I think the best way to make good investment performance is to choose great shares and hold them for at least five years.
Not every idea is going to work out, but I think these businesses could be good long term choices:
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).
Reece began in 1920 when Harold Joseph Reece commenced selling hardware products from the back of his truck. Almost 100 years on, the company has grown to having 8,000 people in 800 branches across Australia, New Zealand and the US.
The Reece share price has fallen 6% over the past month, making it look more attractive. It already ticks a lot of the boxes like family run, high insider ownership and long term focus.
It’s the business in the US that makes me particularly interested in Reece. The company has proven it can achieve market leadership in a country with steady expansion whilst maintaining & growing profit margins. The US is a huge market compared to Australia – 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.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
WHSP is an investment house business which has been on the ASX for over a century. Its origins are in owning and operating Australian pharmacies, which is where the Soul Pattinson chemist chain comes from, however, that business is now owned by Australian Pharmaceutical Industries Ltd (ASX: API), which WHSP owns 19.3% of. WHSP invests in a large number of companies across a variety of industries such as construction, resources and telecommunications.
It’s hard to think of an investment that ‘long term’ would describe better than WHSP. Its entire nature is long term investments because it’s an investment house looking to take large stakes in businesses that can grow over the long term.
Previous winners for WHSP have been Brickworks Limited (ASX: BKW) and TPG Telecom Ltd (ASX: TPM) and now WHSP is focusing on other long term opportunities such as aged care & agriculture which could provide different returns to most equities.
WHSP has a long term record of outperfoming the ASX and that could continue, although it’s not going to smash the lights out either.
Webjet Limited (ASX: WEB)
Webjet is a digital travel business spanning both global consumer markets (‘B2C’) and wholesale markets (‘B2B’). It 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.
The Webjet share price has been crunched in recent months, but it’s one of those technology businesses which are very scalable due to its website and the beneficial network effects.
Management believe that the WebBeds has an excellent future and can grow its profit margins higher. Thomas Cook failing 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.
Summary
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 WHSP 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.
