I can understand why many investors seek the safety of ASX blue chips when times look a bit tougher. Blue chips can provide more reliable returns and are less likely to go bust.
There's no clear definition of what constitutes a blue chip, but I'm going to take it to mean shares that are within the ASX 100.
If I were to pick the three blue chips I'd want in my portfolio for good total returns over the next five years, I'd pick these three:
A2 Milk Company Ltd (ASX: A2M)
The A2 Milk share price is down 20% since the end of July, due to the trade war and the reaction to its FY19 result.
I can see that the short-term outlook looks a little less favourable for A2 Milk, with it closing its UK operations (for now), an expected lower earnings before interest, tax, depreciation and amortisation (EBITDA) margin in FY20 and the potential for slower growth in the US and China.
However, I think there's still plenty of opportunity for the company over the longer-term and plenty of markets that it hasn't really tapped into yet. Plus, there's still a large amount of US and China that it hasn't reached. I think the market has been too pessimistic.
A2 Milk is now trading at only 32x FY20's estimated earnings.
Cleanaway Waste Management Ltd (ASX: CWY)
The waste business has also seenn its share price drop after reporting, it's down 14% over the past month.
An economic downturn in Australia wouldn't be ideal for Cleanaway, but it produced a solid result in FY19 nonetheless with underlying revenue growth of 33.2% and underlying earnings per share (EPS) growth of 30.2% to 6.9 cents. Free cashflow also improved by 76.4% to $206.4 million and total dividends grew by 42%. These are excellent numbers in my opinion.
There's plenty to like about Cleanaway with regular revenue from its waste collections business and growing profit margins.
It's trading at 27x FY20's estimated earnings, with growth expected through to 2025 as part of its long-term plan.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
Soul Patts is my favourite Australia-focused ASX business with its investment conglomerate style working well to grow value, cash profit and dividends for shareholders over the long-term.
It has a diverse array of investment holdings like TPG Telecom Ltd (ASX: TPM), Brickworks Limited (ASX: BKW) and New Hope Corporation Limited (ASX: NHC), as well as many smaller investments.
The Soul Patts share price has drifted lower during 2019, but I think this presents an excellent long-term buying opportunity, which is why I have been buying shares recently. I really like the flexibility that Soul Patts can invest in whatever business or asset it wants – listed or unlisted.
Foolish takeaway
Soul Patts is my favourite investment idea of the three, but I think both A2 Milk and Cleanaway could both produce market-beating returns at the current prices compared to the rest of the ASX due to their brighter-than-average prospects and lower share prices.
