With the Aussie share market trading just below a multi-year high, it is becoming increasingly difficult to tell which companies present as decent buys for the long term. That is particularly the case with some of the nation's blue chip stocks – many of which have themselves led the market's rally in recent years.
Below, we'll consider whether BHP Billiton Limited (ASX: BHP), Rio Tinto Limited (ASX: RIO), Telstra Corporation Ltd (ASX: TLS) or Commonwealth Bank of Australia (ASX: CBA) are worthy of your hard-earned investment dollars today.
BHP Billiton Limited
Investors are possibly deterred from buying shares in the "Big Australian" following years of market underperformance. Over the last three years the shares have dropped 23%, which compares to the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) Index jump of nearly 11%.
However, now may actually be a good time to buy. BHP Billiton continues to aggressively cut costs and improve productivity while an enormous increase in production rates should also help offset falling commodity prices. Its high level of diversification makes it a safer bet than the other miners, while its 3.3% fully franked dividend yield also make it appealing.
Rio Tinto Limited
Rio Tinto is much more heavily reliant on iron ore than its larger rival BHP with 90% of the miner's overall earnings coming from the commodity. With the steelmaking ingredient tipped to continue falling in price over the coming months (possibly as low as US$80 a tonne), Rio Tinto's share price and margins could both take a hit.
While I would personally still take BHP over Rio Tinto given its greater spread of risk, Rio Tinto did impress me with its most recent operational report. For its first six months, the miner boosted global iron ore shipments by a massive 23% compared to the previous corresponding period, which should see the miner deliver strong revenues for the half. Rio Tinto could definitely be a good bet for more risk-tolerant investors, especially given it is trading on a projected P/E ratio of just 12.7.
Telstra Corporation Ltd
The ouright leader in Australia's booming telecommunications industry is by no means lacking growth potential. Not only will Telstra continue benefiting from society's increased usage of smartphones, but also the growing level of data consumption with more and more devices becoming Wi-Fi-enabled. While Telstra retains a position at the top of my watchlist, I don't think it's necessarily a buy right now. Already its shares are trading on a multiple of nearly 17 times earnings and its shares are trading near a 10-year high. I believe that future growth may already be priced into the shares.
Commonwealth Bank of Australia
The nation's largest bank has traded in the red over the last five days after reaching a new all-time high price. While the bank still offers a juicy fully franked dividend yield and could climb higher in the coming weeks or even months, investors need to instead focus on its long-term prospects, and whether now is really a good opportunity to buy. Trading on a forward P/E ratio of 15.2 and a Price-Book ratio of 2.9, the stock is by no means in bargain territory – it would need to drop significantly before I'd be tempted to buy.
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One of the primary reasons investors buy shares in Aussie blue chip companies is for their generous dividend offerings. However, as shares become increasingly expensive, attractive yields are becoming more and more difficult to find.
