Choosing the right ASX shares can lead to pleasing capital growth over the long term, as well as a bit of passive income.
Share prices change every day, so the market presents us with different opportunities to buy (or sell). When I look for my next investment, I'm seeking a company that looks undervalued today and has the potential to grow its operations/profit for a long time to come.
The three investments below are among my top ASX share ideas right now, with a five-year timeframe in mind.
Brickworks Limited (ASX: BKW)
Brickworks is a leading Australian building products business, with brands like Austral Bricks, Austral Masonry and Bristle Roofing. Australia's strong population growth could help drive demand for building products over the rest of the decade.
What excites me the most about this ASX share is its asset base, which was worth $5.6 billion as of 31 January 2024, compared to Brickworks' current market capitalisation of roughly $4.25 billion.
A majority of that $5.6 billion is substantial ownership of the diversified investment house Washington H. Soul Pattinson and Co. Ltd (ASX: SOL). This has provided Brickworks with dividend growth and a rising share price over the decades (albeit with volatility).
Brickworks also owns a lot of land assets, including a 50% share of an industrial property trust. There is significant demand for logistics buildings in metropolitan locations, which is helping encourage Brickworks and its joint venture partner to build multiple industrial estates and plan for more. The large tenant demand for large warehouses can help drive organic rental increases in the coming years.
In my opinion, the market is undervaluing the potential cash flow growth of Brickworks' assets.
VanEck Morningstar Wide Moat ETF (ASX: MOAT)
This is an exchange-traded fund (ETF), not an individual company, but it trades on the ASX and I think it's great, so I'm including it in my 'best ASX shares' list.
This ETF invests in United States businesses that it thinks have wide economic moats. What's a moat? In the investing world, it means having competitive advantages compared to other businesses that want to 'invade' your company's castle. Moats that stop competitors can be things like brand power, cost advantages, patents and switching costs for customers.
The investment analysts at Morningstar have judged that the businesses within the MOAT ETF's portfolio have competitive advantages that are almost certain to endure for the next 10 years and more likely than not to endure for the next 20 years.
On the valuation side, shares are only bought for the portfolio if the analysts think the business is priced attractively compared to what they think it's actually worth.
Thanks to the investment strategy, this ETF's net returns have been pleasing over the long term, though past performance is not a reliable indicator of future returns, particularly in the short term (such as the next 12 months).
Johns Lyng Group Ltd (ASX: JLG)
Johns Lyng is an ASX share that specialises in building and restoring properties and contents after an insured event, such as a fire, storm or flooding.
The core business is growing strongly — the FY24 half-year result saw its normalised 'business as usual' (BAU) net profit after tax (NPAT) grow by 15.8% to $25 million. I think that's a good growth rate that can help send the Johns Lyng share price higher if underlying profit keeps rising in the double digits.
It also has growing exposure to catastrophe events. The company said catastrophes in the US and Australia were "growing in size and duration", giving the company work that is multi-year in nature. In its HY24 result, the ASX share outlined the potential of its catastrophe earnings to keep growing:
While CAT events are innately unpredictable, JLG's strong relationships with insurers and Governments, along with its growing geographical footprint, means it expects this segment to continue to expand in future periods.
