While the name may not be familiar to most Australian investors, Seth Klarman has been referred to as 'The Warren Buffett of his Generation.' Klarman's investment prowess and performance arguably makes this title justified and if that's not enough, he's one of three investment managers who Buffett has previously said he would like to have manage his money!
Last year Klarman noted that on a relative basis blue-chips looked to offer the best value for large fund managers. While Klarman was indeed talking about the US market and referring to running a very large pool of money, his point appears applicable for many investors who are focussed on building a high quality, solid portfolio to provide them with a worry-free retirement.
Although the market as a whole is looking more or less fully valued (blue-chip included), on a relative basis blue chips may still be the safest place to invest despite their seemingly stretched valuations.
With the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) trading on a FY 2015 forecast price-to-earnings (PE) ratio of 15 and yield of 4.5%, here are three blue chips which look good value to me at the moment.
Lend Lease Group (ASX: LLC) is trading on a forecast FY 2015 PE of 12.4, which looks appealing especially when you consider the quality of the company and its pipeline for potential growth opportunities. While the dividend is unfranked, the forecast yield of 3.9% is not bad either.
JB Hi-Fi Limited (ASX: JBH) is trading on a forecast PE of 14.9 and a fully franked yield of 4.2% – this pricing places it roughly in line with the wider market. Given its nimble, low cost structure, JB Hi-Fi could be one of the best placed retailers to survive the current downturn which could possibly make current levels an enticing entry point for long-term investors.
Orica Ltd (ASX: ORI) has faced headwinds from the slowdown in the mining sector, however according to consensus estimates provided by Morningstar after a slight decline in FY 2014, earnings per share are forecast to increase above FY 2013 levels in FY 2015. Based on these estimates the stock is trading on a PE of 11.9 and a fully franked yield of 4.8%. The spectre of capital management initiatives which could lead to a spin-off of the chemicals business could also add momentum to the stock.
