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3 blue-chip stocks I’m avoiding

In the ultra-long term, the price we pay for quality stocks can make a big difference to our returns. Just ask the world’s greatest investor and Berkshire Hathaway CEO Warren Buffett, who is according to Bloomberg, currently sitting on more than $US50 billion in cash!

Yep, you read that correctly, $US50 billion.

Investors purchasing any one of Australia’s publicity listed blue chip stocks should carefully consider whether, or not, they’re really getting a bargain or simply trying to escape low interest rates and buying familiar household names with reasonable dividend yields.

Remember, if stock market investing were that easy, Buffett wouldn’t be hoarding cash.

It’s important to remember the market is here to serve us, not the other way around and an investor should never feel rushed to make a transaction.

That’s why I’m avoiding buying shares in Fortescue Metals Group Limited (ASX: FMG), Woolworths Limited (ASX: WOW) and National Australia Bank Ltd. (ASX: NAB).

Fortescue, an iron ore miner with all-in costs estimated between $US70 and $US80 per tonne, might appear tempting at current prices. However, in my opinion, a purchase of Fortescue stock at today’s prices appears to only be a leveraged bet on higher iron ore prices, rather than a sound investment.

Woolworths is an extremely well-run defensive business and one which even Warren Buffett might fancy. However, even it isn’t immune from market setbacks and competition. Given its dividend yield and dominant position in the grocery market, it’s a stock I’d gladly hold through a market cycle but at today’s prices, it’s not a standout buy.

Over the past 10 years, NAB has significantly underperformed the market, largely a result of its UK banking exposure. Despite boasting the largest dividend of the big four banks, it faces a number of uncertainties moving forward. These include the Scottish independence vote, misconduct related charges and paying down a large portfolio of bad debts. At the moment I’m avoiding it, but an exit from the UK or significantly lower share price could tempt me into buying it.

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At today’s prices I’m not prepared to buy any of these three blue chip stocks. Like Warren Buffett, I know I don’t have to swing at every pitch because there’s no risk of striking out. I can afford to wait for the “fat pitch” – which I intend to hit out of the park!

Here Are 2 Top ASX Shares Warren Buffett Would Love...

Whilst I don't think Buffett would buy Woolies, NAB or Fortescue at today's prices, The Motley Fool has just published a brand-new investment report which we think he would love! Best of all: Your copy is FREE. Simply, click on the link below, enter your email address and we'll send you a copy of this free report, which includes two top ASX shares he could love!

Warren Buffett's Greatest Wisdon - Plus Two ASX Companies Buffett Could Love

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the companies mentioned. 

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