In my opinion, the best way to beat the All Ordinaries index over a period of time longer than a year is to invest in growing ASX businesses.
A lot of the All Ordinaries allocation is to shares like Commonwealth Bank of Australia (ASX: CBA) and Telstra Corporation Ltd (ASX: TLS), which just aren’t growing their underlying value for shareholders.
I think these ASX200 shares are much better investment picks:
Bapcor Ltd (ASX: BAP)
Despite continued profit growth every six months in the results, the Bapcor share price has dropped back almost 27% since the start of October. I think this is an opportune time to buy.
I like the defensive attributes of Bapcor. Nearly every adult drives a car and is likely to directly or indirectly buy car parts from one of Bapcor’s businesses such as Burson or Autobarn.
Even if an Australian recession were to occur, I think its earnings are likely to hold up quite well. If a car part breaks, a car owner under financial pressure is more likely to replace the part than buy a new car.
The company is now operating four stores in Bangkok with a further two stores planned to be opened before the end of FY19, I think this is a very good development. Asia is a big market!
Net profit after tax growth is expected to be around 9% higher than FY18. I think it looks attractively valued for the next five years, particularly if Asian growth goes well.
Brickworks Limited (ASX: BKW)
Brickworks is one of Australia’s leading brick suppliers, so it faces some trouble if the construction downturn continues to gather pace.
However, it is the other three Brickworks business segments that particularly excite me for Brickworks long-term future.
It owns a large chunk of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL), an investment conglomerate which is a good hedge against recessions. The growing Soul Patts dividend is very useful to even out earnings for Brickworks.
Brickworks also owns a 50% stake of a property trust which exists to maximise the value of surplus land created by the Building Products business.
Finally, Brickworks recently acquired a US brickmaker which could eventually be much larger than the Australian operation due to the size of the US market. However, it (Glen Gery) is just focused on the North East of the US at the moment.
Both of these ASX shares have seen their share prices fall substantially in recent months because of worries about the Australian economy. However, offshore growth could mean they both beat the ASX index comfortably over the next five years if they execute their strategies well.
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Motley Fool contributor Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Bapcor, Telstra Limited, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended Brickworks. 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.