The Best ASX Blue Chip and Large Cap Stocks to Buy

Blue Chip stocks are not just for risk averse investors, although most market commentators cite “safety” as one of the principal attractions of Blue Chips. The safety comes from the rock-solid financial stability of most blue-chip stocks, along with decades long track records of solid performance.

Dividend payments are another major reason for the attraction of blue-chip stocks. Although there is no precise definition of a blue-chip stock, dividends are acknowledged as the factor that differentiates a blue chip from a large cap stock.

A history of consistent dividend payments reinforces the financial stability of a company that continues to share company earnings with investors.

Many blue-chip companies are market leaders in the sectors in which they operate with the products and services they provide instantly recognizable to both the investing and the general public. Putting all those factors together suggests blue chips can withstand downturns in the larger economy or in their respective business sectors.

Here then are some of the best ASX blue chip and large cap stocks to buy.

• Rio Tinto Limited (ASX: RIO)
• Sonic Healthcare Limited (ASX: SHL)
• Transurban Group (ASX: TCL)
• QBE Insurance Group Limited (ASX: QBE)
• Insurance Australia Group (IAG)

Rio Tinto Limited (ASX: RIO)

It should come as no surprise that some of the best ASX blue chip stocks in today’s market are mining companies. The UK and Australian joint listed Rio Tinto may be the best of breed, not so much because it is one of several diversified ASX blue chip mining stocks, but because of the range of commodities RIO counts among its operational assets.

On 28 May of 2018 Rio sold its last remaining coal mine, leaving the company as the world’s only global miner having fully exited the coal space. The company has been on a path towards carbon neutrality and has entered the renewable energy space since shedding its coal assets and now counts lithium among its mined commodities.

Rio’s principal asset remains iron ore, but the company is committed to producing “green steel” by reducing carbon emissions at its mine by converting to renewable energy generating sources, primarily wind and solar.

The company also mines copper and aluminum – both commodities of vital importance for a clean energy future – as well as titanium dioxide, a coating that can reduce carbon emissions – and borates for both agricultural and high-tech applications. Rio is the majority shareholder of Energy Resources Australia (ERA). Rio  announced the company would buy $319 AUD million dollars in ERA shares to help fund the rehabilitation of ERA’s Ranger Uranium Mine site.

Rio Tinto Financials

Source: ASX Website

The company attributed the lackluster financial performance for FY 2022 to lower commodity pricing along with higher costs on input materials and energy along with inflationary pressures on operating costs across the board. inflation, and  Revenues fell 13% while net profit after tax (NPAT) declined 41%.

FY 2023 Full Year results showed signs of improvement, with revenues dropping 3% and net profit down 17.4%. Dividend payments were down 12%.

nalysts are still largely bullish on RIO, led by global investment banking behemoth Goldman Sachs. Overall, three analysts have STRONG BUY recommendations; nine have BUY recommendations; with two each at HOLD and UNDERPERFORM.

It is debatable how much of a household name RIO is, but on every other measure the company goes beyond large cap into blue chip stock status. Over five years the share price is up 26.2%

Source: ASX

Sonic Healthcare Limited (ASX: SHL)

From bruises to bone cancer, the treatment of medical ailments begins with a diagnosis, from sample tests conducted in a pathology laboratory, to medical imaging, to symptomatic diagnosis from a medical practitioner.

Sonic Healthcare may not meet the Australian blue-chip stock “household name” qualifying standard, but the company is one of the largest providers of laboratory and diagnostic imaging worldwide and an Australian leader in medical imaging and general and occupational health treatment centres.

The company serves medical practitioners, hospitals, and community health centres with its full line of medical imaging services available in 120 clinics across Australia, from X-rays and Ultrasounds to Magnetic Resonance Imaging (MRI) to Computerised Topography (CT) to mammography and nuclear medicine.

The COVID 19 Pandemic was a “double edged sword” for the company, with some operations benefiting from Covid testing and others suffering from the shutdown of a wide range of non-life-threatening medical procedures. The impact was slight, with a drop in net profit of $54 billion dollars in FY 2019 to $52 billion in FY 2020.

Sonic Healthcare Financials

Source: ASX 

The full brunt of the Covid impact appeared in the half Year 2023 Financials y,  with total revenue dropping 14%, led by a 72% drop in Covid related revenue – and a 54% drop in NPAT (net profit after tax.)

Full Year 2023 Financial Results continued the revenue declines from the dramatic drop in COVID 19 testing revenues – down 80%. For the fiscal year, total revenues fell 13% and net profit came in down 54%.

Half Year 2024 results showed improvements with revenues up 5.5% and net profit down 47.1%.

The company continues to grow by acquisition, with the latest coming on 20 March  as Sonic announced the acquisition of Switzerland-based Dr Risch Laboratory Group.

The analyst community is somewhat mixed on Sonic, with 2 BUY recommendations, 3 HOLDS, three UNDERPERFORMS, and one SELL. In the positive camp, on 20 March JP Morgan upgraded SHL to NEUTRAL .

Over five years  the share price is up 21.9%.

Source: ASX

Transurban Group (ASX: TCL)

Transurban is one of the world’s largest toll road operators. The company designs, builds, and operates toll roads in Sydney, Melbourne, and Brisbane in Australia, in the Greater Washington DC area in the United States and in Montreal Canada.

Under normal conditions, toll road operators should function as reliable defensive stocks as travel remains relatively constant even in tough economic times. The “stay at home” work environment and lockdowns were highly abnormal.

The company’s financial performance over the last four  fiscal years reflects the impact of a veritable “black swan” event on Transurban. (A black swan event is an occurrence so rare it is impossible for normal economic models to predict them.) FY 2023 began to show signs of a recovery.

Transurban Financials

Source: ASX

Half Year 2024 Financial Results  showed continued improvement with revenue from ordinary activities up 4.5% and net profit after tax from ordinary activities up a stunning 410.3%.

Transurban has been a consistent dividend payer over the last decade. The share price is up 91.3%  over that period.

Source: ASX

Analyst consensus rating on Transurban from multiple financial sites is HOLD.

QBE Insurance Group Limited (ASX: QBE)

QBE Insurance claims it is a “household name” in Australia. The company is among the top 25 insurers and reinsurers on the planet and the largest general insurance company here in Australia.

QBE is international in scope serving consumers and commercial customers in Australia, the Asia Pacific, North America, Asia, Europe, and the UK. QBE has been in business since 1886.

Although QBE’s profit dipped substantially in FY 2020 during the Covid pandemic, revenues rose throughout and net profit in both FY 2021 and FY 2022 exceeded reported net profit in the pre-pandemic year of 2019 with major profit gains in FY 2023.

QBE Financials

Source: ASX 

Over a five-year period the share price is up 46.8%.

Source: ASX 

Goldman Sachs has maintained its BUY recommendation on QBE with a price target of $AUD 18.65.

Insurance Australia Group (IAG)

Insurance Australia is the largest general insurer serving Australia and New Zealand with multiple brands of insurance products. IAG has six brands in Australia and three in New Zealand. These branded companies offer general insurance products to the consumer and commercial markets as well as investment management services.

The company’s financials have recovered somewhat from the impact of Covid, but FY 2023’s net profit of $83 billion still trails net profit recorded in FY 2019 of  $107 billion.

Insurance Australia Group Financials

The company’s Half Year 2024 Financial Results stalled the recovery, with net profit down 16.8% although revenues increased 15.5%.

Analysts are somewhat mixed on the stock, with the Wall Street Journal at a consensus HOLD, yahoo finance Australia at BUY, and marketscreener.com at OUTPERFORM.

The distinction between blue chip and large cap stocks generally comes down to dividend payments. Blue chips have a solid track record of paying dividends over time, going back at least a decade. IAG meets that standard

Source: ASX

Year over year the IAG share price is up 40%.

Blue Chips have a gold-plated reputation in the Australian investment community, with the financial resources to withstand challenging economic conditions. Financial stability can be seen in a prospective blue chip’s historical record of financial performance. Share price performance over time shows appreciation. Products and services offered are consistently in demand and may be well-known to the non-investing public. The crown jewel of blue-chip investing remains dividend payments.

Over time dividends can significantly increase the total return on investment, earning the best ASX blue chip stocks a place in an investment portfolio.

FAQs

What are Blue Chip Stocks?

A blue chip stock is the stock of a very large company with an excellent reputation and sound financials. Usually these companies have been in business for many years and have dependable earnings. These companies tend to have market caps in the billions of dollars and are one of the leading companies in their sector. Australian blue chip companies include Rio Tinto Limited, Insurance Australia Group and Westpac Bank Corporation

How do you Invest in Blue Chip Stocks?

You can buy blue chip stocks through a regulated broker. Blue chip stocks tend to be a safer investment that other types of stocks as the companies are, by definition, very large and have been operating successfully for many years. You should always do your own research before deciding to invest in blue chip stocks and always have a risk management plan in place.

Where Does the Name Blue Chip Stocks Come From?

The term blue chip stocks was coined in the 1920s by Oliver Gingold who worked for the Dow Jones. It is a reference to poker, where the blue chips had the highest value. It was originally used to describe high value stocks but these days it has more to do with a company’s history and reputation. For example Facebook (now called Meta) has a market cap of over $1 trillion, but is generally not considered a blue chip stock as it was only founded in 2004.