2 ASX 200 blue chip shares that might be the best to buy

Magellan is one of the ASX 200 blue chip shares to consider.

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There are a number of S&P/ASX 200 Index (ASX: XJO) blue chip shares that may be worth thinking about for the long-term at the current prices.

These are businesses that have seen significant share price declines in recent weeks but have long-term growth plans.

They are amongst the biggest in their industries on the ASX and have scale benefits:

Magellan Financial Group Ltd (ASX: MFG)

Magellan is a fund manager with funds under management (FUM) of around $118 billion, which continues to rise over time.

However, despite the rise in FUM, the Magellan share price has declined by 30% over the last two months.

The FUM growth is what drives the underlying profit of the funds management business higher. In FY21, the average funds under management (FUM) rose 9% to $103.7 billion, leading to profit before tax and before performance fees of $526.6 million, an increase of 10%. Funds management costs were only around 16% of income in FY21.

The interim and final dividends (excluding the performance fee dividend) came to 199.7 cents, an increase of 8.2% from FY20.

Another area of potential profit growth for the ASX 200 blue chip share comes from Magellan Capital Partners, which is responsible for strategic investments outside of Magellan’s funds management business that meet stringent criteria. This is where the business is looking for high-quality companies with meaningful scale in the sector.

One example is its 40% stake in Barrenjoey for $156 million, a new investment bank, which now has a team of around 250 people. Operating activities have started. Magellan said the partnership with Barclays is proving “very beneficial” for Barrenjoey’s clients and that the business is developing ahead of expectations.

Another example was the $103 million investment in Guzman y Gomez for a 12% stake. Magellan said that GYG had a strong year, exceeding its budgeted earnings by around 50%, despite difficult trading conditions. It achieved its new restaurant opening target for the year and now has 157 corporate-owned and franchised restaurants. GYG made $445 million of total global sales.

Morgans currently rates Magellan as a buy, with a price target of $54.85. The broker thinks that the fund manager can continue to grow its earnings in the coming years. It values Magellan at 14x FY23’s estimated earnings with a projected FY23 partially franked dividend yield of 6.8%.

BHP Group Ltd (ASX: BHP)

The BHP share price has fallen by around 30% since the end of July 2021.

This ASX 200 blue chip share has seen the iron price more than halve over the last few months as China stepped up curbs on steel production in different regions.

In FY21, BHP made US$30.3 billion of underlying earnings before interest and tax (EBIT). Iron ore accounted for US$24.3 billion of the underlying EBIT, so it made up a significant portion of the overall result.

But the mining giant is looking to diversify its operations with other commodities such as copper, nickel and potash. The BHP CEO Mike Henry said:

We continue to actively position our portfolio as well for future returns and growth. We have progressed exploration and development in copper and nickel, commodities which are favourably leveraged to the mega-trends of electrification and decarbonisation. In sanctioning the Jansen Stage 1 project in Canada, we gain access not only to the healthy returns of this project on a stand-alone basis, but to a new front for growth in a future facing commodity in the world’s best potash basin and an attractive investment jurisdiction.

The ASX 200 blue chip share is currently rated as a buy by the brokers at Macquarie Group Ltd (ASX: MQG) with a price target of $56. The analysts point to strong resource prices as a reason to be positive on BHP.

Macquarie’s estimates put the BHP share price at 8x FY23;s estimated earnings with a projected FY23 grossed-up dividend yield of 11%.

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Motley Fool contributor Tristan Harrison owns shares of Magellan Financial Group. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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