3 blue chips for your portfolio

Three alternatives to the expensive banks

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published August 19, 2013 4:08 pm AEST

Many investors may be looking at the share prices of the banks and wondering where on earth they are going to park their funds as their term deposits mature. Many face putting up very low interest rates, or having to make a decision to invest elsewhere.

With bank share prices looking extremely expensive despite the fully franked dividends, investors are desperately seeking safe, reliable businesses to invest in.

Here's three companies that might not look cheap now, but could leave the S&P/ASX 200 index (Index:^AXJO) (ASX:XJO) in their dust over the next five to ten years.

CSL Limited (ASX:CSL) is currently trading on a trailing P/E ratio of 24.1, but could see growth of around 20% per annum over the next few years. New products developed from blood plasma to treat a host of diseases may be coming to add to the company's existing lineup, along with more sales into developing countries could see sales and profits rise. Add in the company's ongoing share buybacks, and existing shares could be worth multiples of the current price.

Cochlear Limited (ASX:COH) is reportedly facing increased competition from revitalised competitors, as well as Chinese startups. But don't let that fool you. Cochlear develops premium hearing devices and has more products in the pipeline. When it comes to people's health, quality is king, and Cochlear is likely to profit from rising awareness of its products globally.

Telstra Corporation (ASX:TLS) may not be able to grow its mobile or broadband business too much further in Australia. It already has dominant positions in both, and Australia's market is fairly small and growing at a slow rate. But its smaller, unsung divisions such as cloud computing, network applications and data services could see massive growth in the years ahead. Shareholders could see Telstra's legendary dividend significantly higher in ten years' time.

Foolish takeaway

While the banks are unlikely to grow significantly from here, without a big increase in credit growth, these three may be better options for those looking for solid, blue chip companies for their portfolio.

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Motley Fool writer/analyst Mike King owns shares in CSL, Cochlear and Telstra.

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