What is a blue chip? There is no single definition that holds sway, but rather a broad consensus that a blue-chip company is large and well-managed, with a good corporate reputation and a record of stable earnings, sustained growth and delivery of value to shareholders.

We would expect a blue chip to be a reliable performer through sectoral, national or global cycles. The price that is paid for such reliability, of course, is that such companies are often highly valued. This means that if you're not invested in a company by the time it becomes a blue chip, it's going to cost you a lot to get in. Also, a blue chip becomes predictable rather than spectacular.

When we created the FM's "top 20" ranking, based on quantitative as well as qualitative assessment, we included market capitalisation (more than R1bn) as one of the criteria for a company to be considered. But the Top 20 is not meant to be a list of blue chips - in fact, as a glance reveals, many of the JSE's traditional blue chips are not there. Rather, it's an attempt to identify companies that have done well but are likely to do better, given their present valuations and the sectors they are in - in short, those that represent the best investment opportunities.

There are two points to make here. First, a sustained performance over five years indicates reliability, and by definition all the top 20 companies have delivered that. Size is not the only reason for trust. Second, the extraordinary bull run of the past few years has meant that some small companies have become very large very quickly as measured by market cap - so perhaps it's time to identify the high-flyers earlier. Aspen, for instance, wasn't on the radar screen at all a few years ago; now it's in third spot and has a market cap of R14bn.

Having abolished the R1bn limit, we find that 30% of the elite is now made up of companies with market caps (at end-May) ranging from R156m to R813m. Three of them - Pinnacle, EOH and Digicor - stand to gain from increased demand for computer services and electrical equipment. Another two - Brandco and AME - are positioned to benefit directly or indirectly from more growth in consumer spending. All five will regard stable and low interest rates as an important stimulus to further growth. The sixth company - Petmin - will rely rather on strong commodity prices and will hope for a weaker rand. There are many big blue chips with similar strengths and vulnerabilities.

The top 20 has turned out to be a tale of big caps and small caps, with nothing in between. Apart from the six companies already mentioned, another five - Schamin, Dawn, CMH, Omnia and Amaps - are bunched not far ahead with market caps of between R1,2bn and R2bn.

Then there's a huge gap until we hit the bigger boys, ranging from retailers Massmart (R10bn), Foschini (R12bn) and Woolworths (R13bn), through Edcon's R19bn and PPC's R20bn, up to heavyweight MTN (R91bn).

It is remarkable that MTN is the only company that has appeared in the top 20 for each of the four years, and only a few others have survived for between one and two years. That doesn't mean those who dropped out have failed: it simply demonstrates the difficulty of sustaining outstanding growth in returns to investors, because the base from which to grow becomes ever higher (and there are some statistical anomalies, such as the one that affected Grindrod this year - see "JSE sets a hot pace"). It should be no surprise that MTN, at a market cap where many companies would become sluggish, still demonstrates an appetite for risk, with its recent bold expansion into the politically uncertain environment of the Middle East.

It is surely no coincidence that well over half of the top 20 are in businesses that will benefit in one or more ways from consumer and infra-structure spending. The consensus among the FM's specialist writers seems to be that there's still a lot of steam left in the retail boom, but that the best is yet to come in construction and related sectors. That means PPC's star should burn even brighter, and we could see a return to the top 20 by companies like Murray & Roberts. Government spending on health and lower-income medical aids looks set to further benefit companies like Netcare and Aspen, despite an uncertain regulatory environment and the "grudge purchase" nature of the health sector.

So what about the blue chips in the top 20? How many of those big companies can we expect to substantially outperform the rest while maintaining their reliability - and offering a good investment opportunity now? If you like to use annualised p:e ratios as a guide (closing price divided by annualised rolling headline earnings per share), on May 25 this year the three most undervalued bigger caps in the FM's top 20 were MTN (11,46), Edcon (11,09) and Foschini (13,08), whereas PPC (18,76) and Aspen (23,16) were the steepest.

Of course those p:e ratios can also be seen as a reflection of the market's risk assessment. It is worth being reminded that the term "blue chip", whatever its connotations of quality, is derived from one of the high-value counters in poker, the gambler's card game. What you expect from a blue chip is reduced risk - but the risk is there.

The US management writer Robert Greene recalls (in his book The 33 Strategies of War, Profile Books, London) how the great World War 2 German general Erwin Rommel once made a distinction between a gamble and a risk:

"Both involve an action with only a chance of success, a chance that is heightened by acting with boldness. The difference is that with a risk, if you lose, you can recover: your reputation will suffer no long-term damage, your resources will not be depleted, and you can return to your original position with acceptable losses.

"With a gamble, on the other hand, defeat can lead to a slew of problems that are likely to spiral out of control.

"With a gamble there tend to be too many variables to complicate the picture down the road if things go wrong. If you encounter difficulties in a gamble, it becomes harder to pull out.

"People are drawn into gambles by their emotions: they see only the glittering prospects if they win and ignore the ominous consequences if they lose. Taking risks is essential; gambling is foolhardy. It can be years before you recover from a gamble, if you recover at all."