The Best ASX Blue chip Stocks
to buy Now In May 2024

Check out our industry experts’ report and
Analysis on the best blue chip stocks right now on the ASX

The Best ASX Blue chip Stocks to buy Now In May 2024

Check out our industry experts’ report and analysis on the best blue chip stocks right now on the ASX

What are Blue Chip stocks?

Blue chip shares are the stocks of well-established companies with strong credit ratings and a long history of performance and stability. These companies tend to have dependable business models and strong credit ratings. Blue chip companies tend to be the market cap leaders, and blue chips themselves are typically the largest companies in their respective stock, market caps and sectors.

The term "blue to buy the most blue chip shares or own blue chips or buy blue-chip shares" is derived from poker, where the blue chips are the highest valued ones. In the Australian Securities Exchange (ASX), an exchange-traded fund many blue-chip shares, companies, stocks and companies are household names.

These blue chips also paying dividends, include National Australia Bank Limited, Commonwealth Bank of Australia, BHP Group Ltd, and the Zealand Banking Group. These can buy blue-chip shares or stocks because blue-chip companies have large market capitalizations, and investing in blue-chip stocks or shares of these large-cap companies is a common strategy for achieving high capital growth.

Why invest in Blue Chip Stocks in Australia?

Investing in blue chip shares on the ASX offers several distinct advantages. For one, Australian blue chip shares come with the promise of financial stability. The blue chip companies listed on the ASX have demonstrated resilience in the face of market downturns, owing to their dependable business models and robust financials.

For instance, during periods of market volatility, resource companies, like BHP Group and National Australia Bank have consistently demonstrated their ability to weather economic downturns. Their company's annual reports reveal a strong track record of stability and growth.

Another major advantage is the potential for regular income from paying dividends. Blue chip stocks tend to pay higher dividends than smaller companies or penny stocks. For example, larger companies, such as the so-called Big Four Banks and major miners.

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A Unique Way to Invest in Blue Chip Shares: Exchange Traded Funds (ETFs)

For those looking to buy blue-chip stock shares, but find it difficult to either just pick one or two, or to buy several, an alternative to buying individual, blue-chip stocks is to invest in mutual funds in Exchange Traded Funds (ETFs).

ETFs can provide exposure to multiple blue chip stocks in a single transaction, providing a cost-effective way to access the Australian. They also offer diversification, as they spread the investment across many more blue chip stocks and companies, which can reduce risk.

3 Best ASX Blue Chip Shares to Invest in for 2024

BHP Group (ASX: BHP)

As one of the world's largest mining companies by market capitalisation, BHP Group (ASX: BHP) is a major player in the mining industry. The company operates across several continents, with significant operations in Australia, South America, and Papua New Guinea. BHP Group has a diverse portfolio, including iron ore, metallurgical coal, copper, and oil.

Commonwealth Bank of Australia (ASX: CBA)

The Commonwealth Bank of Australia (ASX: CBA) is a classic example of a quality blue chip investment – ideal for those looking for consistent returns and financial stability. The bank has an outstanding CET1 ratio of 11.8%, indicating strong financial resilience on the part of the institution.

CSL (ASX: CSL)

CSL is a biotechnology giant based in Australia that was established in 1916 and provides medical therapies, most notably flu vaccines and blood plasma products. The market was unstable but the CSL shares remained strong and after hitting their lowest 52-week point in September, they have managed to show some substantial gains.

3 Best ASX Blue Chip Shares to Invest in in 2024

BHP Group Limited (ASX: BHP)

This diverse portfolio reduces the risk of individual commodities impacting the share price but also minimises any upside from short-term increases in these commodities. But crucially, the demand dynamics for iron ore and copper are strong in the long term. This makes it a standout amongst ASX mining stocks.

Also, one crucial appeal in buying into BHP is her steady tradition of dividend payouts. Currently, the company’s dividend yield stands at approximately 5.5% which although lower than its average of 9.5% per annum, is still attractive to those seeking income.

During the last five years, BHP’s share price has risen by over fifty per cent (excluding dividends) and surpassed the total market growth rate which stood at just approximately 23%. This expansion speaks about how the company holds a dominant position in the resources sector of the market and it is a continuous earner. An increase in share prices and additional divisions make BHP stock attractive in investment portfolios.

In terms of diversification into exploration and production, operationally efficient BHP is in a better position to withstand any market volatility. These commodities are in high demand at almost all times. Therefore, the target zones of the company – copper, iron ore, and coal serve as a solid ground for the stability in revenues. What is more, BHP’s recent record of iron ore, whereby prices outperform expectations, suggests strong prospects of this company making profits.

The demands of key international markets, especially big economies such as China, greatly affect BHP’s performance. Also, given that some analysts are expecting higher iron ore prices as well as potential fiscal stimulus adding to increased steel demands, BHP Billiton should gain from such macroeconomic conditions.

The oil & gas segment has been known for its cyclical nature. However, BHP Billiton with its diversified operations, strong business models, and strategic foresight still has strong footings in the ASX as a good long-term investment.

Commonwealth Bank of Australia (ASX: CBA)

The Commonwealth Bank of Australia (ASX: CBA) is a classic example of a quality blue chip investment – ideal for those looking for consistent returns and financial stability.

The bank has an outstanding CET1 ratio of 11.8%, indicating strong financial resilience on the part of the institution.

CBA remains operationally stable to date even under margin pressures in the banking sector. Despite the adverse economic climate, it has maintained a consistent cash NPAT of $10bn over the last 2 years, which demonstrates its operational effectiveness.

Another thing that makes CBA special is that it puts a lot of attention to the maintenance of strong credit quality. Despite this, the bank portrays itself as a good risk manager because it has managed arrears that are relatively small compared to other banks; and this is a vital trait in a volatile economic environment. It also has a lower portion of its home loans sourced from brokers, thus avoiding paying trailing commissions to the extent its peers have to.

Moreover, as an organization focusing on development and primarily customer-oriented, CBA suits current market trends quite well.

The bank’s share price increase by 44% in the last five years signifies that it is a strong market and can grow its market capitalisation as well. Investors looking for growth from CBA will be provided with a blend of both market capitalisation growth and a steady flow of dividends, adding to their total revenue at a constant rate.

CSL Limited (ASX:CSL)

CSL Limited is a biotechnology giant based in Australia that was established in 1916 and provides medical therapies, including vaccination. CSL provides products for bleeding disorders, immunodeficiencies, and other severe ones with a global presence of more than sixty nations through focusing on innovation and human health.

The market was unstable but the CSL shares remained strong and after hitting their lowest 52-week point in September, they have managed to show some substantial gains. The recovery is anchored on upbeat views held by some of the top brokers such as Morgan Stanley and Morgans as they forecast at least a fifty percent leap from the current figure in the next year.

This positive bias about CSL has been motivated by anticipated improvements in earnings per share (EPS) as the Plasma Business Model (PBM) takes full effect.

The success of this model will minimize the dangers of generic competitors, specifically in the Injectafer market This confidence is reflected in Morgan Stanley’s overweight rating and a target price of $334, implying a substantial margin for growth. Likewise, Morgan keeps a ‘buy” score considering a significant increase because of many CSL initiatives and a great drug pipeline.

The business model of CSL is built on its involvement in various aspects including CSL Behring, CSL Vifor, and CSL Seqirus which are all separate sectors of operations for this company.

In its entirety, every one of these segments plays a unique role in the organization's development with CSL Behring taking care of unattended needs for the plasma-derived and recombinant products while CSL Seqirus expands to the influenza vaccine market. Moreover, CSL Vifor’s merger and continued digital transformations relate to its 2030 program aiming at improving future profitability.

CSL expects long-term demand for immunoglobulin and new products like HEMGENIX(R) for hemophilia B in the future. This predicts that the company will have a continuous need for vaccination based on advanced techniques.

Pros and Cons of Investing in Blue Chip Stock Companies

Adding blue-chip stocks to the investment portfolio may improve the overall returns since they are more likely to outperform their peers in the market cap in terms of return prospects. The historical performance of such companies has always been on the upward trend. The ASX All ordinaries index has a long two-decade average of about 10%, while bonds have been averaging at 5% annually over the same period.

In essence, blue chip companies refer to big old companies that continuously make profits and provide market stability amidst volatility and uncertainty. Moreover, there are many dividend-paying stocks among these which make stable streams of income that work especially well for the pensioners. Additionally, their long-term growth rate has been impressive with the ASX All Ordinaries index averaging of 12% p.a over the last 50 years, taking a ten-year-old investment to around $ 1 million.

Nonetheless, this has some drawbacks. Blue chip stocks are slightly less risky but may still encounter market fluctuations and downturns during an economic recession. They go down during poor business times although they normally recover as time goes by. However, while it is important to consider these stocks for your portfolio, not everyone comes with an equal measure of safety or profitability.

The fact that individual stock performance varies underscores the significance of holding various high-yield shares. In addition, such stocks are not for everyone, particularly conservative investors who have other securities in their portfolios, including bonds, or even cash.

How to Choose the Right ASX Blue Chip Stocks

Investors often wonder about the right investment time frame to invest in multiple blue chip stocks and shares. While some may argue that any time is a good time due to the long-term stability and growth potential that these stocks tend to offer younger investors, it's wise to consider market conditions and company fundamentals before making an investment decision.

Understanding market cycles is crucial for timing your investment in blue chip shares. During periods of economic growth, we buy blue chip stocks and shares that can provide stable returns and dividends. During downturns, while they may take a hit, they often recover quicker than smaller, less-established companies due to their financial resilience.

Another key factor is the company's financial health, which can be assessed by examining the company's annual reports and financial statements. Companies with low debt, strong cash flows, and steady revenue growth are typically better positioned to weather financial turbulence.

Lastly, consider the company's price-to-earnings (P/E) ratio. A high P/E ratio might indicate that the company's shares are overpriced, and waiting for a correction could be beneficial. Conversely, a low P/E ratio might indicate undervalued growth companies, presenting a potentially favorable investment opportunity.

The Risks: Understanding the Potential Downfalls of Blue Chip Investments

While Australian blue chip stocks tend to offer stability, consistent dividends, and potential for high capital growth, it's essential to understand the potential risks associated with these investments. One potential risk is over-reliance on a single sector. For example, if your portfolio is heavily weighted toward the financial sector, it may suffer significant losses in a banking crisis. Therefore, it's essential to maintain a diversified portfolio across different market sectors throughout.

Another risk is the potential for slower growth. Although blue chip companies tend to be more stable and less volatile than smaller companies or start-ups, they may not provide the same rapid growth opportunities. Their size can make it challenging to sustain high growth rates, and they may not be as agile or innovative as smaller, emerging companies.

Finally, while blue chip stocks are often perceived as 'safe' investments, they are still subject to market risks. Economic downturns, regulatory changes, or company-specific issues can lead to losses. Therefore, it's crucial to conduct thorough research and consider seeking advice from financial professionals before investing.

FAQs on Investing in Blue Chip Stocks

How can I buy blue-chip stocks on the ASX?

Blue chip stocks can be bought through share trading platforms or brokerage firms that provide access to the ASX. Before buying, investors can access research reports and company annual reports to make informed decisions.

Do all companies on the ASX pay dividends?

Are blue chip stocks only suitable for long-term investment?

Is Rio Tinto blue chip stocks?

How do I buy blue chip shares in Australia?

Does blue chip stocks pay dividends?

Is blue-chip stocks a good investment?

Is Commonwealth Bank a blue chip stocks?

The Best ASX Blue chip Stocks
to buy Now In May 2024