Home / Investing / A bullish view on two blue chips

Everyone knows of Telstra, the leading telecommunications business in Australia.

I believe there are a few ASX blue-chip shares that have better futures than the market is giving credit.

Every business on the ASX (and other global stock exchanges) has a share price. That share price has expectations built into it – the future profit margins, how much revenue could grow, market share, potential dividends, etc.

One way to beat the overall market’s return is to find potential investments that the market seems to be undervaluing. In my mind, these two ASX blue-chip shares have compelling futures:

Telstra Corporation Ltd (ASX: TLS)

Everyone knows of Telstra, the leading telecommunications business in Australia.

Its profitability demise has been well publicised over the last few years. Basically, it’s earning a lot less profit from the customers on the NBN than before, when they used to be customers on Telstra’s own broadband network.

However, I think the market is underestimating how much stronger Telstra’s margins can become in the future as more households switch to 5G-powered home broadband. This could mean faster speeds for customers, but also a much better profit margin for Telstra because the NBN won’t be receiving a significant slice of the earnings.

On top of that, I like the diversification plays that Telstra has going on – energy, international telecommunications and health, for example. I think those are good plays to diversify and grow profit for the ASX blue-chip share.

As a bonus, don’t forget that Telstra continues to pay a solid dividend.

Fortescue Metals Group Limited (ASX: FMG)

Firstly, let me say that I think the Fortescue share price may be a bit pricey at above $21.50 with where the iron ore price is right now.

However, over the longer-term, I think that Fortescue’s green efforts with Fortescue Future Industries (FFI) could turn out to be very useful for the company. It will reduce the reliance on the Chinese buying lots of iron.

But also, FFI is working in a very high-growth area. If the world is to hit the emission reduction targets discussed, then trillions of dollars may need to be allocated to green initiatives.

Fortescue has a whole list of projects that it’s working on. The acquisition of Williams Advanced Engineering (WAE) instantly makes FFI a player in the battery world, plus it brings tangible revenue to the division. What I’m most excited about is the FFI plan to produce large quantities of green hydrogen. It has already got a customer – E.ON – for a third of its renewable hydrogen production by 2030. Considering the rocketing price of lithium and the lack of electric vehicle infrastructure globally, I think that green hydrogen has the potential to challenge battery-powered vehicles and other areas that need energy.

If/when the iron ore price drops below US$100 per tonne, I’ll be interested in considering more Fortescue shares. The green areas look very positive for the ASX blue-chip share. .

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