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3 stocks that could be tomorrow’s blue-chips

You could make some serious gains by investing in what could be the blue-chips of tomorrow. Right now, they’re growing at impressive rates, but still haven’t reached their full potential. They may seem a little pricey at today’s prices, but the returns they could generate over many years may make them look like bargains in the future.

There are three stocks I know with the potential signs of being future blue-chip stocks – Ansell Limited (ASX: ANN), Carsales.Com Ltd (ASX: CRZ) and ResMed Inc. (CHESS) (ASX: RMD).

How do you spot them?

High profit margins, strong returns on equity and investment, and steadily growing revenues are some of the first ways to identify them. Also, strong brand names and holding leading positions in their markets also keeps business flowing to them.

Finally, durability is one trait that sets them apart from other growers that burn out too quickly. If they could go under in five or ten years, they would never be called a blue-chip.

Ansell Limited is a market leader for protective wear, such as plastic and fabric gloves in hospitals and warehouses, as well as condoms in your local stores. Its products may not individually have household brand names, but they’re used constantly every day, so sales are sustainable. That is a very attractive kind of business for long-term investors. The stock yields 2.3% unfranked. Dividends are forecast to have double-digit growth over the next two years.

Carsales.Com Ltd operates the number one website for car sales searches. This kind of business does have a strong brand name, which gives it competitive advantages for advertising dollars and setting service fee premiums. It is moving into vehicle finance and has expanded into a number of countries in Asia and South America in the past several years. Profit margins and return on equity are quite high. Its full year net profit was up 14.3% in FY 2014. It yields 3.3% fully franked.

ResMed develops and produces breathing aids and respiratory devices globally. Its largest markets are overseas like North America and Europe, where the majority of its revenue comes from. With the growing number of people with allergies, asthma and other breathing disorders worldwide, ResMed’s products could enjoy sustained, growing sales for a number of years. Net profits are usually up and earnings have doubled in the past five years. It offers a 2.00% yield unfranked.

All companies mature and slow down, but the best ones establish themselves strongly and begin to pay a higher percentage of earnings out as dividends.

They can become true blue-chips when their dividends are steady and substantial. Owning them up until that time could you give rewarding returns over the next decade…or longer.

Investors should also be on the lookout for smaller companies that are already growing rapidly.  For example, The Motley Fool’s top analyst recently identified one CHEAP growth stock which has a 6.8% grossed-up dividend yield. This could be a buying opportunity!

You can get the name of his ‘ultra-promising story stock‘ FREE in our new research report. Simply, click here to download your free copy of “The Motley Fool’s Top Dividend Stock for 2014-2015”today.

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

 

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