The S&P/ASX 200 Index (ASX: XJO) is a great place to find good ASX shares to invest in.
If a business is in the ASX 200 it probably means it has grown enough to command an attractive market position in its industry. If you ignore the ASX 20, there are plenty of ASX shares with enough growth potential to beat the market over the longer-term.
That's why I really like the below three ASX 200 shares:
ResMed Inc (ASX: RMD)
ResMed is one of the ASX's leading healthcare businesses in my opinion.
A key focus of the business is developing equipment and technology used to help treat sleep apnoea which help people sleep better. However, over the past six months it has been a key business involved in helping support the COVID-19 pandemic response.
The ASX 200 share is a manufacturer of ventilators, including bilevels, as well as ventilation mask systems. In the fourth quarter of its FY20 it saw revenue grow by 9% and underlying net profit growth of 24%. Over FY20 it managed to grow its gross margin by 80 basis points to 59.8%. This increasing profitability helps the business grow net profit faster.
It also helps that ResMed is accelerating the launch of its cloud-based remote monitoring software for ventilators and Lumis devices across Europe. This increases the attractiveness of the ResMed offering.
I think ResMed is a very promising business, particularly with its growing software as a service segment which comes with high gross profit margins.
At the current ResMed share price it's trading at 35x FY22's estimated earnings. I think it could be smart time to buy this ASX 200 share whilst the Aussie dollar is looking stronger compared to the US dollar.
A2 Milk Company Ltd (ASX: A2M)
A2 Milk is perhaps the world's best infant formula business. ASX investors are lucky to be able to buy a piece of this New Zealand business.
It has been quite a few years since bare supermarket infant formula shelves first made news headlines and the company has kept growing strongly since 2015.
In FY20 alone the ASX 200 share reported full year revenue growth of 32.8% to NZ$1.73 billion, earnings before interest, tax, depreciation and amortisation (EBITDA) growth of 32.9% to NZ$549.7 million and net profit after tax (NPAT) growth of 34.1% to NZ$385.8 million.
It's growing impressively in both China and the US. The gross profit margin keeps improving. Even the ANZ segment keeps delivering double digit growth.
A2 Milk is expecting further strong revenue growth in FY21 and it may use some of its large cash pile to buy a 75% stake in Mataura Valley Milk, which has a newly-commissioned manufacturing facility in New Zealand.
I believe A2 Milk has many years of double digit growth ahead of it. Particularly because it keeps expanding its product range to new markets.
The A2 Milk share price is trading at 27x FY22's estimated earnings. It has fallen back over the past few weeks, presenting a good buying opportunity in my opinion.
Service Stream Limited (ASX: SSM)
This ASX 200 share looks like a solid investment opportunity to me.
It's somewhat of an infrastructure play as it's involved in the design, construction and maintenance of various networks such as telecommunications and utilities.
The company boasts that more than 84% of its revenue is 'annuity revenue' with long-term, low-risk agreements. Its customer base are clients like network owners, operators, regulators and government organisations. Sounds like a reliable group of clients to me.
The underlying performance of the business in FY20 was good with revenue growth of 9% to $929.1 million and EBITDA growth of 15.9% to $93.3 million. The EBITDA margin improved by 90 basis points to 11.4%.
Service Stream said it continues to have a good pipeline of opportunities and it's also looking for acquisition targets.
The ASX 200 share has a grossed-up dividend yield of 6.6%. Combine that good yield with the fact it's trading at only 14x FY21's estimated earnings makes me think this is an undervalued growth share.
Foolish takeaway
I believe all three of these ASX 200 shares have a higher-than-average chance of beating the market over the next 12 months and the longer-term at today's prices. I think A2 Milk could produce the best return of my three ideas, though Service Stream looks like a solid dividend idea right now.
