What Are Blue Chips?

Chips In our Ask A Foolish Question series conducted on our official Facebook page, we invited readers to send in investing-related questions they had that we’ll try our best to answer.

A bunch of those questions we received were related to an often-used investing-term: blue-chips. Some asked, “What are blue chips?” while others wanted to find out where they could find blue chips. In here, we’ll be answering those questions, so read on to find out more.

Singapore Exchange (SGX: S68), operator of the Mainboard and Catalist stock exchanges in Singapore, quoted Barron’s Dictionary of Finance and Investment Terms to defined blue chips as shares of a “nationally known company, with a long record of profit growth and dividend payment.”

In other words, blue chips are simply shares of well-established, well-recognised, profitable, and financially sound companies.

For some interesting bits of trivia, some say that the term originated from the card-game of poker, which uses chips to represent actual cash. The highest denomination for the chips are usually blue in colour, hence the tendency for investors now to use ‘blue chips’ as a catch-all when referring to prestigious companies.

In the Singaporean context, stock market participants often use the term to refer to the 30 components within the Straits Times Index (SGX: ^STI).

Some of the index’s constituent-companies are probably familiar household names even for folks who have absolutely no-interest in the financial markets. These include telecom operators SingTel (SGX: Z74) and Starhub (SGX: CC3) as well as the banks DBS Group Holdings (SGX: D05), Oversea-Chinese Banking Corporation (SGX: O39) and United Overseas Bank.

SGX, newspaper publisher Singapore Press Holdings (both of which also members of the index), and British-based index-specialist FTSE partnered to create the latest version of the STI, which was launched in Jan 2008.

In particular, FTSE maintains a nifty website for investors to learn more about the STI and to find an updated list of the index’s 30 constituents. Currently, the other companies in the index, apart from the previously mentioned ones, are listed below in no particular order:

1 City Developments
2 Keppel
3 CapitaMalls Asia
4 Global Logistic Properties
5 Hutchison Port Holdings Trust
6 Thai Beverage
7 Singapore Airlines
8 Sembcorp Industries
9 Jardine Cycle & Carriage
10 Sembcorp Marine
11 Jardine Matheson Holdings
12 Jardine Strategic Holdings
13 Hongkong Land Holdings
14 Singapore Technologies Engineering
15 Capitaland
16 Golden Agri-Resources
17 SIA Engineering
18 Wilmar International Limited
19 Noble Group
20 Comfort DelGro
21 Genting Singapore
22 CapitaMall Trust
23 Olam International

Foolish Bottom Line

While the term blue-chip does bring with it plenty of positive connotations, investors should also take note of the fact that being included into the STI does not automatically make a company a good investment. Ultimately, it’s the company’s long-term profitability going-forward that determines how good an investment it is, not on whether it currently qualifies as a blue-chip or not.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.