Why are Some Stocks Called Blue Chips?

So where did the term “blue chip” come from? And how did big companies such as Jollibee Foods Corporation (JFC) , Bank of the Philippine Islands (BPI), Megaworld Corporation (MEG), Globe Telecom Inc (GLO) and Manila Electric Company (MER) come to be known as blue chips?

The name “blue chip” came about from the game of poker, where there are different betting discs (or chips) which are white, red and blue in color. Each chip has a different value – for example a white chip is worth $1, a red is usually worth $5, and a blue $10. In this game, blue chips are considered to have the highest value.

What is a Blue Chip Stock?

In the stock market, blue chip stocks are those that are likely to make an investor earn money over time. These are companies that are nationally reputed, large and financially sound companies. They are also known to be resistant to economic downturns, challenges and other forces and manage to provide steady growth even in tough market conditions.

In other words, blue chip stocks are stocks from solid companies with excellent track records. These companies have huge capital, pay good dividends and have a good credit standing.

What are the Benefits Of Owning Blue Chip Shares?

Blue chip stocks are recognized for features such as stable earnings, high quality, less volatility and good returns. History shows that these companies perform well even on bad times. Thus, you don’t have to worry too much because you are somewhat assured that the value of the stock will not decrease instantly. Earnings are good, especially if you are investing for the long term. Some blue chip companies also are known to give dividends to its shareholders more often than non-blue chip companies.

How Will You Know it is a Blue-Chip Stock?

Blue chips are companies that compose the Philippine Stock Exchange Index. They have a proven track record and daily trades are in high volume (for liquidity). The Philippine Stock Exchange Composite Index (PSEi) is a fixed basket of thirty (30) common stocks of listed companies, carefully selected to represent the general movement of the stock market. In other words, it is the benchmark measuring the performance of the Philippine stock market.

According to the PSE Academy, the selection of these companies is based on a specific set of criteria. Under the revised policy on index management, companies should meet three (3) criteria to qualify under the PSEi:

  1. The company’s free float level must be at least 12%.
  2. The company must rank among the top 25% in terms of median daily value in nine out of the twelve-month period in review.
  3. Ranking of TOP 30 qualified companies based on full market capitalization.

Which Philippine Companies are considered Blue Chips?

As of July 2016, in alphabetical order, they are the following:

Ayala Corp. (AC)
Aboitiz Equity Ventures, Inc. (AEV)
Alliance Global Group, Inc. (AGI)
Ayala Land, Inc. (ALI)
Aboitiz Power Corp. (AP)
BDO Unibank, Inc. (BDO)
Bloomberry Resorts Corp. (BLOOM)
Bank of the Philippine Islands (BPI)
DMCI Holdings, Inc. (DMC)
Energy Development Corp. (EDC)
Emperador Inc. (EMP)
First Gen Corp. (FGEN)
Globe Telecom, Inc. (GLO)
GT Capital Holdings, Inc. (GTCAP)
International container Terminal Services, Inc. (ICT)
Jollibee Foods Corp. (JFC)
JG Summit Holdings, Inc. (JGS)
LT Group, Inc. (LTG)
Metropolitan Bank & Trust Company (MBT)
Megaworld Corp. (MEG)
Manila Electric Company (MER)
Metro Pacific Investments Corp. (MPI)
Petron Corp. (PCOR)
Robinsons Land Corp. (RLC)
Semirara Mining and Power Corp. (SCC)
SM Investments Corp. (SM)
San Miguel Corp. (SMC)
SM Prime Holdings, Inc. (SMPH)
Universal Robina Corp. (URC)

To see the updated list, CLICK HERE.

Keep in Mind…

Blue chip stocks are definitely a must for any portfolio. Start your portfolio with a couple of them before you get in to other stock picks. This will ensure that you don’t panic or rush to sell them. Blue chips are indispensable investments that can last for generations to come.

photo credit: 11g poker chips via photopin (license)

One thought on “Why are Some Stocks Called Blue Chips?

  1. Thanks for this informative post, I use to heard blue chips stock, I know that they are big companies, but that’s the limitation of what I know about them. Being a member of TRC, I own share on some of the companies you listed above.

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