Investing for the long-term is the right way to go with S&P/ASX 200 Index (ASX: XJO) shares.
We just don’t know what the share market is going to do next week, next month or even for the rest of the year. We can hope it’s going to go up in the short-term, but over the long-term share prices are more likely to do well if earnings rise.
So which ASX 200 shares will produce good returns? The bigger the business is, the harder it is to grow at a good pace. The law of big numbers makes it difficult to keep up the growth rate. That’s partly why I don’t want to invest in blue chip shares like Westpac Banking Corp (ASX: WBC) and Telstra Corporation Ltd (ASX: TLS).
But you can still find opportunities which are ASX 200 shares which are market leaders in their respective industries with good growth prospects. Here are three ideas:
Share 1: Bapcor Ltd (ASX: BAP)
Bapcor is the leader in automotive parts in Australia. It provides car parts and it also has a growing truck parts division. Burson and Autobarn are two of the biggest divisions.
The Bapcor share price was severely sold off during the COVID-19 selloff. It fell 52% between 21 February 2020 and 23 March 2020. Bapcor decided to do a capital raising to strengthen the balance sheet. The ASX 200 share is in a well-capitalised position now.
FY20 year to date revenue to the end of February 2020 was strong with growth of 12.7% compared to the prior corresponding period. However, Bapcor said the trading performance in March was below expectations with revenue growth of 11.5% which includes the benefit of acquisitions but it was offset by the impact of COVID-19 restrictions.
The ASX 200 company’s share price has come storming back as restrictions lift. More people are driving again and this should benefit Bapcor as parts in cars fail in more normal numbers again.
Indeed, Bapcor could actually see more activity as people avoid public transport, using their cars to get around. New car sales are also down heavily, people are more likely to replace car parts than just buy a new car altogether.
I’m also very excited by the prospect of growth in Asia as more outlets are opened there.
Share 2: Challenger Ltd (ASX: CGF)
Challenger is the market-leader of annuities in the country, it turns a retiree’s capital into a guaranteed source of income.
The ageing demographics of Australia is a strong tailwind for the ASX 200 share. The number of Australians over 65 is expected to increase by 32% over the next 10 years and 56% over the next 20 years.
Australia’s superannuation system is also a very powerful factor that should drive Challenger’s future growth. Most employees get a mandatory 9.5% contribution of their wage paid into their superannuation and the long-term tax benefits encourages everyone to add to their super funds.
Challenger currently has a grossed-up dividend yield of 9.5%. The dividend alone should produce decent returns if it’s maintained.
Low interest rates are a problem for Challenger, but hopefully interest rates will go back up again in a few years to a more normal level.
Share 3: Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
Soul Patts is one of the best long-term ASX 200 shares in my opinion. It’s an investment conglomerate that invests in a variety of different businesses. It has already been going for over a century.
Some of the shares that it’s currently invested are TPG Telecom Ltd (ASX: TPM), Brickworks Limited (ASX: BKW), Clover Corporation Limited (ASX: CLV), Milton Corporation Limited (ASX: MLT) and Bki Investment Co Ltd (ASX: BKI).
The Soul Patts management team take a long-term, contrarian approach with the investments. I think that means it’s a lot easier to be long-term with this ASX 200 share too.
It’s always looking out for new opportunities to invest in. It recently invested in some agriculture assets and it’s now looking to invest in regional data centres. I think these are two attractive industries.
Each of these ASX 200 shares looks good value to me. I think they have good prospects over the next five years. In 2020 Bapcor may prove to be the best investment pick at today’s prices. But for the long-term I’d prefer Soul Patts with its diversification and defensive nature.
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Tristan Harrison owns shares of Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Clover Limited. The Motley Fool Australia owns shares of and has recommended Bapcor, Brickworks, Challenger Limited, Telstra Limited, and Washington H. Soul Pattinson and Company 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.