How to pick champion stocks under blue-chip category?

Blue chip category is the high-quality and mostly high-priced stock category, which is due to the confidence of investors in the company’s record of steady earnings and resilient fundamentals. With solid track record of earnings and only a low or moderate amount of debt, a blue-chip company is very strong financially. These are large-cap companies which are in business for many years and are stable with dominant products and services. Before investing in a blue-chip company, one should carefully study the company i.e. carefully read and analyze all the information available about the company itself. A strong balance sheet which can be a company with a lot of cash is obviously superior to a company which is burdened with debt.

Few of the stocks under the blue-chip category which are quite famous in Australia are Commonwealth Bank of Australia (ASX:CBA), Australia and New Zealand Banking Group Ltd (ASX:ANZ), Ramsay Health Care Ltd (ASX:RHC), National Australia Bank Ltd (ASX:NAB), Rio Tinto Ltd (ASX:RIO), Telstra Corporation Limited (ASX:TLS), and BHP Billiton Limited (ASX:BHP) amongst many others.

One of the factors while picking champion stocks is to look at the P/E ratio which is generally better when it is at a low multiple, as compared to the industry P/E; however, this is not a thumb-rule. The portfolio that one holds should be well diversified across sectors to be able to make the best out of the investment portfolio. Apart from checking the history one should also look at the outlook for the future performance.

One of the foremost steps is to identify the purpose of the investment going to be, some investors like to focus on income while others on capital protection. For quick and high end return, growth stocks sometimes suit the investment portfolio, while investors with less risk appetite and objective of capital protection tend to invest in blue-chip category stocks particularly, with good dividends.

Another important aspect to consider while picking stocks is to be informed about the current market events, keeping abreast with the latest financial news and publications and this could spur further research into the fundamentals which drive that industry. Reading blogs, magazines and news articles can help analyze the companies through different perspectives.

Next step under the stock picking is that it involves choosing a stock under blue-chip category you understand better over others or are more interested in. The stocks you understand better will give you advantage over the sector and industry you are researching on. Look for investor presentations which are less comprehensive than the annual statements which can provide you with an overview of how they make money.

Blue-chip are large companies which are well established and financially sound companies that are generally suitable for long term capital growth. With a sea of stocks to choose from, blue-chip stocks are the safest bet if one is looking for low risk and decent returns. There are few amongst the blue-chip category which outperform others and hence called as champion stocks. The other key thing apart from sustainability in terms of performance is the dividend growth over the years. For instance, the ASX-listed stocks as indicated above have been champion stocks in terms of their performance over years and the dividend paid in the past. While Royal Commission has had an impact on banks though they emerged decently well post the high level scrutiny, market darling of yesteryears, Telstra has been under immense pressure given the macro level telecom sector headwinds. Similarly, Ramsay, which has been a champion stock in heath care sector saw some headwinds lately in terms of financial performance and challenges in few geographic regions. The stock has plunged quite a bit lately. On the other hand, mining champions, BHP and RIO have taken sweet spots over the last couple of years at the back of commodity scenario and even enhanced their dividends after a period of lull seen around 2015-2016.

All in all, a deep-rooted strategy that runs on these factors and numbers supporting the above, has to be developed to identify champion blue-chips.

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The advice given by Kalkine Pty Ltd and provided on this website is general information only and it does not take into account your investment objectives, financial situation or needs. You should therefore consider whether the advice is appropriate to your investment objectives, financial situation and needs before acting upon it. You should seek advice from a financial adviser, stockbroker or other professional (including taxation and legal advice) as necessary before acting on any advice. Not all investments are appropriate for all people. Kalkinemedia.com and associated websites are published by Kalkine Pty Ltd ABN 34 154 808 312 (Australian Financial Services License Number 425376). website), employees and/or associates of Kalkine Pty Ltd do not hold positions in any of the stocks covered on the website. These stocks can change any time and readers of the reports should not consider these stocks as advice or recommendations.