If you’re wanting to add a few blue chip ASX shares to your portfolio, then you’re in luck.

The S&P/ASX 200 Index (ASX: XJO) is home to a good number of blue chips which I believe could generate strong returns for investors in 2020 and beyond.

Three blue chip ASX shares that I would buy are listed below. Here’s why I like them:

CSL Limited (ASX: CSL)

The first blue chip I would buy is CSL. I think the global biotherapeutics company has the potential to provide investors with strong returns over the next decade. This is due to its leading therapies, growing plasma collection network, and lucrative research and development pipeline. In respect to the latter, the company has a wide range of therapies under development which have the potential to generate significant revenue and support the rest of the business in the coming years.

REA Group Limited (ASX: REA)

Another blue chip share to consider is REA Group. I think the realestate.com.au operator is one of the best long term investments on the ASX 200. This is because of its high quality and resilient business model. This resilience has been on display this year. REA Group recently released its third quarter update and revealed a 1% increase in revenue to $199.8 million and an 8% lift in EBITDA to $119.6 million. This was despite dealing with a 7% decline in listings during the quarter. And while trading conditions will remain tough in the near term, I expect its earnings growth to accelerate once the crisis passes.

Woolworths Limited (ASX: WOW)

I think this retail conglomerate could be a good option for investors. Although best known for its supermarkets, Woolworths is also behind the likes of Dan Murphy’s, BWS, and BIG W. Combined, I believe the company is well-positioned to grow its earnings and dividends at a solid rate for the foreseeable future. Especially given its entrenched customer base and defensive business model.

More reading

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of CSL Ltd. The Motley Fool Australia owns shares of Woolworths Limited. The Motley Fool Australia has recommended REA Group Limited. 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 Scott Phillips.

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The S&P/ASX 200 Index (Index:^AXJO) is surging higher on encouraging news of a possible vaccine for COVID-19 and comments from US Federal Reserve head Jerome Powell on more stimulus.

It seems the Fed is not running out of juice to liquor-up financial markets, while Boston-based biotech Moderna announced better than expected early trial results.

If the bulls are right about the worst being over, it will have implications for the performance of the big four ASX banks.

Passing the baton

During the meltdown, it’s the Commonwealth Bank of Australia (ASX: CBA) share price that held up better than its peers. That’s understandable as investors are willing to cough up a premium during a crisis to hold the highest quality and safest domestic bank.

But if animal spirits are running wild, the tide will turn. Investors will be more aggressively turning to value buys and this means beloved CBA is likely to be left behind in the rebound.

The question then is which of the other three big banks will take the crown? There isn’t much difference in valuations of Australia and New Zealand Banking GrpLtd (ASX: ANZ), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd. (ASX:NAB).

Best bank for the COVID-19 rebound

But NAB seems to be a hot favourite among some leading brokers. For instance, Goldman Sachs put the stock in its “conviction” buy list as NAB is its top pick in the sector.

The broker is bullish on the bank due to its dramatic improvement in operational performance in recent years and it sees better revenue potential given NAB’s bigger exposure to small and medium sized business lending.

Meanwhile, JP Morgan is also backing NAB in the four-horse race. While the bank reported a disappointing first half profit result recently, the broker believes it displayed the most resilient top-line if you excluded the bank’s underperforming Markets division.

Don’t discount CBA just yet

Coincidentally, both brokers rate CBA a “sell” due to its lofty valuation. I own shares in all the big four banks but remain overweight on CBA as I don’t believe we have seen the last of the coronavirus volatility.

Let’s not forget that CBA also continues to win market share for home loans despite its dominance in the sector.

Just as importantly, my experience tells me that its seldom premium valuations that really hurt my share portfolio performance. The real culprits are balance sheet and governance issues – factors that weigh more heavily on the other three.

Buy into NAB’s SPP

But I agree that NAB is likely to pull ahead of its peers if the skies are as blue as it appears today. If you share my belief that we have seen the worst of the coronavirus market meltdown and are happy to stomach the volatility, NAB looks enticing.

This is why I plan to participate in NAB’s share purchase plan, which closes this Friday. I doubt you can buy NAB shares lower than the $14.15 a share offer price again for a long time.

Just remember not to put all your eggs into one basket. It’s better to hold a few bank stocks for diversification.

More reading

• Should you throw $3,000 into Altium shares today?
• Cochlear share price edges lower on patent infringement news
• 3 ASX shares to instantly diversify your portfolio
• Leading brokers name 3 ASX shares to sell today
• 5 ASX 200 dividend shares for an economic recovery

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, National Australia Bank Limited, and Westpac Banking. Connect with me on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. 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 Scott Phillips.

The post The ASX big bank stock most likely to outperform in the COVID-19 recovery appeared first on Motley Fool Australia.

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