Blue-chip stocks should form the foundation of any balanced share portfolio. Blue-chip stocks are large, established businesses with recognisable brands and reputations for quality service.
Telstra Corporation Ltd (ASX: TLS), Coca-Cola Amatil Ltd (ASX: CCL) and Qantas Airways Limited (ASX: QAN) are perfect examples. However they are not all likely to make great investments for long-term investors. Here's why…
Telstra
As our largest telecommunications company by a long shot, Telstra enjoys a number of competitive advantages over its peers. It boasts a superior mobile network, has first rate customer service and market-leading positions across nearly all of its businesses. For investors it's also known for paying a large and consistent half-yearly dividend.
Its big yield and defensive characteristics make it a favourite for self-managed superannuation funds, foreign investors and individuals.
However, its share price has enjoyed a spectacular run over the past three years, climbing 77% and, in my opinion, it has been pushed out of the 'buy zone'. At over $5.30 per share, it yields 5.5% fully franked and trades on a price-earnings ratio of 15.
Coca-Cola Amatil
Unlike Telstra, our distributor of Coca-Cola and Beam branded products, has been unable to impress investors in recent times. After failing to meet profit guidance on a number of occasions, its share price has fallen hard, down 29% in the past year.
CCA's new CEO, Alison Watkins, has vowed to return the company to sustainable profit growth but it's clear she's got her work cut out. The company is facing intense competition from key rival, Schweppes, the two supermarket giants Coles and Woolies and has problems within its SPC Ardmona business.
At $8.77 per share, CCA could prove to be really cheap in coming years. But it won't be easy and it won't happen overnight. So investors will have to be patient.
Qantas Airways
The flying Kangaroo is one of Australia's most iconic brands. However Qantas operates in a competitive industry plagued with oversupply. It can't raise prices because it would lose customers to rivals like Virgin and if it lowers them, its profitability would be shot.
Perhaps that's why famous entrepreneur and 10% owner of Virgin Airways, Richard Branson, famously said: "The quickest way to become a millionaire is to start as a billionaire and invest in an airline." Long-term investors would be wise to heed his warning.
The Motley Fool's Top Stock of 2015 – Yours FREE!
Whilst I think Telstra is a great company, it's not a great buy at today's prices. Coca-Cola Amatil is currently the only one of these three businesses I would buy.
