Australia Markets open in 7 hrs 1 min

3 bargain blue chips for your portfolio

Tristan Harrison
Blue Chip Stocks Arrow Up

The share market has proven to be one of the best ways to create wealth over the last decade, with an average return of about 10% per annum. That’s just from choosing regular old blue chips and investing for the long-term.

If you can pick mega winners early like Altium Limited (ASX: ALU) and MNF Group Ltd (ASX: MNF) turned out to be, then you’ll become truly wealthy.

However, just investing in blue chips should create wonderful compounding returns.

Crown Resorts Ltd (ASX: CWN)

Crown is the largest entertainment business in Australia. Most of its revenue is generated by its two large casino complexes in Melbourne and Perth.

I think Crown is one of the best ways to get exposure to the tourism boom that Australia is experiencing.

The growing number of middle class Asians visiting Australia is a good tailwind for Crown. More people should stay in its luxury hotels and visit the casinos over time.

Crown could be a good long-term opportunity because Crown Sydney should be a good boost to earnings in a few years. Sydney is indeed the most visited city in Australia.

Crown is currently trading at 23x FY18’s estimated earnings with a partially franked dividend of 4.64%.

Greencross Limited (ASX: GXL)

Greencross is the largest pet business in Australia with its Greencross vets and Petbarn retail stores.

The pet industry is a growing sector thanks to a growing pet population. There is also an increasing ‘humanisation’ trend of our pets where we’re willing to spend more money on pets and do more activities like grooming.

A key reason to like Greencross is its co-location strategy of installing a Greencross vet inside a Petbarn. This should save on costs and boost revenue through cross-selling.

Greencross is currently trading at 16x FY18’s estimated earnings with a grossed-up dividend yield of 4.3%.

Telstra Corporation Ltd (ASX: TLS)

The Telstra share price has been hit hard over the past three years, falling from $6.61 in February 2015 to today’s $3.66.

However, I think the fall in share price just offers investors the opportunity to buy the telecommunications giant’s shares at a cheaper price.

Telstra’s profit is expected to keep falling over the next few years due to the NBN. However, the share price and earnings often don’t follow the same trend in the short-term.

The multi-year low of $3.38 could be the lowest the share price goes. In a few years 5G could boost earnings. The future annual dividend should be 22 cents per share, equating to a grossed-up dividend yield of 8.59%.

Telstra is currently trading at 12x FY18’s estimated earnings.

Foolish takeaway

Greencross would definitely be my pick of the above three shares, which is why I’m a shareholder. The NBN is still a big question mark over Telstra for me, whilst I believe Crown needs to demonstrate it’s growing the casino segment of its business over the next year to justify today’s price.

More reading

Motley Fool contributor Tristan Harrison owns shares of Altium and Greencross Limited. The Motley Fool Australia owns shares of and has recommended Crown Resorts Limited, Greencross Limited, MNF Group Limited, and Telstra Limited. The Motley Fool Australia owns shares of Altium. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.