4 ASX 50 stocks with a high ROE and net profit margin

Blue-chip companies need to stay innovative and growing.

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We think of blue-chip stocks as being those tried and tested companies that have been growing over decades, through boom and bust and have come out the other end successful each time. It also might be thought that they are stodgy and plodding along at an uninteresting pace.

Just because they're big doesn't mean they don't have to be innovative with new technology and have good growth. Some of them need projects worth hundreds of millions in profit just to move the needle. All that takes great effort and new and better technology.

Within the S&P ASX 50 Index (ASX: XAF) there are still those that can achieve high-profit margins and returns on equity, and not be stodgy with their growth.

Twenty-First Century Fox Inc (ASX: FOX) demerged from News Corporation and operates the entertainment and digital media businesses of Rupert Murdoch's media empire. The company also recently announced plans to potentially delist from the ASX and trade on the NYSE.

Its planning to expand its business with Telstra Corporation Ltd (ASX: TLS) through Foxtel and other 'on demand' content that fills the needs of mobile and internet users. In 2013, net profit margin was 24.8% and return on equity was 40%. These figures were impacted by the demerger and are way above what they were in 2012. Still, the company is staying up with mobile, internet and cloud tech because it knows first-hand how business can change with the advent of new technology.

Another company with staying power and growth is BHP Billiton Limited (ASX: BHP). Its one-year net profits alone are greater than the market capitalisations of some ASX 100 companies. Still, it achieved a 17.8% net profit margin and ROE was 16.7%, beating smaller, newer companies.

Rio Tinto Limited (ASX: RIO) came in with a respectable 19.8% ROE, where an average company might be 10%-12%, so big can be better.  An 18.25% net profit margin means it can generate enough funds to finance its growth. It is also benefitting from a focused cost-cutting program to further help margins. One way it is trying to reduce cost is by utilising driver-less train and truck technology for its mines and railways.

Biopharmaceutical company CSL Limited (ASX: CSL) is known for its innovative development of drugs and treatments for such things as blood disorders and viral and bacterial diseases. The specialised products are in high demand, and attract a premium, as can be seen from the 24.48% net profit margin in 2013. ROE was a stand-out 40.4%, and net profit after tax was the highest it has been over the past 10 years.

Foolish takeaway

We investors sometimes concentrate on finding something new to get a good return from, but these companies can provide a sound base of earnings for a diversified portfolio and can maintain growth for many years.

Other smaller companies can have outstanding prospects, but will they even be around in 10-15 years?  Will new technology and competition make their business harder to attract a premium or will they become a commoditised business? The big companies get even bigger by using more technology, driving earnings for all investors.

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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