I've always stressed the importance blue-chip stocks have on an investor's portfolio. They provide a stable stream of earnings and dividends that can compound your portfolio to new highs. In addition to blue-chips, investors should also balance their portfolio with some smaller growth companies.
However, no matter how "safe" you think a company may be, if it isn't priced appropriately you may be adding even more downside risk to your portfolio. If I had an extra $10,000 of cash to buy three blue-chips, I would definitely consider buying these three companies for some solid earnings growth and dividends.
1. Coca-Cola
Popular beverage manufacturer Coca-Cola Amatil Ltd (ASX: CCL) has taken a hammering in the past year, primarily due to fierce competition from Schweppes and margin pressures from the supermarket giants. This has led to a disappointing annual report, with net profit falling 15.6% compared to FY13.
Despite massive write-downs, I think Coca-Cola's long-term prospects and brand reputation definitely outweighs these short-term setbacks. Coca-Cola's aggressive structural changes and management reforms are aiming to improve efficiencies within its struggling functions. Trading on a modest 15.5 price-to-earnings ratio and offering a fat 5.4% dividend yield, Coca-Cola's low prices offer investors an attractive entry point.
2. CSL
CSL Limited (ASX: CSL) is involved in the research, manufacturing, marketing and distribution of blood plasma products, operating in the U.S, Germany, Switzerland and Australia. CSL has an exceptional track record of delivering shareholder returns, gaining almost 750% in the past decade, with plenty of room for growth.
In its most recent financial year, CSL grew underlying net profit by a solid 11% and as management inferred, CSL's future look very bright given the fact that its global presence allows it to capture the benefits of upturns in economic activity. While the U.S economy is gradually improving, CSL is set to deliver growth for the near future.
CSL trades on a relatively high price-to-earnings ratio of 25, but its quality management and future growth potential suggests an undervalued company.
3. QBE Insurance
Internationally recognised insurance provider QBE Insurance Group Ltd (ASX: QBE) has had a tough year, with its share price hitting almost 10-year lows, given an unfortunate run of natural disasters in 2011 and 2012 that pushed its insurance margins down severely. Its most recent interim result was no exception, with net profit after tax tumbling 17%.
However, with management determined to restructure its business functions, it won't be long until overall efficiency improvements and divestments of its struggling businesses materialise. These alterations are forecasted to improve QBE's cost position by about $250 million by the end of 2015, quite an improvement!
Despite a relatively high price-to-earnings ratio of 20, QBE's growth potential shouts a bargain and its fully franked dividend yield of 3.3% is just icing on the cake. QBE is a stock to consider if you're looking for a large company at attractive prices.
