Stocks might be considered a relatively popular asset choices among investors and traders, possibly because of their proven track record. The US stock market, as measured by the S&P 500, has achieved an average annual return of 10.26% from 1957 to 2023 ^[1]. 

They are also widely available. Any company that qualifies to be listed on a stock exchange also has the right to issue stocks, and can be traded by basically anyone that has the financial means to do so. 

But just because stocks are commonly available, it doesn’t mean they are all made equal. In fact, stocks are classified into many categories according to certain characteristics, such as the size of the underlying company, or where in the business life cycle it is.  

Among the most desired category of stocks are what’s known as “blue chip stocks”. What exactly qualifies a stock to be a blue chip, and are they automatically the right pick for all investors? 

Key Points 

• Blue chip stocks are considered high-value due to their relatively stable performance and resilience, making them attractive for risk-averse investors. 

• Trading blue chip stocks could potentially offer more stability, consistent dividend income, and the potential for steady long-term capital appreciation. 

• Risks may include higher costs, limited high-growth potential, and susceptibility to economic volatility, requiring careful investment planning. 

What is a blue chip stock? ^[2] 

The term “blue chip” originates from the poker table, where blue-coloured chips are traditionally used to denote the highest dollar value. 

Similarly, “blue chip stocks” is a label that describes stocks that are considered to be of top value. Since the value of stocks often depends on the performance of the issuing companies, blue chip stocks may have come to be synonymous with good quality stocks that have withstood the test of time.  

Generally, blue chip stocks: 

• Are nationally or internationally recognised  

• Are well-established brands known for high-quality products and services 

• Have consistently demonstrated profitability and stability  

• Are financially sound and have weathered many economic downturns or cycles 

• Continue to dominate in the face of repeated challenges and intense competition  

Why trade blue chip stocks? 

Blue chip stocks may be seen as established entities in their sectors, investors might trade them as a way to potentially gain exposure to well regarded companies.  

In essence, blue chip stocks may be highly resilient, often backed by a long and successful company history, which may contribute to stability within a trader’s portfolio as part of a diversified strategy. 

Because of their perceived staying power, blue chip stocks can be a good starting point for risk-averse investors, as it is more unlikely for them to completely fail, compared to riskier plays such as penny stocks or micro-cap companies.  

Another reason to trade blue chip stocks is their versatility – they may be able do well in long-term strategies, and may be also capable of producing compelling returns over shorter term periods when traded carefully and with advanced strategies.  

Potential Risks and benefits of trading blue chip stocks 

Potential Benefits	Potential Risks
Offers stability and reliability	Tends to be more costly than other stocks
If dividend-paying, offers consistent dividend income	Not immune to adverse market conditions
Can be found across different sectors	Lower capital growth potential compared to growth stocks
Enjoys high demand	More vulnerable to geopolitical or cross-border risks

Benefits  

One of the benefits of trading blue chip stocks is their perceived stability and resilience, given their long-running track record. Thus, they may be considered as good entry points during market downturns, as they are likely financially better positioned for recovery.  

Some popular blue chip stocks also have a track record of steadily increasing dividend yields. Such stocks may be capable of producing consistent passive income over a long period to meet the demands of those who invest for income.  

Because blue chips stocks can be found across several industries and sectors, investing in a broad selection of them may assist to diversify your portfolio.  

Lastly,  blue chip stocks are often popular and may experience consistent in demand, which could help to reduce the chance of trade issues due to a lack of liquidity. 

Risks 

Blue chip stocks, while often viewed as stable investments, come with uncertainties that investors should consider. For one, such stocks price may be relatively high, which means investing in them requires a substantial capital.  

For another, many blue chip stocks are considered to be maturing or matured companies, and as such, may have less potential to deliver high growth. Investors seeking high capital appreciation may find blue chip stocks outperformed by stocks with higher risks, such as growth stocks.  

Lastly – and importantly – blue chip stocks are not completely immune to economic volatility and failure. Many blue chip insurance companies including American International Group Inc, XL Group plc and Genworth Financial Inc saw their prices nosedive during the 2008 Great Financial Crash on account of their exposure to the US housing market or the financial derivatives underpinning the collapse. ^[3] 

Hence, while there is good reason to trade blue-chip stocks, investors should always do their due diligence before purchasing such stocks.  

Blue chip stock example: Apple Inc (AAPL) 

As the largest driver and beneficiary of the smartphone boom, Apple Inc may be generally  considered as one of the best blue-chip stocks of our time. The stock’s performance speaks for itself, with an almost 300% rise within 2020 to 2024.  

While there has been growing criticism of a lack of innovation in its flagship product, the iPhone, the company’s status as a blue chip stock appeared to be stable for now ^[4]. The company’s latest earnings reports seems to outperform Wall Street estimates in several key metrics, including earnings-per-share, total revenue, iPad revenue, and importantly, revenue for iPhone – suggesting that the company maintains a strong market presence ^[5].   

The company’s future plans further cement confidence in AAPL’s continued blue-chip status. CEO Tim Cook is making a big push towards AI with iOS 18 slated for brand new AI capabilities and features, supported by AI-ready hardware in the latest iPhone 16 and iPhone 16 Pro.  

Long-term trading strategies for blue chip stocks 

As mentioned earlier, blue chip stocks with consistently high dividend yields may be considered to build up passive income that grows over time. You may consider to reinvest your dividends in the initial period to cushion market shocks.  

Also, while blue chips may not deliver explosive capital appreciation, they are nonetheless, in the public’s eyes,considered to be capable of producing solid results over time. This can be seen from our discussion on AAPL above.  

Furthermore, blue chip companies that are at the forefront of developing trends – such as Nvidia and AI – may have arguably a better chance of riding the next revolution to the top, given their strong foundation and deep experience.  

Trade popular blue chip stocks with Vantage 

Thinking about trading blue chip stocks to diversify your current portfolio? Vantage offers access by way of offering Contracts-for-Difference (CFDs)to the most popular blue chip companies from around the world. Take your pick from our CFD products from individual stocks, ETFs or index funds to balance your exposure in accordance with your analyses.  

With Vantage CFDs, gain access to the price action of leading blue chip stocks by way of CFDs without direct ownership of underlying shares. Trade in all market conditions with the ability to take short and long positions. Best of all, enjoy low commissions, transparent fees and world-class support that an award-winning brokerage like Vantage can provide. Sign up for a live account now.  

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