There is a large body of evidence that suggests consistently beating the market's returns is an extremely difficult task to achieve. That is perhaps especially the case for professional fund managers, who are often restricted to Australia's larger corporations, and primarily those listed on the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) Index.
In comparison, the normal, everyday investor like you and me has access to a plethora of growth stocks which have the potential to deliver enormous long-term returns. By buying these companies now and holding them for the foreseeable future, not only can you take advantage of any dividends paid along the way, but you can also let the power of compounding work its magic. I have compiled a list of four companies I would buy today if I had $10,000 to kick-start my investing journey.
- G8 Education Ltd (ASX: GEM): Don't make the mistake of thinking G8 Education's shares have peaked. Although they have risen a remarkable 734% in the last four years, the childcare centre operator still has plenty of growth ahead. Earnings per share (EPS) have risen at a compounded annual rate of 40% over the last three years, and that growth should continue to accelerate following on from a number of recent large acquisitions. The company trades on a projected P/E multiple of 22.9 and is expected to yield 3.8% fully franked.
- Greencross Limited (ASX: GXL): The provider of veterinary services has followed a similar roll-up strategy as G8 Education, by acquiring smaller businesses and growing its own market share. Its recent acquisition of specialty retailer City Farmers helped boost its 5% market share to roughly 7.5%, which is still well short of its pursuit of 20% market dominance. While Greencross is also becoming increasingly dominant in vet services, it should continue to benefit as consumers pump more and more money into ensuring their pets are receiving optimum care.
- M2 Group Ltd (ASX: MTU): Investors who want an enormous yield as well as exposure to Australia's booming telecommunications industry invest in Telstra Corporation Ltd (ASX: TLS), but investors who want those two things as well as enormous growth potential go for M2 Group. The company has grown acquisitively in recent years, picking up businesses like Dodo and Primus, but will now focus on growing organically and paying down its debt. With a market capitalisation of $1.08 billion and a 4.1% fully franked dividend yield, it's hard to look past M2 Group.
- Cash Converters International Ltd (ASX: CCV): Despite what many people think, Cash Converters is by no means just a retailer of second-hand goods. In fact, it generates the majority of its earnings from its financial services division, which includes cash advances and personal loans. While it boasts significant growth potential (for instance, its Carboodle business as well as international expansion), it is also very reasonably priced. With a market capitalisation of $478 million, it is trading on a P/E ratio of 12.8 and offers a 3.8% fully franked dividend yield.
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All of the companies mentioned above have the potential to smash the market's returns in the coming years. While I currently only own shares in Cash Converters, the other three remain firmly on my radar. In particular, I am interested in G8 Education and Greencross for where I make my next investment.
