ASX large caps can provide a very good mix of reliability and compound growth for investors.
You don’t need to find the next ‘big thing’ to generate strong returns, you just need to find businesses that can grow that their profit over the long-term.
I think theses ASX large caps in the ASX 100 (ASX: XTO) could be good picks for 2020:
Cleanaway Waste Management Ltd (ASX: CWY)
What it is: It’s a large waste management business that has operations like weekly bin collections and recycling plants.
Why I think it’s an opportunity in 2020 and beyond: The cyclical part of Cleanaway’s business may have seen the worst of the conditions. Population growth and a change to more recycling being done in Australia should be a sizeable boost for Cleanaway over the longer-term.
Xero Limited (ASX: XRO)
What it is: It’s a cloud accounting software provider.
Why I think it’s an opportunity in 2020 and beyond: Some of the best attributes of a business are ones with high gross profit margins and revenue that is recurring. Xero definitely has both of these attributes. Accounting software is integral for the completion of financials and tax returns. Xero will be used as a provider as long as businesses exist. I expect Xero will just keep adding more and more subscribers over time because of its superior offering, which will accelerate its profit growth.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
What it is: It’s an investment conglomerate which has been operating for over a century.
Why I think it’s an opportunity in 2020 and beyond: The investment business has been performing for shareholders for many decades, delivering excellent long-term results. If a couple of court decisions go Soul Patts’ way next year it could easily outperform in 2020. It continues to diversify its investment portfolio, making it an even safer long-term choice.
Crown Resorts Ltd (ASX: CWN)
What it is: It’s a large casino entertainment complex owner and operator, its two current locations are in Melbourne and Perth.
Why I think it’s an opportunity in 2020 and beyond: Crown Sydney’s completion is not too far away, which should provide a sizeable boost to Crown’s earnings and reduce the risk profile of Crown. Tourism to Australia is a long-term tailwind and Crown should be able to benefit from this.
ResMed Inc (ASX: RMD)
What it is: It’s a healthcare company that provides medical products and services to treat sleep apnea, chronic obstructive pulmonary disease and other respiratory conditions.
Why I think it’s an opportunity in 2020 and beyond: Healthcare is a defensive sector with long-term growth prospects. Sadly, there are many of us that will require help with some sort of condition as we get older. ResMed has a growing amount of software as a service (SaaS) earnings, this provides high margin and recurring profit.
A2 Milk Company Ltd (ASX: A2M)
What it is: It’s a business that sells various dairy products including infant formula, milk and so on.
Why I think it’s an opportunity in 2020 and beyond: A2 Milk is one of the best businesses to come out of Australia and New Zealand. Brand power is very apparent here and it continues to grow revenue and profit at an impressive rate despite many years of strong growth already. It can keep capturing more market share in the US & China, plus there are many locations that A2 Milk is not selling in yet.
APA Group (ASX: APA)
What it is: It’s an infrastructure business that owns gas pipelines across Australia.
Why I think it’s an opportunity in 2020 and beyond: Owning unique assets is one of the best ways to generate reliable cashflow, so APA has a good position here. I also like that it’s diversifying its energy investments by adding renewable energy to its portfolio.
Altium Limited (ASX: ALU)
What it is: Altium is an electronic PCB software business.
Why I think it’s an opportunity in 2020 and beyond: Recently the software business has guided that it expects another year of impressive double digit revenue growth and a higher earnings before interest, tax, depreciation and amortisation (EBITDA) margin despite a slowdown with Octopart. It’s predicting long-term growth until at least 2025 – this is the type of business that can create strong compound returns over time.
REA Group Limited (ASX: REA)
What it is: It’s Australia’s largest online property portal where sellers and potential buyers go for their property needs.
Why I think it’s an opportunity in 2020 and beyond: REA Group benefits from excellent network effects which attracts more buyers and sellers in a very self-fulfilling circle. The company’s strong market position allows it to regularly implement good price increases, allowing REA to generate good compounding profit. The recovery of the property market should be very helpful for medium-term earnings. REA Group also has investments in overseas sites which could become profit centres in time.
Magellan Financial Group Ltd (ASX: MFG)
What it is: It’s a fund manager focused on investing in the best overseas shares.
Why I think it’s an opportunity in 2020 and beyond: Magellan’s funds have an excellent track record of outperforming the global share market index, which is why Magellan has been successful at attracting more and more funds under management (FUM). New offerings, such as a retirement product, could result in further boosts to its FUM.
All of these shares have compelling prospects in 2020 and beyond. At the current prices I’d probably go for Soul Patts, Altium and A2 Milk. But, for a long-term investment, REA Group could also be very attractively priced.
The post 10 ASX large caps to buy for 2020 appeared first on Motley Fool Australia.
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Motley Fool contributor Tristan Harrison owns shares of Altium and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of and has recommended Crown Resorts Limited and Washington H. Soul Pattinson and Company Limited. The Motley Fool Australia owns shares of A2 Milk, Altium, and Xero. The Motley Fool Australia has recommended REA Group Limited and ResMed Inc. 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.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019