Wouldn't it be great to have annual returns as much as 29% on average for ten years? At that pace, $10,000 invested would become $127,613.
No, this is not some get-rich-quick scheme. It's the investing track record of the legendary Peter Lynch, a former Fidelity Investments fund manager in the US. Being kind of a technophobe like another legendary investor, Warren Buffett, he missed out on investing in big tech names like Microsoft and Apple in the 1980s because he just didn't know how they worked.
Rather, he searched for businesses that were easy to understand and avoided hot stocks with sky-high price-earnings multiples. He made some of his best investments with up-and-coming companies growing at a fast pace. Some of them were perhaps not widely followed by many institutional investors, or they had fallen in share price from some short-term setback.
If Lynch were to visit Australia and look over the list of ASX stocks, what gems might he uncover?
One might be G8 Education Ltd (ASX: GEM), the childcare centre operator that owns more than 437 centres across Australia and in Singapore. Since 2010, it has steadily acquired privately held centres and raised earnings per share four times. From September 2014, the stock has trailed down 33% to $3.71. That's perhaps partly from "taking a breather" after a long share price rally. Another part is concern by the market that the company is growing too fast and acquisitions are getting heavy. This pullback has brought the share price attractively in line with forecast growth. Also, the stock pays a big 5.9% yield fully franked. This strong growth stock with such a high yield makes for a good investing opportunity, so put it on your buy list.
Another impressive stock story is REA Group Limited (ASX:REA). Although tech-related due to its online business, I think Lynch would look past the computers to see the advantages of being the market leader of what boils down to property listings and advertisement on the realestate.com.au website. The stock's high 34 price-earnings ratio could put him off, but after checking REA Group's earnings history and company performance, he'd see strong, steady growth in the high double digits. In addition, he would like the very strong grasp the company has on its industry. Lynch liked monopoly-like businesses that could charge a premium for their services and keep profit margins high. REA Group's price-earnings to growth (PEG) ratio is reasonable at current prices, so I would suggest making this stock a part of your growth portfolio.
