I've always been a strong advocate for the simple buy-and-hold strategy and my investment thesis is based fully on identifying quality companies priced for future growth. The key to this investment strategy is compounding returns, something Albert Einstein identified as the "eighth wonder of the world".
With the ASX providing an average return of about 12% per annum (with dividends reinvested), it makes sense to buy and hold. If an investor was to put in $10,000, then in a little less than 10 years he would see his portfolio value triple to a staggering $30,000.
With the ASX looking in top shape, now is the best time to buy some promising stocks with long-term tailwinds. So here are three stocks that I think every investor should consider when building their long-term growth portfolio.
1. Woolworths Limited (ASX: WOW) is one of my favourite large-caps. The retailer owns and operates big names such as BIGW, Home Improvement stores and of course, the Woolworths grocery chain. Given its large-scale operations, Woolworths has substantial cost advantages and the ability to beat new competitors in the market. Furthermore, ownership of stores like BIGW provides it with countercyclical property. This is because in a falling market, demand for budget goods will increase and ultimately raise Woolworths' sales.
In the past decade, Woolworths has been able to maintain a healthy return on investment of around 30% and a compounded earnings growth rate of 11% per annum. I think Woolworths is a great candidate for your buy and hold investment strategy.
2. Insurance Australia Group Ltd (ASX: IAG) is another Australian giant. Insurance Australia is the owner of brands such as SGIO and NRMA. Following its stellar gains in 2014, Insurance Australia is well on its way to another record financial year. Its recent purchase of Wesfarmers' underlying insurance wing also aids its rapidly growing market share and is expected to provide it about $230 million worth of synergies until FY16. Given the relatively volatile nature of its business, Insurance Australia has done well and this is reflective of its solid business model.
It currently trades on a cheap price-to-earnings ratio of 11.42 and offers a juicy 6.2% fully franked dividend yield. If you want to triple your portfolio in the next decade, Insurance Australia is a solid bet for your money.
3. Like the Australian share market, Sydney Airport Limited (ASX: SYD) has had an exceptional run of growth over the past few years. Operating in Australia's largest city and tourism hot-spot, Sydney Airport will have no shortage of customers any time soon. The sticky revenue base creates a strong competitive advantage, allowing it to grow earnings modestly for the decades to come. Furthermore, given the fact that it is guaranteed to cater for nearly all of Sydney's international air traffic until 2033, Sydney Airport seems to be in a solid competitive position. If you add in its generous 5.4% dividend yield, you've got yourself a bargain!
