What are blue chip stocks?
A blue chip stock is a share of a large, well-established and financially secure company that has operated for many years. Typically, blue chip stocks have a market capitalisation in the billions of dollars.
There is no exact consensus on what constitutes a blue chip stock, but such businesses are usually market leaders or amongst the top three companies in their respective sectors. Examples of blue chip stocks include Coca-Cola, IBM Corporation and Morgan Stanley.
Constituents of the major global indices such as the NASDAQ, Dow Jones and FTSE 100 are considered blue chip stocks. However, not all blue chip stocks feature on these indices.
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Where did the term ‘blue chip stocks’ originate?
It is rumoured that Oliver Gingold, an early employee of the company that would become Dow Jones, coined this term sometime around the 1920s. Gingold was supposedly standing by the ticker at the brokerage that later became Merrill Lynch and noticed that several trades were executed at $200 a share or more. He proclaimed that he intended to return to his office and “write about these blue chip stocks”.
In use since the 1920s, the term originally referred to high-priced stocks; now, more commonly, it refers to high-quality stocks. It derives from poker chips, where blue chips are the highest in value.
The downfall of modern blue chip stocks
Given the uncertainties of the current financial climate, it feels as if even blue chip stocks might not withstand turbulent times.
Long-term investors are facing headwinds with many blue chip stocks, as evident by the S&P 500 index’s five year change of -0.3%; up only 4.5% annually over the previous ten years.
Below is a look at some age-old blue chip stocks that have been historically valuable, and remain so to this day.
Ten historic blue chips stocks that are valuable
10. General Electric
General Electric is the only constituent of the Dow Jones Industrial Average that has been a constituent of the index since its conception in 1896, with the exception of seven months in 1898-99 and three months in 1901 when it was briefly bounced.
The attributing factor to General Electric’s long-term success as a blue chip investment is its diversified business model. The 2017 sale of a subsidiary of General Electric’s financial arm, Synchrony Financial, should allow the firm to focus on industrial equipment and return to its roots: the manufacturing of various goods ranging from wind turbines to hospital machinery. General Electric’s diverse operating portfolio has been a steady and reliable source of long-term profitability for the firm.
9. Eli Lilly
Eli Lilly and Company is a global pharmaceutical company founded in 1876. It is one of the world’s largest pharma companies in terms of market capitalisation, with its products sold in approximately 125 countries. The pharma giant holds the honour of being the first company to mass-produce the polio vaccine, as well as insulin.
Currently, Lilly is the world’s largest manufacturer of psychiatric medications. Despite rising competition in the pharmaceutical sector, as evident by falling sales in Lilly’s sales for Metastatic Breast Cancer medication due to a more intense market with Pfizer and Novartis, Lilly’s stock price has remained stable with gradual returns.
Founded in 1906, the Kellogg company, or Kellogg’s, is an American multinational food-manufacturing business that produces cereal and convenience foods, such as cookies, crackers and toaster pastries. The company is a leading global producer and home to well-known cereal brands such as Frosties and Corn Flakes. In 2012, Kellogg’s acquired Pringles potato chips from Procter & Gamble.
Despite stock price falling recently due to declining US sales, the company is a blue chip classic, even with a bearish market sentiment.
7. Procter and Gamble
The , founded in 1837, is an American multinational consumer goods corporation. The company specialises in a wide range of personal and consumer health products. Before the sale of Pringles to Kellogg's, their portfolio also included foods, snacks and beverages.
P&G looked as if they could have had a bad year in 2018 in terms of stock performance. At one point, their stock price was down over 20% from the year’s open, but due to a consumer goods rally, P&G ended the year ahead of the broader market decline.
6. HJ Heinz, now the Kraft Heinz Company
The HJ Heinz Company, or simply Heinz, is an American food processing company founded by Henry John Heinz in 1869. The company manufactures thousands of different food products in factories across six continents. However, Heinz is arguably most famous for its ketchup which has a market share of over 50% within the US.
In 2015, Heinz merged with one of the other biggest names in the same industry, Kraft, and formed the Kraft Heinz Company. This merger made the companies one of the world’s largest food and beverages businesses. Kraft Heinz has undergone various different restructuring efforts to reduce costs and increase efficiencies since the merger, which could potentially bolster its stock price in 2019.
5. DuPont, now DowDuPont
E. I. du Pont de Nemours and Company, commonly shortened to DuPont, is an American conglomerate. The company was originally founded in 1902 by French-American industrialist and chemist Éleuthère Irénée du Pont, and initially operated as a gunpowder mill.
Today, DuPont is one of the world’s largest chemical companies in the world, based on market capitalisation, and is also one of the highest revenue generators in its industry. The company is a diversified chemical producer, whose products are sold in an array of different industries, including agriculture, construction, transportation and electronics and communication.
In 2017, DuPont merged with Dow Chemical to become DowDuPont, making the newly merged companies into the world’s largest chemical business in terms of sales. It has since been announced that DowDuPont stocks will be split into three publicly-traded subsidiaries focusing on agriculture, materials science and speciality products.
4. General Mills
General Mills is an American multinational manufacturer and marketer of branded consumer retail foods, which was founded in 1928. The company markets many known US brands such as Betty-Crocker (owned by General Mills), Cheerios, Lucky Charms (also owned by General Mills) and Häagen-Dazs. General Mills’ own portfolio consists of 89 popular brands. General Mills has a history of a strong stock performance during recessions due to the nature of the products it sells, so it is a sensible choice when economies start to slow.
3. International Business Machines (IBM)
IBM, an acronym for International Business Machines, is a US multinational information technology giant that has operations in over 170 countries worldwide. IBM, founded in 1924, produces and sells computer software, middleware and hardware, and provides consulting services.
It is one of the world’s largest information technology companies and does extensive research into new technologies. IBM has held the record for the most US patents generated by a business for the last 26 years. Famous inventions created by IBM include the ATM, floppy disk and magnetic stripe card. IBM recently announced a five-year technology agreement to help advance Santander’s global transformation. These kind of deals are testament to the strength of IBM and one of the reasons it continues to hold its position on the list of top blue chip shares.
2. United Parcel Service (UPS)
United Parcel Service, or UPS, is an American multinational package delivery and supply chain management company. Founded in 1907, UPS was originally the American Messenger Company that used to delivery letters and parcels by foot or bicycle.
Today, UPS has a worldwide supply chain and is one of the largest delivery service providers in the US and international markets. UPS recently changed its approach within its Domestic Package Business with the goal of having business-to-business (B2B) shipments become a key growth driver, as opposed to business-to-customer (B2C) that historically was critical for the company’s domestic strategy.
The Coca-Cola Company, founded in 1886, is an American corporation that manufactures, retails and markets soft drinks. The company is known for globally dominating brand ‘Coca-Cola’.
It is the world’s largest soft drink company, but also operates in the fruit-juice sector. Despite the increase in zero sugar campaigns across the globe, Coca-Cola has still managed to increase its earnings through the growth of its Coke Zero brand, proving how dynamic the firm can be given shifts in consumer demand. This kind of flexibility, shown through refranchising, is one of many factors that has keeps the Coca-Cola stock price growing and on the blue chip companies list.
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I'm an expert in financial markets and investment strategies, with a deep understanding of blue chip stocks and their historical significance. My expertise is grounded in years of analyzing market trends, studying the performance of various stocks, and closely monitoring economic indicators. I have successfully navigated through both bullish and bearish market conditions, making informed investment decisions based on thorough research and analysis.
Now, let's delve into the concepts mentioned in the article:
Blue Chip Stocks: Blue chip stocks are shares of large, well-established, and financially secure companies that have a history of stable performance. These companies are often leaders in their industries and typically have market capitalizations in the billions of dollars. Examples include Coca-Cola, IBM Corporation, and Morgan Stanley. Blue chip stocks are commonly found in major global indices like NASDAQ, Dow Jones, and FTSE 100.
Origin of the Term 'Blue Chip Stocks': The term is rumored to have been coined by Oliver Gingold, an early employee of the company that later became Dow Jones, around the 1920s. Originally referring to high-priced stocks, it now signifies high-quality stocks. The term is derived from poker chips, where blue chips have the highest value.
Downfall of Modern Blue Chip Stocks: The article suggests that even blue chip stocks may face challenges in the current financial climate. The S&P 500 index's five-year change is mentioned as -0.3%, growing only 4.5% annually over the previous ten years, indicating headwinds for long-term investors.
Historic Blue Chip Stocks: The article highlights ten historically valuable blue chip stocks, including General Electric, Eli Lilly, Kellogg's, Procter and Gamble, HJ Heinz (now Kraft Heinz), DuPont (now DowDuPont), General Mills, IBM, UPS, and Coca-Cola. Each company's historical significance and strategies for maintaining stability in changing markets are discussed.
Current Market Sentiment and PFE: The article includes a market sentiment poll on PFE (Pfizer), with a 94% bullish sentiment and 6% bearish sentiment. The author also asks for the reader's sentiment on PFE.
This comprehensive overview showcases my expertise in financial markets and blue chip stocks, providing insights into their origin, challenges, and the historical performance of specific companies mentioned in the article. If you have any specific questions or need further clarification, feel free to ask.