Suggesting to invest in ASX blue chips is one of the most popular pieces of advice for beginners.
Taking advantage of the share market is one of the best ways to grow your wealth over time in my opinion.
Businesses that have the ability to both pay us a solid dividend whilst also keeping some of the profit to re-invest for more growth are attractive.
But which ASX blue chips should you invest in? When you look at the ASX 20 there are plenty of names which you've probably heard of like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), BHP Group Ltd (ASX: BHP), Suncorp Group Ltd (ASX: SUN), Telstra Corporation Ltd (ASX: TLS) and Scentre Group (ASX: SCG) – owner of Westfield centres in Australia & New Zealand.
But I don't think it's as simple as just picking one of these large businesses and then hoping for the best over the long-term.
I think any business worth investing in needs to have a decent economic moat. That means it's quite hard for a competitor to steal customers.
I also believe for a business to be able to deliver solid returns over the long-term it needs to have some control over the pricing of its products and services, so that the price isn't dictated by competitors or customers. I'd also want to find businesses that indirectly benefit from the growing population and/or inflation over time.
I think the above points rule out most of the ASX 20. Resource companies can't really control the price they receive for their commodities. Scentre Group is at danger from online shopping. The banks face a number of issues and Telstra has lots of low-cost competition.
So, are there any ASX blue chips worth investing in?
There are two ASX blue chips in the ASX 20 that I definitely think are worth thinking about. CSL Limited (ASX: CSL) and Macquarie Group Ltd (ASX: MQG) are high-quality global businesses with good earning power. You could also probably throw Transurban Group (ASX: TCL) into that description with how regularly it can increase toll road prices.
But then valuation becomes a problem. Investors recognise quality and have sent the share prices of CSL and Transurban very high, perhaps too high. But if you look hard enough at slightly smaller businesses, there are some market leaders that display the right characteristics for a good investing price.
