Investors are often drawn to 'blue chip' (high quality) shares because of their perceived safeness and reliability. However, as these businesses are generally more mature and won't grow as fast in the future, paying the right price becomes more important, in my opinion.
Here's my take on these 3 blue chips today:
Carsales.Com Ltd (ASX: CAR)
A strong business with the leading cars-for-sale website in Australia, Carsales has been capably led and has a growing group of complementary businesses including vehicle inspections, financing, and tyre selling.
However, it is still priced like a disruptive technology company at 25 times earnings, even though much of its growth appears to be coming from the less profitable and more competitive ancillary businesses. I'm not a buyer of Carsales at today's prices.
Sonic Healthcare Limited (ASX: SHL)
This international pathology business has a long track record of expanding via acquisition, and earns around half of its revenue in a diverse group of overseas countries. Sonic is a little expensive for my liking, primarily because it carries medium levels of debt and, given its size, is unlikely to grow more than a couple of percent per annum on average.
To my mind the company has a decent chance to grow earnings over the long term, although I would prefer to get it cheaper to improve my chances of making a worthwhile investment. I'd call Sonic a 'Hold'.
Sydney Airport Limited (ASX: SYD)
Sydney Airport is a tricky one. First, it's often referred to as a 'bond proxy' (meaning it could fall when interest rates rise), because the reliability of its earnings makes it attractive for income investors who currently have few alternatives. Second, the company carries a lot of debt. Third, it does have attractive long-term tailwinds of growing tourist numbers as well as an option to construct Sydney's second airport.
I think it likely that the company will be able to continue exploiting its competitive advantage (there's only one Sydney Airport) to grow its earnings at above-inflation rates for the long term. For a passive investor, Sydney Airport could be a good income stock for the bottom drawer.
