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5 capital growth shares to own to 2020 and beyond

Recently I wrote about 10 shares investors could buy for 2017 and 2018, which have generally performed quite well over relatively short time periods.

Some of the better performers since the start of 2017 include Cochlear Ltd (ASX: COH), REA Group Limited (ASX: REA) and plumbing parts business Reliance Worldwide Corporation (ASX: RWC). I expect these three businesses could produce some healthy capital gains for any investor who holds the shares between 2017 to 2020 and beyond.

This week has seen a sell off in share markets that offers investors focused on high-quality ‘bottom draw’ style companies an opportunity to pick up shares at cheaper prices. Below I name five businesses I think should offer investors good total returns in terms of dividends and growth over the next 3 years or more.

Magellan Financial Group Ltd (ASX: MFG) is the international equities manager that is growing funds under management at a healthy rate thanks to a mix of organic and acquisitive growth. As at February 28 2018 it had $65.4 billion in funds under management, which compares to $46.7 billion at this time last year. In other words FUM has grown around 41% which has partly come about as the result of the share-based acquisition of Airlie Funds Management.

Still much of the growth is organic and Magellan should be able control costs better in 2018 as revenues rise on the back of larger FUM. Analysts are expecting earnings per share of $1.32 and $1.55 in FY 2018 and FY 2019 respectively, which means the stock is trading on around 18.6x estimated forward earnings with an estimated forward yield around 4% plus franking credits. It also has some exposure to a weaker Australian dollar and looks a buy under $24.50.

ASX Group Ltd (ASX: ASX) is a monopoly-like business that could offer investors healthy returns if they buy during periods of wider market weakness. After price falls this week it sells for $56.80 today and offers defensive revenues alongside leverage to the growth of capital market activity across Australia. It sells for 24x analysts’ estimates for FY 2018’s earnings per share, with a fully franked 3.7% yield. Hardly cheap, but amidst an expensive market for high-quality growth businesses it’s a reasonable entry point for a monopoly-like operation.

Bapcor Ltd (ASX: BAP) is the auto-parts distributor forecasting earnings growth of more than 30% in FY 2018 and its management team has a track record to give confidence in its forecasts. This is an impressive company that has grown earnings per share at a compound growth rate of 36% since listing in 2014. The stock ($5.70) is up more than 150% in that time and I expect there could be strong performance ahead for patient investors.

The primary medium-term risk is around the arrival of electric cars in Australia, it’s something to watch, but may not even be a relevant consideration for at least 5 years.

ResMed Inc. (CHESS) (ASX: RMD) is from a healthcare sector you can’t go past when looking for high-quality companies capable of delivering consistent profit growth. The stock has tripled over the past 5 years despite margin pressures as it continues to grow revenues thanks to an astute management team and the huge addressable markets in which it operates.

ResMed also offers Australian investors exposure away from a domestic economy where growth has been insufficient to lift the local share market above highs last achieved 10 years ago.

Just Eat PLC (LON:JE) is the LSE listed business that owns the Menulog brand in Australia which as a digital middleman between households and local restaurants. Just Eat’s core market is the UK, but it’s also growing across Canada, Spain, Ireland, Brazil, Mexico, Denmark, Italy and France among other countries. Unsurprisingly the company recently committed to a significant investment phase which has taken the share price to a more appetising valuation at £7.15. Aussie dollar based investors are also likely to enjoy the tailwind of an appreciating British pound as it slowly recovers from a post-Brexit beating among other issues. Buy.

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Motley Fool contributor Tom Richardson owns shares of Bapcor, Cochlear Ltd., Magellan Financial Group, REA Group Limited, and ResMed Inc & Just Eat PLC.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of and has recommended Bapcor. The Motley Fool Australia owns shares of ASX Limited. The Motley Fool Australia has recommended Cochlear Ltd., REA Group Limited, and ResMed Inc. 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 Scott Phillips.

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