What makes an ASX blue-chip share a blue-chip in 2020?
If it sounds like I'm ripping off a very questionable song involving the colour red from the Peter Pan movie, I'm coincidentally not.
The term 'blue-chip' typically refers to the largest shares on the ASX (in Australia anyway, the term is universal). There is no technical definition, but a 'blue-chip' share is normally one that's been around for a while, is large by market capitalisation and usually pays substantial dividends (especially in Australia).
The term 'blue-chip' actually comes from casino poker, where the largest value chip is the blue chip.
Before 2020, telling someone you 'stick to the blue-chips' normally implied you were a conservative investor, perhaps concentrating on dividends as an investment goal. Beginners to investing are also sometimes told to start with the blue-chips as a way of familiarising oneself with the investing process before branching out into more 'high-risk/high-reward' shares.
But (like many aspects of life), the coronavirus has changed the landscape completely.
Many ASX shares in the S&P/ASX 200 Index (ASX: XJO) that might have once been considered blue-chips are increasingly falling into more of a 'high-risk shares' category. Qantas Airways Limited (ASX: QAN) comes to mind, as does Graincorp Ltd (ASX: GNC).
Even the 'Big Four' banks like Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB) – long the bluest of the ASX blue-chips – could now be more categorised as 'value plays' than 'blue-chips' on their current historically low share prices, and potential lack of dividend prospects in 2020.
So how does one find a genuine ASX blue-chip share in 2020?
Well, if you're looking for a strong, mature business that has the ability to ward off threats from the coronavirus and related economic shutdown, then the list is quite narrow. We don't yet know the full extent of how this insidious disease will hit our economy this year, although we can say with confidence that it will be horrible.
If you're really after blue-chip safety, I would look to the companies that sell us things we need, rather than want. Coles Group Ltd (ASX: COL) and Woolworths Group Ltd (ASX: WOW) are obvious choices here. You might also want to look at AGL Energy Limited (ASX: AGL), Telstra Corporation Ltd (ASX: TLS) or CSL Limited (ASX: CSL).
The big ASX miners like Fortescue Metals Group Limited (ASX: FMG) and Rio Tinto Limited (ASX: RIO) have also help up relatively well, although this probably has more to do with the price of iron ore than anything else.
Foolish takeaway
I care less about the 'blue-chip' label and more about a company's ability to generate cash flows through thick and thin for the foreseeable future. Buying these kinds of companies at a good price is what successful investing is all about in my book.
