ASX blue chip shares saw volatility in April, just like many other areas of the share market. But could this be the right time to invest in Australia’s biggest businesses?
When uncertainty increases in the world, it’s the biggest businesses that normally survive and perhaps excel because of their strong balance sheets, positions in their market and ability to attract customers.
In the last couple of months, global investors have supposedly been attracted to the safety that Australia’s economy may be able to provide. Australia is not reliant on exporting to the US and the last few years have demonstrated how Australia’s economy can remain strong in difficult times.
I think particular businesses could continue to achieve good results, whether the global economy goes through a rough patch or not in the next few months and years. Here are two of my favourite leaders.
Wesfarmers Ltd (ASX: WES)
Wesfarmers is the business that owns Bunnings, Kmart, Target, Officeworks and several others, such as a chemicals, energy and fertilisers segment called WesCEF.
The ASX blue chip share has done an excellent job of growing its profit through various economic conditions in the last few years. The ability of Kmart and Bunnings to offer customers value and still achieve good margins and sales growth is a key feature of its attractiveness.
A business that can grow in all situations is appealing during uncertainty. In-fact, if households were to face more difficult times, Kmart and Bunnings may be able to grow their market share.
Most of Wesfarmers’ earnings is generated in Australia (and New Zealand), which I think is a good attribute.
The business continues to work on diversification of its earnings, including growing Kmart’s brand (Anko) into international markets. I think healthcare could also be a fruitful long-term sector for Wesfarmers, if it can find the right areas to expand into – it’s a vast addressable market to try to find opportunities.
Telstra Group Ltd (ASX: TLS)
Telstra is by far the biggest telecommunications business in Australia. This gives the ASX blue chip share certain advantages, including scale, infrastructure and spectrum.
The company appears to have very defensive earnings because of how integral households and businesses view the internet is, for various reasons in their operations and personal lives. I think that’s useful in this uncertain era.
Telstra continues to win new subscribers during every reporting period, which gives it operating leverage and the ability to improve its profit margins.
The net profit is normally what investors value the business on, so rising profit is a useful sign for future Telstra share price growth and dividend payments.
Telstra looks like the type of business that could keep growing core earnings whether there’s a global economic slowdown happening or not.
As a bonus, Telstra could continue paying (and growing) a good dividend for investors. At the moment it offers a fully franked dividend yield of 4.1%.
