A large, well-established, financially stable company with a strong track record is said to issue blue-chip stocks. These businesses have typically been in operation for a long time, have consistent earnings, and typically distribute dividends to investors. The market capitalization of a blue-chip company is usually in the millions of dollars. In their particular industries, these stocks are typically market leaders. In light of the above, it is clear that these blue-chip businesses are among the most popular stock purchases for investors and can yield profitable returns.
Blue-chips are also well known by a different name called “large cap." These stocks are considered safe investments on account of their strong past track record and stability. Blue-chips can play a key role in an investor’s portfolio.
S&P/ASX 20 (ASX: XTL) is perhaps the best place to begin identifying Australia’s large caps.
Fig.: The above presents a 5-year comparative chart amongst S&P/ASX 20, CSL, RIO, and WBC.
Source: Yahoofinance.com
Let’s just look at some of Australia's best blue-chip names. These are as follows:
[Note]: The market cap and the share price of the selected ASX companies below are mentioned as of 9 January 2024.
RIO Tinto Limited (ASX: RIO)
Market Cap: $48.94 billion
CMP: $131.845
Sector: Basic Materials
Rio Tinto Limited is strategically well-positioned to capitalize on the expected sustained commodity demand created by de-carbonization, shifting regional industrial policies, and geopolitics, all of which are favourable to the company’s growth objective. The company’s recent Matalco JV increases market accessibility in the fast-evolving North American recycled aluminium market. The company has set a predetermined goal to achieve and sustain a mid-term system annual capacity of 345 to 360 million tonnes from its Pilbara iron ore business. The company’s proper allocation strategy and robust operational track record have enabled it to generate positive cash flows.
CSL Limited (ASX: CSL)
Market Cap: $140.15 billion
CMP: $290.10
Sector: Healthcare
CSL Limited has strategies to deliver annual double-digit earnings growth, underpinning a steady improvement in ROIC. The company’s strategy to advance in digital and artificial intelligence technologies will help reduce the time to collect plasma, discover new compounds, and conduct clinical trials. The joint operation between CSL Behring and CSL Vifor is well placed to align with the WHO guidelines for patient blood management to improve patient outcomes and minimise healthcare costs.
The company delivered its revenue growth projection to be in the range of approximately 9% to 11% on a constant currency basis over FY2023. The NPATA is expected to be in the range of approximately $2.9 billion to $3 billion at constant currency and growth of between 13% and 17%.
Westpac Banking Corporation (ASX: WBC)
Market Cap: $80.89 billion
CMP: $23.10
Sector: Financial Services
The company’s financial positions have been well maintained, and the financial strength across capital, funding, and liquidity will eventually be supported in FY2024. The provisioning levels have been well in place to withhold any deterioration in credit quality and to support customers.
The company has been determined to hold a strong market share in key segments, which is an important play for the pursuit of growth. The lagged impact of lending competition, along with modest balance sheet growth, is expected to provide headwinds for revenue. Furthermore, in FY2024, the inflationary pressure will remain persistent, and higher costs will become an obstacle to further operating income growth. Moderate economic growth of below-trend 1.6% is expected in Australia in the near future. This growth is primarily associated with a higher unemployment rate of 3.8% currently, which will support returning inflation rates as per the central bank’s predetermined price band. The demand for credit should remain subdued, with system credit growth for home lending in the 4%–5% range and below 2% for business lending.
Frequently Asked Questions (F.A.Q)
What are the blue-chip stocks?
Blue-chip or large-cap stocks are well-established, financially stable companies with a strong track record. The S&P/ASX 100 (XTO) is one of Australia's well-known blue-chip stocks that contain 100 blue-chip stocks. Let’s look at them:
RIO Tinto Ltd. (ASX: RIO), which has a market cap of $48.96 billion and a current market price of $131.90 (as of 9 January 2024).
BHP Group Ltd. (ASX: BHP) has a market cap of $248.22 billion and a current market price of $48.97 (as of 9 January 2024).
Westpac Banking Corporation (ASX: WBC) has a market cap of $80.89 billion and a current market price of $23.10 (as of 9 January 2024).
What are the advantages of investing in blue-chip ASX companies?
While many blue-chip stocks do generally offer dividend payments on a regular basis,however not all blue-chips do. Compared to small- or mid-cap stocks, which contribute to but also diminish portfolio returns, blue-chip stocks are typically less volatile. When investing in large-cap stocks, an investor can anticipate a comparatively lesser loss. Because these companies have a strong financial track record with a brilliant return profile, pure long-term investors typically prefer to purchase and hold these categories of investments for an extended period of time. Large corporations typically abide by all laws and guidelines associated with having publicly traded stock, helping to safeguard the capital and trust of investors.
How risky are the blue-chip stocks?
Blue-chip stocks don't carry a lot of risk; investors with lower risk tolerance tend to favour them. Although blue-chip stocks are not infallible, many investors find them to be a desirable option due to their track record of withstanding market downturns.
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