Two blue chip stocks to consider for long-term gains

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Summary

  • Australia is witnessing higher-than-anticipated growth in its economy, which rose by 3.1 per cent in the December 2020 quarter.
  • Blue chip stocks are securities from large corporations that are often associated with stability due to their firm financial footing and dependable earnings.
  • The success of the vaccination program is expected to fuel economic recovery.

The ebb and flow in the Australian financial scenario amid the COVID-19 pandemic has fuelled investors’ interest in low-risk investments, often associated with large corporations having a solid financial foothold. Such large-cap securities, usually called blue chip stocks, have dependable earnings, thereby providing stability in critical times. 

Although Australia is witnessing a V-shaped recovery backed by fiscal policy measures and record-low interest rates, hopes are pinned on the progress of vaccination programs launched in the country in February 2021.

However, side-effects from the vaccine reported in many European countries could affect Australia’s battle against coronavirus. Meanwhile, the supply issues regarding the TGA-approved vaccines have already slowed the pace of inoculation efforts. 

On the positive side, the Australian economy rose by 3.1% in the December 2020 Quarter, surpassing the underlying expectations. As per the Australian Bureau of Statistics (ABS), the country’s unemployment rate decreased to 6.4 per cent in January 2021. 

ALSO READ: RBA Governor Lowe highlights Australia’s improving economic conditions

The rise in consumer activity and the upbeat momentum in the property market have been the torchbearer for the reboot process. With this backdrop, let us look at two blue chip stocks hailing from the retail and property sectors, which are on the investors’ radar. 

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Woolworths Group Limited (ASX:WOW)

Woolworths Group is a diversified retail company with stores present in Australia and New Zealand. The revenue is generated through the sale of general merchandise, supermarket foods and liquor. The Group also manages several hotels. 

The company has achieved substantial results during the first half of FY21. Key highlights include:

  • Group sales of AUD 35,845 million in H1 FY21, up by 10.6 per cent on the pcp
  • eCommerce sale of AUD 2,937 million in H1 FY21, up by 77.9 per cent on the pcp
  • Group EBIT of AUD 2,092 million in H1 FY21, up by 10.5 per cent on the pcp
  • Group NPAT of AUD 1,135 million in H1 FY21, up by 15.9 per cent on the pcp
  • Dividend per share of 53 cents, up by 15.2 per cent on the pcp.

 

ALSO READ: Woolworths’ maiden Queensland ‘dark store’ to see light of day

Woolworth’s witnessed strong sales growth across all businesses, except for Hotels. Australian Food, Endeavour Drinks and BIG W; all reported increase in sales well above the trend. The ongoing COVID-19-related operating restrictions continue to affect the company’s hotel business, which saw improved sales trends during the half. 

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Woolworths Group, in mid-2019, announced its intention of combining retail drinks and hotels businesses for creating Endeavour Group, aimed at simplifying operation and achieving higher focus on core food and routine needs businesses. In this regard, Endeavour Drinks' restructure and subsequent mergers with ALH Group were completed in February last year. However, the separation of Endeavour Group is pending and is anticipated to be complete in June 2021. 

WOW shares closed at AUD 39.350 on 17 March 2021.

Goodman Group (ASX: GMG)

Goodman Group is an Australia-based integrated property group with operations spread across different regions such as NZ, Asia, Continental Europe, the UK, North America and Brazil, besides Australia. The Group manages commercial properties, residential communities, health care communities and senior living. 

Amid the booming Australian property market, Goodman Property witnessed a strong trend. Key highlights include: 

  • Operating profit rose by 16 per cent in 1H21 compared to 1H20 to around AUD 614.9 million.
  • Operating EPS up by 15 per cent on 1H20 to 33.1 cents
  • Gearing at 4.8 per cent compared to 7.5 per cent at FY20 and look-through gearing at 16.6 per cent.
  • Available liquidity of $2.3 billion (in cash and undrawn debt)
  • Net tangible assets (NTA) per security rose by 3.3 per cent to $6.03 per security since June 2020

The company’s global online sales, which saw an average increase of 30 per cent in 2020, is projected to demonstrate strong growth in the upcoming five years. At this juncture, the digital economy would rely on logistics and warehousing sector for obtaining essential infrastructure.

READ MORE: Goodman Group (ASX:GMG) upgrades profit guidance for FY21, courtesy logistics and warehousing sector

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The logistics and warehousing sector is expected to bolster the global online sales trends, projected to show strong momentum in the coming years. The company’s CEO Greg Goodman indicated that the Group was witnessing strong customer demand to meet surging requirements and higher property utilisation. 

The Group continues to advance on the emerging trends and has amped up the development work to ensure sustainable growth. 

GMG shares closed at AUD 17.260 on 17 March 2021.


 


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