Motley Fool Australia

This is how the Hungarian Grand Prix affects you as an ASX investor

Formula one racing flag waving in the air
Image source: Getty Images

Lewis Hamilton has just won his third Hungarian Grand Prix (GP) in a row and S&P/ASX 200 Index (ASX: XJO) investors should be paying attention.

Why? Because in the words of The Motley Fool Co-founder David Gardner, “winners win”.

For those of you who don’t follow Formula One, Hamilton is one of the most successful drivers ever with 6 world championships under his belt. He currently drives for Mercedes, which has won the last 6 constructors’ championships. Prior to that Sebastian Vettel and Red Bull Racing won 4 championships in a row.

When investing in ASX 200 shares, I think investors can draw inspiration from Hamilton’s Hungarian GP win. Although prior performance is not a guarantee of future returns or success, companies and athletes that win tend to have a competitive advantage. Even if a company’s share price has appreciated faster than the share market in the past, if the total addressable market or optionality of the business allows, that advantage can mean a stock can continue to deliver outsized returns for investors.

2 ASX 200 shares that can keep winning

Altium Limited (ASX: ALU)

If Hamilton has won 3 Hungarian GPs in a row, Altium has won 10, at least. The printed circuit board software company current trades at around 57x earnings and pays a dividend on a yield of 1.16%. That’s quite a lofty valuation, but it is deserved. Over the last decade, the Altium share price has risen at a compound annual growth rate (CAGR) of 64.33% per annum, including dividends.

Just like the book makers had Hamilton on extremely low odds to win, investors have pushed up the valuation of Altium on the expectation it will continue to deliver results. I think this expectation is deserved, as Altium continues to deliver as a business and as an investment. Altium management has a long-term focus on dominating its industry.

NextDC Ltd (ASX: NXT)

As an innovative data centre-as-a-service provider, NextDC has been growing its number of data centres in strategic locations across Australia. The NextDC share price has had a stellar year, going from $6.53 to $10.95 at the time of writing. Look back 5 years, and the stock has grown at a CAGR of 35.66%. 

One reason for the recent NextDC share price growth is that the company has benefitted from the digitisation trend caused by COVID-19. The shift towards digitisation isn’t over though, COVID-19 or not. Over the long-term, the shift towards cloud computing will increase the demand for NextDC data centres. 

Although building data centres can be capital intensive, the strong industry tailwinds should provide investors with strong returns if the business is able to manage its balance sheet and allocate capital well.

Foolish bottom line

These ASX 200 growth shares are slowly maturing. In my opinion, they are still small enough, in large enough addressable markets, to continue growing (and compounding) for years.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

Lloyd Prout owns shares of Altium Limited and expresses his own opinions. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of Altium. The Motley Fool Australia has no position in any of the stocks mentioned. 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.

Related Articles…

Latest posts by Lloyd Prout (see all)