin and are known to have great earnings. While paying dividends are not required, a blue chip stock is also known to share their pie’s piece of earnings through dividends.

It is also known to withstand the toughest conditions of the market and the sourest of economic crises. This characteristic contributes more to its handsome record of stability, profitability, and continuous growth as a quality stock.

A blue chip stock is also recognized as the leader in its particular industry. Its capitalization is one of the largest in the market based on the total number of shares outstanding and its current market price per share.

How Do You Know if a Stock is a Blue Chip?

The largest and most popular online stockbroker in the Philippines, COL Financial has pared down the choices of investors to blue chips or what they call as Premium Growth Stocks. These companies with a proven track record and are evaluated on the basis of their high earnings, the credibility of management, their superior products and services, a strong balance sheet and they all belong to solid growth industries.

COL evaluates companies that meet specific criteria to be considered Premium Growth stocks or stocks that are chosen for their resilience and long-term earnings potential. They filter through the different companies by appraising their qualifications to fit the criteria which they categorize as GEMSS.

G – Growing Industry
E – Earning Visibility
M – Management Credibility
S – Superior Products or Services
S – Strong Balance Sheet

What Are The Philippine Companies Considered as Blue Chip Stocks?

In my article “Know the Company’s Fundamentals Before Investing“, I gave you a glimpse on how to analyze a company’s financial reports prior to clicking that buy button in your portfolio.

But there are quite a number of readers and friends who would like to know the specific Philippines companies considered as blue chip stocks.  To make things easier for you, kindly visit the website of the Philippine Stock Exchange (PSE) and view the composition of its index. You will find there a list of companies that the PSE is using as a benchmark for its performance in the market. Here’s a screen grab of some of the PSE’s indices composition:

PSE Index

Investing in blue chip stocks will not guarantee you profit if you don’t have your goals set from the beginning and without equipping yourself with proper mindset and knowledge about stock market investing.

However, investing your money in blue chips to become partners with the biggest names in business will put you on a safer side of the vehicle as they possess the good qualities of stable and strong industry leaders in the country.

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Photo credit: IsthmusCityChips, Wikimedia