I think the best way to make good investment performance is to choose great shares and hold them long-term for at least five years.
Some of the things I look for when buying shares are earnings growth of the company, growth of the industry it operates in, increasing dividends, good management, fairly defensive earnings and that it’s good value.
Not every idea is going to work out, but I think the following three companies could be good long-term choices.
1. Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
WHSP, or ‘Soul Patts’, is an investment house business which has been on the ASX for over a century. Its origins are in owning and operating Australian pharmacies, however, Soul Patts invests in a large number of companies across a variety of industries such as construction, resources, retail and telecommunications.
It’s hard to think of an investment that ‘long-term’ would describe better than Soul Patts. As an investment house looking to take large stakes in businesses that can grow over the long-term, its entire nature is long-term investments.
Previous winners for the investment house have been telecommunications business TPG Telecom Ltd (ASX: TPM) and building products group Brickworks Limited (ASX: BKW). WHSP is now focusing on other long-term opportunities such as aged care and agriculture which could provide different returns to most equities.
Soul Patts has impressively increased its dividend every year since 2000 and it has a long-term record of outperforming the ASX. That could very well continue, although it’s not going to smash the lights out either.
2. Webjet Limited (ASX: WEB)
Webjet is a digital travel business spanning both global consumer markets (‘B2C’) and wholesale markets (‘B2B’). The company was established in 1998 and now claims to be the leading online travel agency (OTA) in Australia and New Zealand. Webjet says it was the world’s first to use ‘Travel Services Aggregator’ technology and is now leading the industry in blockchain innovation, most recently with its Rezchain and Rezpayments blockchains.
The Webjet share price has been crunched in recent months, falling by around 35%, but it’s one of those technology businesses that are very scalable due to its online platform and the beneficial network effects.
Management believe that its B2B accommodation business WebBeds has an excellent future and can grow its profit margins higher. The recent collapse of UK travel partner Thomas Cook has caused expectations to dampen significantly, but that decline is (probably!) not permanent. Outside of Thomas Cook, Webjet said WebBeds’ total transaction value (TTV) was up 50% so far in FY20.
3. Reece Ltd (ASX: REH)
The Reece Group operates the largest bathroom and plumbing supply business in Australia, Reece, as well as ten other businesses in related industries including irrigation, pools, civil works and HVAC-R (heating, ventilation, air conditioning and refrigeration). Almost 100 years on from when the company was founded in 1920, Reece has grown to having 8,000 people in 800 branches across Australia, New Zealand and the US.
The Reece share price has fallen a little over 5% in the past month, making the company seemingly more attractive. Reece already ticks a lot of the boxes I look for in a potential investment in that it is family run with high insider ownership and a long-term focus.
The business in the US is what makes me particularly interested in Reece. The company has proven it can achieve market leadership in Australia, a country with steady expansion, whilst maintaining & growing profit margins. The US is a huge market compared to Australia, and there’s at least five years of expansion ahead there.
I like that Reece pays a healthy amount of its profit out to shareholders each year, which will hopefully grow after the company doesn’t need to invest so much cash for growth. Most recently, Reece paid US$122 million to acquire Californian plumbing supply wholesaler Todd Pipe & Supply, with a further US$38 million deferred until 31 December 2021 subject to achieving certain milestones.
Which Company Would I Choose?
I really like all three of these companies. Webjet has a good chance of making the biggest returns over the next five years because of how pessimistic investors are treating its share price, but Soul Patts is hard to beat for an all-rounder long-term investment.
Disclosure: Jaz owns shares of Washington H. Soul Pattinson and Co. at the time of writing, but this could change at any time.