S&P/ASX 200 Index (ASX: XJO) shares are a great hunting ground to find good opportunities for your portfolio.
To get into the ASX 200 a business must have already shown a sustained period of growth or stability.
There are some very large ASX shares like Westpac Banking Corp (ASX: WBC) and Telstra Corpoation Ltd (ASX: TLS) which are popular but I don’t think they have a lot of growth potential. They are mature businesses which already command a large market share.
Instead, I think these ASX 200 shares would be good picks next week for the long-term:
Share 1: InvoCare Limited (ASX: IVC)
The funeral operator has seen its share price decline by 24% since the start of its COVID-19 decline. It’s a morbid idea but I think it has solid return potential.
InvoCare has been affected by COVID-19 this year. There’s no doubt about that. The restrictions on funeral numbers will reduce FY20 earnings. But thankfully Australia has only had a small number of coronavirus deaths compared to many other countries.
This probably means that the actual 2020 death rate will be similar to the projected death rate. Death volumes are expected to grow by 1.4% per annum between 2016 to 2025 and then increase by 2.2% per annum from 2025 to 2050. This is a powerful long-term tailwind.
Indeed, there may even be less deaths in 2020 because of impacts like increased personal hygiene. This is a good thing for the country and for families. For InvoCare, it’s a delay of funeral numbers. But not lost entirely.
The ASX 200 share has a solid dividend record. I think good dividends will continue to flow from InvoCare in future years. With InvoCare, I think investors could see solid total returns with a good dividend yield and steady earnings (and hopefully share price) growth. Its capital raising also improved the strength of the balance sheet.
Interest rates are now incredibly low so bond-like businesses such as InvoCare theoretically should be valued higher.
It’s priced at 19x FY22’s estimated earnings.
Share 2: Brickworks Limited (ASX: BKW)
In my opinion, there are few ASX 200 shares that make more sense than Brickworks in book value terms.
Brickworks currently has a market capitalisation of $2.29 billion. Its industrial property trust stake is worth $710 million (growing) and its shareholding of Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) is worth $1.84 billion. Those two divisions have a combined pre-tax value of $2.55 billion.
I like that Brickworks’ dividend is entirely supported by the cash flow paid by those two assets.
However, the rest of the business is also exciting for the long-term. Brickworks recently acquired three brickmakers in the US. That strategy now means that Brickworks is the leading brickmaker in the northeast of the US. America is a huge market and there’s plenty of long-term growth potential for Brickworks, particularly with efficiency gains.
The ASX 200 share is best known for its Australian building product subsidiaries. Bricks, paving, masonry, precast, roofing – it sells a lot of different products.
COVID-19 is probably going to cause the Australian construction sector to have a tough year. But construction is usually cyclical. When immigration returns there is likely to be a bounce back of activity, which would be beneficial for Brickworks. The $25,000 HomeBuilder scheme could also help Brickworks in the shorter-term.
A bonus with Brickworks is that it has one of the best dividend records around. It hasn’t cut its dividend for over 40 years. I think the grossed-up dividend yield of 5.5% looks attractive to me.
I really like the look of both of these ASX 200 shares. Many others may be too expensive considering all of the COVID-19 uncertainty. At the current prices I’d probably go for Brickworks because of its defensive property and investment assets. But I’d happily buy both next week.
Where to invest $1,000 right now
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*Returns as of February 15th 2021
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 Brickworks, Telstra Limited, and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia has recommended InvoCare 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.