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3 ASX200 growth shares to beat the All Ordinaries

Want to beat the returns of the ALL ORDINARIES (Index: ^AXAO) (ASX: XAO)? I think the three ASX200 shares below could do it.

Two of the main things I’m looking for in a business to beat the ASX index is a past history of already beating the market and reasons (including valuation) why it can continue beating the market.

Here are my three ASX200 ideas:

Challenger Ltd (ASX: CGF)

Challenger is the clear market leader for annuities and retirement income products in Australia.

A retiree seeking a guaranteed source of income can take their capital to Challenger and it will turn it into an annuity. The number of annuities sold by Challenger is expected to increase significantly over the coming years because the number of retirees is projected to grow by 40% over the next 10 years.

Supportive policies could also make annuities seem more attractive to retirees, particularly if the effectiveness of franking credits and negative gearing is reduced.

The size of annuities should continue to grow over time with the mandatory superannuation contribution and the compounding of people’s superannuation balances.

Challenger is currently trading at 14x FY19’s estimated earnings with a grossed-up dividend yield of 5.4%.

Altium Limited (ASX: ALU)

Altium is one of the world’s leading electronic PCB software businesses, it wants to be the best in the world. If it achieves that goal over the next decade it could be an excellent growth share from here with growing profit margins.

The software business has a pleasing level of recurring revenue, an excellent balance sheet and long-term tailwinds with the increasingly technology nature of the world, particularly with the rise of the Internet of Things and automated cars.

Altium is currently trading at 42x FY19’s estimated earnings with an unfranked dividend yield of 1.23%.

REA Group Limited (ASX: REA)

REA Group is the owner of Australia’s leading property site, realestate.com.au. It also owns other Australian property sites like realcommercial.com.au and flatmates.com.au.

I believe that REA Group can continue to beat the market because of its brand power, which allows it to steadily increase prices. It’s a very important part of the real estate world.

Over the longer-term its investments in property sites based in North America and Asia could turn into sizeable profit generators for REA Group because of the size of the populations.

It’s currently trading at 29x FY19’s estimated earnings with a grossed-up dividend yield of 2.1%.

Foolish takeaway

I believe each of these ASX200 shares can beat the market over the next five years, whilst also providing a steadily-growing dividend to investors. At the current prices I’d say that Challenger looks like the most attractive growth option.

Altium has the most exciting potential, but it has a valuation to reflect that and it looks pretty expensive right now.

Motley Fool contributor Tristan Harrison owns shares of Altium and Challenger Limited. The Motley Fool Australia owns shares of and has recommended Challenger Limited. The Motley Fool Australia owns shares of Altium. The Motley Fool Australia has recommended REA Group Limited. 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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