Some other factors that may qualify a stock as blue chip include being a constituent in a major stock index eg. The DOW Index or S&P 500, the company itself being an industry leader in their respective field, and typically being a long-running, financially sound and generally well-established corporation.
A great example of blue chip stocks in the US would be FAANG stocks – Facebook, Apple, Amazon, Netflix and Google. These tech-giants have regularly grown year-on-year and in many ways dominate the stock market in the US (and if you’re anything like us, much of our free-time).
What are Australia’s Blue Chip stocks?
While Australia doesn’t have an acronym-equivalent to FAANGs that carries the same prestige and glamour to the modern consumer, several Australian corporations have a long and successful history. This includes not just with Australian investors, but globally.
Perhaps the best place to begin identifying Australia’s blue chip stocks is with the S&P/ASX20 Index. While there are several household names on the S&P/ASX20, many would go over the average Australians head. At present, the top 20 are comprised predominantly of Financials (44%), followed by Materials (17%) and Health Care (12%).
So, just who are the major players? Here’s the top 10 ASX companies by market cap:
- Commonwealth Bank of Australia (ASX:CBA)
- BHP Group Ltd (ASX: BHP)
- CSL Ltd (ASX: CSL)
- Westpac Banking Corporation (ASX: WBC)
- National Australia Bank Ltd (ASX:NAB)
- Australia and New Zealand Banking Group Ltd (ASX: ANZ
- Fortescue Metals Group Ltd (ASX:FMG)
- Wesfarmers Ltd (ASX: WES)
- Woolworths Group Ltd (ASX: WES)
- Macquarie Group Ltd (ASX: MQG)
The full list of the S&P/ASX20 live can be found here, though this list has remained relatively consistent in recent years.
Which blue chip stocks are in the material sector?
Key players in the Materials sector are Rio Tinto, Fortescue Metals Group and BHP Group. All operate within the mining industry, with locations globally. While Fortescue Metals and BHP are headquartered in Australia, Rio Tinto’s head offices are in London. All are available on the ASX. Though these corporations still hold prime spots in the ASX20, BHP’s Vice President of Market Analysis & Economics has gone on the record saying,
“…oil and copper prices are highly susceptible to swings in global policy uncertainty. We consider the commodity–specific fundamentals of both oil and copper markets to be sound… Looking beyond the immediate picture, in the medium–term, we see the need for additional supply, both new and replacement, to be induced across most of the sectors in which we operate.”
These companies remain highly reputable within the investor space, but it is important to remember nothing is ever certain in the stock market. Also, for those interested in ethical investing, these stocks may not feature highly on your ‘to buy’ list.
Which blue chip stocks are in the financial sector?
The largest piece of the S&P/ASX20 pie is taken up by Financials, with the usual suspects and heavy hitters like Australia and New Zealand Banking Group (ANZ), Commonwealth Bank of Australia (CBA), National Australia Bank Limited (NAB) and Westpac (WBC) among the top.
At the time of writing, the Big Four banks have all recently recovered from their COVID-19 lows. CBA, in particular, has gained 40% in the past year. However, with the Cash Rate at a historical low (0.10%) interest rates are correspondingly low. Often, low-interest rates can not bode well for the banking sector’s profits, so this will be an interesting space for investors to watch.
Which blue chip stocks are in the Health Care sector?
Not many health care corporations sit amongst the ASX20, but CSL group – otherwise known as the Commonwealth Serum Laboratories – have a market cap large enough to ensure Health Care is still a primary sector in the top 20. CSL is a manufacturer of biotechnology, researching as well as producing medicines that treat a variety of medical conditions. This year, CSL have turned 105, after being established in 1916 in response to Australia’s isolation throughout the war. They were key in introducing medicines like penicillin to Australia, as well as vaccines against influenza and polio.
Since the COVID-19 pandemic took hold of the world, all eyes were on the health care sector and for a vaccine to be formulated. So it is no surprise that CSL’s share price didn’t suffer too much during the height of the pandemic. At the time of writing, CSL’s one-year return is a respectably 5.98%. CLS shares are available to purchase on, you guessed it, the Australian Securities Exchange.
Other blue chip stocks on the ASX
Other notable companies on the ASX20 include property group Goodman, which sits in the Real Estate sector. Goodman are responsible for developing and managing industrial real estate, and own several such properties globally. Grocery giant, Woolworths, also holds a place in the ASX20. Their share price peaked at the start of the COVID-19 pandemic. And although they haven’t reached that level since, at the time of writing, they are itching closer to that all-time high.
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How to buy blue chip shares in Australia
If you’re interested in purchasing any of these Australian blue chip shares, you can buy them individually through a broker or an online share trading platform. Alternatively, you can invest in an Exchange Traded Fund, or ETF, like the iShares S&P/ASX20 ETF. ETFs are available through many providers in Australia.
Pros and cons of investing in blue chip stocks
There are a number of advantages with investing in blue chip stocks, they tend to:
- be less volatile and often less risky than other stocks
- be dividend paying stocks
- offer steady returns
- be well regulated and governed
Some of the disadvantages of investing in blue chip stocks are:
- there is less potential for growth as they are already well established
- returns tend to be lower than other stocks
- poor dividend yield
So, should you invest in blue chip shares?
Blue chip stocks may have weathered multiple market cycles and other industrial and economical challenges, but there is still no guarantee of a 100% safe investment. Looking back just over a decade, a recession in 2008, coupled with the automotive industry crisis, saw company General Motors file for bankruptcy in 2009. Even with companies the general public would consider highly-reputable, there are still risks involved. Take into account your personal circumstances and when in doubt, seek the help of a professional financial adviser.