Are ASX blue chip shares good investment picks on the ASX?
Well, I think it depends on what ‘blue chip’ means and what an investor is hoping for. And what blue chip an investor is thinking about.
What is an ASX blue chip share?
Blue chips are not funny coloured fries.
They are generally meant to be businesses that are reliable, that you can count on during difficult times to remain robust.
I also think that ‘blue chip’ is meant to signify that the business is typically a solid performer over time, that it’s a quality business that does reasonably well for investors.
For the ASX, we are probably talking about businesses within the ASX 20.
Are the ASX blue chip shares good?
There are a few groups of businesses in the ASX 20, with banks, such as Westpac Banking Corp (ASX: WBC) and Commonwealth Bank of Australia (ASX: CBA).
For me, I’m interested in knowing how much a business can potentially grow its profit over time. Different factors come to mind, how much can its revenue and profit margins improve? Also, how strong is the business’ competitive advantages?
I don’t think the big four banks have a lot of growth potential. They are already huge. And they seem to suffer in recessions.
The thing is, quite a few ASX blue chip shares are focused in Australia (and New Zealand). ANZ is a good place to do business, but the two countries have relatively small populations. So, unless businesses can diversify or expand overseas, I don’t think they have a lot of growth potential.
There are a few that do seem good, at the right price, like CSL Limited (ASX: CSL), Wesfarmers Ltd (ASX: WES), Goodman Group (ASX: GMG) and Macquarie Group Ltd (ASX: MQG). Maybe Telstra Corporation Ltd (ASX: TLS) is entering this group, we’ll see.
Resource shares like Rio Tinto Limited (ASX: RIO) and BHP Group Ltd (ASX: BHP) are a bit different. It could make sense to try to pick those up during weak times for the commodity they mine, if you like dividends.
If I wanted exposure to many ASX blue chip shares, I’d much much rather invest in a listed investment company (LIC) like WAM Leaders Ltd (ASX: WLE) or an exchange-traded fund (ETF) like BetaShares Australia 200 ETF (ASX: A200) that would provide that diversified exposure.
However, if I had to pick cash forever or ASX blue chip shares I would go for the blue chips.
Expanding the search
There are other ways to think about ‘blue chips’. One could simply take into mean a business that’s a leader in its industry. That way, you could look outside the ASX 20. Names like Bapcor Ltd
(ASX: BAP), Sonic Healthcare Ltd (ASX: SHL) and Brickworks Limited (ASX: BKW) come to mind.
There’s also the possibility of considering global blue chips which seemingly have more long-term growth potential like Microsoft, Alphabet and Costco. ETFs can be a good way to get exposure to global blue chips such as iShares S&P 500 ETF (ASX: IVV), BetaShares Global Sustainability Leaders ETF (ASX: ETHI), BetaShares Global Quality Leaders ETF (ASX: QLTY) and Vanguard MSCI Index International Shares ETF (ASX: VGS).
I would prefer my portfolio to go for those smaller ASX blue chip shares or global blue chips with more growth potential.
