There’s a lot written about various ways to get ahead when it comes to share market investing, although the simplest way to do it is buying quality companies for the long term. You can then sit back, relax, and let time do the heavy lifting to compound your capital gains long into the future.
It also pays to remember that markets are forward looking and generating big capital gains is about finding the winners of tomorrow not today.
As such I have identified six investing themes and top quality companies to match them that may offer market-thumping long-term returns via their potential to keep winning tomorrow.
1) Digital economy – This is a no brainer with the digital economy in developed countries like the UK estimated to be growing 32% faster than the wider economy over recent years. Certain companies with global and digital growth horizons retain strong long-term growth prospects. REA Group Limited (ASX: REA) now operates leading property websites in the fast-growing economies of South East Asia as well as Australia. It retains the support of powerful global media player and majority shareholder News Corp (ASX: NWS). Shares look at buy at $59.
2) Asian middle class – The growing spending power of the fast-rising Asian consumer is no secret, which means it can be tricky to find shares on reasonable valuations to exploit this opportunity. However, Auckland-based casino operator SKYCITY Entertainment Group Limited-Ord (ASX: SKC) trades on around 16x forecast earnings and looks a long-term beneficiary of the increasing number of Asian tourists passing through its entertainment venues.
3) Lower Australian dollar – Given that the Australian and US central banks are moving in opposite cash rate cycle directions the fundamentals suggest the Australian dollar may edge lower over the next 12-18 months at least. Investors looking for leverage to this theme could consider healthcare giant ResMed Inc. (CHESS) (ASX: RMD). Its ASX-traded scrip will appreciate as the Australian dollar falls as its value is linked to ResMed’s primary listing in the US.
4) Ageing population – This thematic is also no secret which means plenty of companies linked to it trade on excessive valuations, especially in the healthcare space. However, annuities provider Challenger Ltd (ASX: CGF) retains a reasonable valuation and has excellent exposure to the ageing population as it offers annuity products specifically designed to serve the growing pool of retirees in Australia.
5) Demand for data – The growth of mobile and demand for high-speed internet data via video is only likely to accelerate as the world continues to grow more connected. One company that provides dark fibre, data centre, and cloud services within Australia is Vocus Communications Limited (ASX: VOC). The stock sells for $8.84 and after some modest price falls recently this looks a reasonable entry point.
6) Hunt for yield – Companies that offer high yields, reliable earnings, and reasonable growth prospects will remain in strong demand in today’s low rate world. A lot of the popular names like Sydney Airport Holdings Ltd (ASX: SYD) and Transurban Group (ASX: TCL) now look overvalued as a consequence of this. A lesser-known option for income that trades on a reasonable valuation is Event Hospitality (ASX: EVT). As the operator of hotel and leisure assets across Australia it also enjoys the benefits of some aforementioned investment themes. The current jewel in its hospitality crown being the QT Hotel in Sydney, where your writer can occasionally be found at the bar after a long day hunting dividend stocks.
Motley Fool contributor Tom Richardson owns shares of REA Group Limited, ResMed Inc., and Vocus Communications Limited.
You can find Tom on Twitter @tommyr345
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 Bruce Jackson.