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).
So, what’s considered Blue Chip in Australia?
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 at ~44%, followed by Materials at ~17% and Health Care at ~12%.
The full list of the S&P/ASX20 live can be found here, though this list has remained relatively consistent in recent years.
So just who are the major players?
If you viewed the S&P/ASX20 list, you would have seen a company by the catchy name of ‘Amcor Plc Cdi 1:1 Foreign Exempt NYSE’ at the top. Their public name, Amcor Limited, may not make them any more familiar to many, but this global packaging company has had a strong year with a rise of 9.99% in Market Cap. Amcor’s primary production is in developing and producing packaging for everything from food and beverage, to pharmaceutical and medical devices. Despite now being primarily traded on the New York Stock Exchange (NYSE) Amcor is an Australian company, headquartered in Melbourne, and available on the ASX as a Foreign Exempt Listing via CDIs.
Other key players in the Materials sector are South32, Rio Tinto, and BHP Group. All operate within the mining industry, with locations globally. While South32 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, dividend returns have decreased in the FY19 by over US$200M compared to FY18, according to South32’s Annual Report. BHP’s Vice President of Market Analysis & Economics has gone on the record to say, “…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. For those interested in ethical investing, there may also be a personal bias against choosing these stocks.
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 Suncorp Group among the top.
At the time of writing (December 5, 2019) banks were experiencing mixed results, with CommBank climbing, but NAB & Westpac both experiencing Market Cap losses, and Bank of Queensland experiencing share price losses. The Federal Election result – a surprise win by Scott Morrison – earlier in 2019 had driven banking stocks to a high they had not experienced since the final quarter of 2007.
With the Cash Rate at a historical low in December of 2019 (0.75%) 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.
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 are a manufacturer of biotechnology, researching as well as producing medicines that treat a variety of medical conditions. This year, CSL have turned 103, 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. CSL’s Annual Report likely made shareholders anything but sick, as they reported a FY19 net profit of $1.9b, up 17% at current capacity. CSL Shares are available to purchase on, you guessed it, the Australian Securities Exchange.
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. Their FY19 Annual Report noted an increase of operating profit of 11.4% from FY18. Industrial group, Brambles, also reported a 19.5% increase in return on capital investment from FY18 to FY19. Grocery giant, Woolworths, also holds a place in the ASX20. Earlier in 2019 the company completed a $1.7billion off-market share buy-back. Woolworth’s Chairman, Gordon Cairns, announced in their Annual Report that between FY16 to FY19 a total return of 64% was delivered to shareholders.
If you’re comparing Online Share Trading companies, the comparison table below displays some of the companies available on Canstar’s database with links to the company’s website. The information displayed is based on an average of 6 trades per month. Please note the table is sorted by Star Rating (highest to lowest) followed by provider name (alphabetical). Use Canstar’s Online Share Trading comparison selector to view a wider range of Online Share Trading companies.
So how do I purchase 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.
A Word of Caution
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.