Going b(A)ck to (B)asi(C)s

Google’s parent company, Alphabet (NASDAQ: GOOGL) is one blue-chip that cannot be ignored. The conglomerate has a track record of beating the S&P 500, and produces stellar returns with a 30.2% return on equity. Alphabet earns the bulk of its revenue from advertising and search.

Its cloud segment is also starting to gain momentum as it races towards profitability. Given the firm’s dominance in these rather monopolistic industries, I believe Alphabet has what it takes to continue growing while holding a defensive position in my portfolio.

The blue-chip boasts an extraordinary balance sheet with close to zero debt and huge sums of cash. Its profit margins are that of a mining company, currently standing at close to 30%. With such an excellent track record and a forward price-to-earnings (P/E) ratio of 22, I’ll definitely be buying more shares. Although this evening’s earnings report could disappoint, I’m confident in Alphabet’s ability to generate long-term returns.

Dune forget Dunelm

One of Britain’s biggest homeware retailers, Dunelm (LSE: DNLM) has been largely overlooked since Covid restrictions were lifted. Many thought that the stock would dip as consumers opt to spend money outside of their homes. However, the blue-chip continues to impress. Its most recent earnings report showed a a 25% increase in its earnings, and total sales were up 10.6% year over year.

Even though recent GDP and retail sales numbers were lacklustre, Dunelm remains strongly positioned. The fine print within the retail sales figures showed that household goods stores saw a 2.6% increase in sales. With Dunelm’s 8.5% increase in active customer growth to go with that, the firm has strong pricing power to battle the inflationary storm. A forward P/E ratio of 13 and a decent dividend yield of 3% makes this stock an intriguing one to look out for, once the next set of retail sales data is released.

A saucy dip for this blue-chip

Rio Tinto (LSE: RIO) is one of the world’s largest iron ore miners. Its share price has taken a tumble due to recent disappointing Q1 production numbers and lockdowns in China. While I do expect the share price to continue dipping, I reckon there may be a buying opportunity sometime in May and beyond.

Mining companies are notorious for, “Using windfalls to dig more materials out of the ground. And the opposite is true when prices hit rock bottom. Production is reigned in and cash is conserved. These are the supply forces that self-regulate commodity cycles”, as FreeTrade analyst Paul Allison states.

Therefore, the blue-chip will eventually have an influx of demand for iron again, driving iron prices back up. This should happen once China eases its Covid restrictions. Buying shares before this occurs could possibly see my portfolio getting a bumper gain. Moreover, a 10% dividend yield could see me earning a little bit of passive income while waiting for iron ore prices to climb.

The post 3 blue-chip shares I’d buy in May appeared first on The Twelfth Magpie.

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John Choong owns shares of Alphabet (Class A Shares) at the time of writing. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK has recommended Alphabet (A shares) and Alphabet (C shares). Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.