S&P/ASX 20 Index (ASX: XTL) shares are among the biggest and best companies in Australia. I think ASX blue-chip shares can deliver good returns, but there are only a few names I'd want to buy for my own portfolio.
For my own portfolio, I like to look at businesses that have a compelling growth runway and the ability to expand in different ways. Commonwealth Bank of Australia (ASX: CBA) is a solid business, but I don't think it has a lot of strong growth ahead for various reasons (including its size and competition), and it could be difficult for the bank to materially diversify its earnings.
With that in mind, these are the two ASX 20 shares I'd buy with $2,000.
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Macquarie Group Ltd (ASX: MQG)
I think Macquarie is perhaps the best ASX financial share. The long-term focus of management and the business overall has led to a very strong setup, it has built up four impressive divisions – banking and financial services (BFS), investment bank, 'commodities and global markets' (CGM) and Macquarie Asset Management (MAM).
The ASX 20 share generates around two-thirds of its earnings from outside of the local market. It can choose to grow in whatever market it is seeing opportunities. Its different divisions give it a wide array of areas to grow.
For a financial ASX 20 share, I think it earns an impressive return on equity (ROE), which is a good incentive for the business to keep reinvesting some profits for more growth in the long term. I like its efforts to expand into 'green' energy, which is a sector that needs a lot of funding.
According to Commsec, the Macquarie share price is valued at 16 times FY25's estimated earnings.
Wesfarmers Ltd (ASX: WES)
I think Wesfarmers is one of the strongest businesses on the ASX. It owns the businesses of Bunnings, Kmart, Officeworks, Priceline, Target and more.
Bunnings is an extremely strong retail business and makes a high return on capital (ROC). Kmart is delivering a market-leading performance in its sector as it continues to grow earnings amid the high cost of living. Both Bunnings and Kmart are appealing strongly to cost-conscious customers.
One of the things I like the most about Wesfarmers is that it has the flexibility to own whatever businesses it thinks can help deliver good long-term returns. For example, in the last few years, the ASX 20 share has decided to expand into healthcare, which can increase the defensive nature of the company's earnings, and there are also strong ageing demographic tailwinds.
In ten years, the businesses in the Wesfarmers portfolio could be quite different, just like how it decided to divest Coles Group Ltd (ASX: COL) and acquire Catch.
The company is always focused on delivering good returns for shareholders, including paying a good dividend each year. Using the trailing payouts, it has a grossed-up dividend yield of 4.7%.
