I think there are some ASX growth shares that I’d buy today for growth and income.
Things are getting a bit more volatile as we get closer to the US election. But there are some businesses that will likely do well over the long-term, even if the short-term is tough. COVID-19 and vaccine hopes are also bubbling in the background.
Even if there’s volatility in the short-term, it can be nice to receive income along a bumpy ride.
Here are two ideas that I think that could be good for the long-term:
Magellan High Conviction Trust (ASX: MHH)
This is a listed investment trust (LIT) that tries to invest in the highest-quality international shares that it can find.
The ASX share is operated by highly respected fund manager Hamish Douglass and his team at Magellan Financial Group Ltd (ASX: MFG).
I think that it’s a good idea to get exposure to global shares because the large global ones have much better growth potential than most of the large ASX shares in my opinion.
As the name suggests, it’s a high conviction trust, meaning that it usually only has around 10 positions in the portfolio. That means it may be more volatile year to year, but it also has the potential to outperform materially if Magellan’s picks are good.
So, what are Magellan’s picks?
Some of its high-conviction picks include: Alibaba, Alphabet, Microsoft, Tencent and Facebook. These are some of the best technology businesses in the world. They have good gross profit margins, expanding user bases and online models which allow for quick expansion and continuing operations during COVID-19.
At 30 June 2020 its other investments included Starbucks, SAP, Visa and Estee Lauder.
Since inception in October 2019 it has returned 10.4% after its fees (the base fee is 1.5% per annum. That’s quite high, but you don’t get this kind of portfolio construction without paying a higher price.
It’s quite defensively positioned. At the end of August 2020, 20% of its portfolio was invested in cash. That provides protection against market selloffs and gives it the ammunition to buy beaten-down shares if they fall in price.
The ASX share targets a 3% distribution yield and the Magellan High Conviction Trust is currently trading at a 7.7% discount to the intraday indicative net asset value (NAV).
Collins Foods Ltd (ASX: CKF)
Collins Foods is a large franchisee of KFC outlets in Australia and Europe.
The ASX share is taking COVID-19 in its stride. I thought the FY20 result was impressive, revenue increased 8.9% to $981.7 million. This was partly helped by the continuing expansion of Taco Bell outlets in Australia, which grew to 12 in FY20.
Before AASB 16, underlying earnings before interest, tax, depreciation and amortisation (EBITDA) rose by 6.3% to $120.6 million and underlying net profit grew 5.1% to $47.3 million.
Collins Foods increased its total FY20 dividend to 20 cents per share, up from 19.5 cents last year.
The ASX share’s performance has been impressive over the short-term and the long-term in my opinion. Its steadily growing store count is helping increase its profitability. Decent same store sales (SSS) growth is helping the underlying business grow faster than inflation.
All Collins Foods needs to do is add a few more outlets to its network each year to improve its overall earnings capability. People seem to want to keep buying KFC, even during a pandemic, which is great news for the ASX share.
Collins Foods is currently trading at 25x the underlying net profit of FY20. It’s not cheap. But interest rates are really low, so I think the valuation is decent when combined with the grossed-up dividend yield of 2.8%.