MENU

2 shares in the ASX50 I’d buy with $5,000 today

Investors usually turn to the biggest companies in Australia when deciding to buy blue chips. Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Woolworths Limited (ASX: WOW) and BHP Billiton Limited (ASX: BHP) are some of the names people turn to.

However, I think there are potential problems with each of the above businesses at the current prices. But that doesn’t mean there aren’t large ‘blue chips’ out there you can buy.

Here are two blue chips with market capitalisations over $8 billion I think are worth a place in your portfolio:

Macquarie Group Ltd (ASX: MQG)

Macquarie is Australia’s largest listed investment bank with a market capitalisation of $29.7 billion.

It has significantly altered its business since the GFC so that it’s less cyclical. It now has a number of ‘annuity-style’ businesses such as aircraft leasing which provide a more reliable source of earnings.

Macquarie earns more revenue overseas than it does in Australia. This is a good strategy because it can focus on any world region that looks like it will experience more growth in the future. This is the case in the USA where it appears Macquarie could benefit from the Trump administration’s tax changes.

Macquarie is trading at 14.6x FY17’s estimated earnings with a partially franked dividend yield of 4.83%.

Sonic Healthcare Limited (ASX: SHL)

Sonic is one of Australia’s largest healthcare businesses, it focuses on pathology and has a market capitalisation of $8.8 billion.

The great thing about Sonic is that it has operations in Australia, New Zealand, the UK, Ireland, Belgium, Germany and the USA.

Sonic is very diversified. If there’s an issue that’s country-specific then it won’t affect the overall business too much. A good example of this happened recently when the Australian government wanted to reduce funding for pathology. The Primary Health Care Limited (ASX: PRY) share price was affected more than Sonic because Primary is more Australian-focused.

In Sonic’s half-year report to 31 December 2016 it disclosed that earnings per share grew by 2.6% and the dividend grew by 3.3%.

Sonic Healthcare is trading at 19x FY17’s estimated earnings with a partially franked dividend yield of 3.5%.

Foolish takeaway

You don’t have to buy the top 10 biggest companies on the ASX. There are some good businesses that are just a bit smaller in the ASX50, but still have blue chip status.

Out of the two I’ve mentioned, at the current prices I prefer Macquarie because there is a good chance it could grow earnings faster than Sonic due to the Trump Administration policies that could be enacted in the future.

If these two blue chips aren’t for you, then you should check out these other fantastic blue chips.

A Big, Fat, Fully Franked Dividend

This company's dividend is almost the stuff of legends. Since it started paying dividends in 2007, it has increased its payout to shareholders every single year, a run that includes 21 consecutive dividend increases.

Based on the last 12-months of dividends, its shares are currently offering a fully-franked 4.8% yield, which grosses up to almost 7% when those franking credits are included. And in stark contrast to the likes of Commonwealth Bank and Telstra, this company just increased its dividend by over 13%, and guided for 2017 profits to grow by 20%!

Discover the name of this "new breed" of blue chip along with 2 others in our new FREE report "The Motley Fool's Top 3 Blue Chips Stocks For 2017."

Click here to receive your copy.

Motley Fool contributor Tristan Harrison has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.