The best way to outperform the market is to hold a quality portfolio of shares. That doesn’t necessarily mean blue chips. To me, when Aussies say blue chips they probably mean the biggest 20 companies on the ASX. However, I think that most of the best growth options are outside of the top 50, or even 100, of the ASX. But that doesn’t mean there aren’t any good blue chips to own for growth. I just think you have to be very selective about the shares you do pick. If I were to buy shares of three blue chips, these…
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The best way to outperform the market is to hold a quality portfolio of shares. That doesn’t necessarily mean blue chips. To me, when Aussies say blue chips they probably mean the biggest 20 companies on the ASX.
However, I think that most of the best growth options are outside of the top 50, or even 100, of the ASX.
But that doesn’t mean there aren’t any good blue chips to own for growth. I just think you have to be very selective about the shares you do pick. If I were to buy shares of three blue chips, these would be three of my favourite:
Macquarie Group Ltd (ASX: MQG)
Macquarie is Australia’s fifth largest bank, but it’s very different to the other banks. A majority of its earnings are now earned overseas and around 70% of its earnings are now recurring – it’s a very different company compared to the pre-GFC Macquarie.
The main reason why I like Macquarie is because it’s the largest infrastructure manager in the world. The world is expected to go through an infrastructure boom over the next few years as Australia, Trump and Asia spend big. Macquarie could be a large beneficiary from this.
It’s currently trading at 15x FY19’s estimated earnings.
CSL Limited (ASX: CSL)
CSL is Australia’s largest healthcare business, it has been an exceptional performer for shareholders over the past decade and I expect the next decade will good too because of how much the company is investing into research & development.
The ageing population is going to continue to be an attractive tailwind for CSL as people (and the government) will be happy to spend more on products that keep everyone alive and well.
CSL is currently trading at 32x FY19’s estimated earnings.
Crown Resorts Ltd (ASX: CWN)
Crown is Australia’s largest casino and entertainment complex business. It generates pleasing earnings each year thanks to its appeal to VIP gamers, 5-star hotel guests and regular-wealth patrons.
Earnings may grow significantly in the future after Crown completes Crown Sydney and the new hotel in Melbourne. The decrease in construction costs and increase in earnings could be a very nice boost.
It’s currently trading at 21x FY19’s estimated earnings.
All three blue chips are trading more expensively than they have done in the past year. They’re all quality companies but I couldn’t personally convince myself of paying such a high price for CSL shares. I’m keeping Macquarie on my watchlist until the global economy goes through a rough patch. Therefore, I believe Crown is the best blue chip to buy at the current price.
Want some more quality blue-chip ideas? You should read this, which identifies three of Australia's biggest and best.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Crown Resorts Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.