Basic Points

• From the idea of the blue chips being the most valuable chips at a poker table, we can say that a blue chip stock is one with strong intrinsic value.
• Almost anything on the Dow Jones (top 30 industrials) is considered a blue chip. Likewise, most highly-weighted stocks on the S&P 500 are thought of as blue chips. 
• These major indices are good screens for blue chips because, in order to be included on the S&P, a company must have a high market cap (of at least about 15 billion), enough of its float (shares in circulation) being publicly tradable, and profitable earnings over the past 4 quarters.
• There are also many factor-based and fundamental approaches in screening for blue chips. But ultimately the identification of a blue chip is a subjective determination. 

Intermediate: Strategy

In general, the meaning of a blue chip stock is that it is the opposite of a junk stock, which we can say has frothy prices beyond their actual value—something that the equity market has delicately propped up as a bubble. Blue chips also generally have dividends, but this is not always the case (again remember that the criteria are subjective). 

One reason to buy blue chip stocks is to be more conservative and expect less damage during a major sell-off. In contrast, junkier stocks have their own appeal because they tend to move in more extreme ways. Junkier stocks are less stable, which makes them attractive for momentum trades or long gamma plays. 

But for a safer play, and one that often comes with liquid options or strong dividend yields, blue chips can serve as a low-beta slice of a portfolio (with low-beta meaning that they trade in a lower percentage range than most stocks and the S&P 500 in particular). Their safety also makes them attractive to call overwriters (investors who short calls above their stock position), who are more interested in the yield from selling premium than fluctuations in the drift of the underlying security.