Most private investors should look to a group of blue-chip shares to build the core of their share portfolio, especially when starting out in investing as blue-chip shares generally offer the most reliable long-term returns.
In fact investing is not rocket science as share prices will follow earnings up or down over the long term, which is why investors should consider which blue chips have the best potential to consistently deliver earnings growth.
The disastrous returns from the likes of Woolworths Limited (ASX: WOW) and BHP Billiton Limited (ASX: BHP) this year are a direct consequence of plunging earnings – and their performance shows why blindly buying blue chips is a dangerous investing strategy.
Admittedly this is easy to point out with hindsight, but it remains that investors should look to blue chips built for the future, with the ability to keep grow earnings uninterrupted by the fallouts of mismanagement or commodity price cycles.
Three candidates below have strong management teams, defensive earnings and the kind of profit-growing business models that should be able to survive all but the most severe of economic downturns.
Westfield Corp Ltd (ASX: WFD) is the overseas shopping centre giant that offers an attractive mix of growth, value and income at its current price of $9.52 per share. Moreover, the group is accelerating its strategy to focus on blue-chip assets in blue-chip cities, with an $11.4 billion development pipeline almost entirely devoted to high-yield flagship assets. I expect the Lowy family’s long-term focus on quality and growth will continue to deliver for investors.
REA Group Limited (ASX: REA) is a digital real estate business that operates Australia’s number one property website – realestate.com.au. The stock has provided an average annual total shareholder return of 37% over the last 10 years due to the phenomenal earnings growth rates the business model has been able to deliver. The shares are not cheap at $53.20, but this digital operator has big overseas expansions plans with the know-how and funding to deliver potentially big growth in the decade ahead.
CSL Limited (ASX: CSL) is a global healthcare giant that manufactures vaccines for common human ailments like the flu, while its main area of operation is in providing blood plasma products that are used in treating a wide range of injuries and life-threatening conditions. Due to the almost unlimited global demand for its healthcare products from the public sector in particular, the business continues to grow strongly with a sound management team and global earnings. Selling for $102.71 shares are on the expensive side, but remain a strong long-term bet.