You may be in a position where you can invest $1,000 into ASX shares during this Christmas period.
There are some great options out there. Some investors might like the simplicity of ETFs for long term investing such as Vanguard Msci Index International Shares ETF (ASX: VGS) or even Vanguard Diversified High Growth Index ETF (ASX: VDHG).
However, I think there are businesses out there that have even better growth potential such as these two ASX shares:
Magellan Financial Group Ltd (ASX: MFG)
Magellan is one of the biggest funds management businesses in Australia. It had approximately $103 billion of funds under management (FUM) at the end of November 2020 across its global shares, global infrastructure and Australian shares strategies.
As a solid investment manager, the business is naturally growing its FUM thanks to investment performance – this alone can grow Magellan’s profit. I’m particularly interested in the direction that Magellan is going by investing in private businesses directly.
This week the ASX share announced that it was buying a 10% stake of Guzman y Gomez (GYG) for $86.8 million. A Mexican food outlet business is not exactly an exciting technology business, but I think it’s very interesting that Magellan is focusing on investing in businesses like GYG and Barrenjoey (the new investment bank) which are at fairly early stages of the growth journey and can really expand Magellan’s own growth runway.
Magellan was only going to be able to attract a certain amount of FUM to manage before profit growth slowed significantly. But expanding its business to investing in operating businesses is very interesting, perhaps Hamish Douglass wants to turn Magellan into a mini Berkshire Hathaway?
As a handy bonus, Magellan has a partially franked dividend yield of 4%.
Pushpay Holdings Ltd (ASX: PPH)
Pushpay is one of the most compelling ASX shares in my opinion. It’s a digital giving payments business. It’s replacing how people donate to large and medium churches in the US. There is a global trend of payments away from cash, and towards electronic payments (online and with cards) – just look at Visa and Mastercard.
The company has come into particular focus this year after COVID-19 caused many impacts like social distancing and restrictions, which helps digital businesses. Pushpay allowed the church to stay connected to the congregation during COVID-19 lockdowns. One of the many useful tools it has is a livestreaming service, so people don’t actually have to be at the church to watch the service.
Growth may slow a little, in percentage terms, in FY21 but I think that there’s plenty to be positive about Pushpay for the long term. There could be growth of overall donations as the USA’s economy recovers, which will hopefully flow through to Pushpay’s processing volume.
Another reason to heavily consider Pushpay is how scalable it seems to be. In the FY21 interim result it reported a 14 percentage point increase of the EBITDAF margin (EBITDA explained, the F stands for foreign currency) from 17% to 31%.
With a goal of annual revenue of US$1 billion, Pushpay has plenty of room for growth and it could be a highly profitable business by the time it reaches US$500 million of revenue.
Compared to other ASX growth shares, I think Pushpay’s valuation looks much more manageable. According to CommSec, it’s valued at 24 times the estimated earnings for the 2023 financial year.
There are also other ASX growth shares that I think could really be worth keeping an eye along with Pushpay and Magellan, on like EML Payments Ltd (ASX: EML) and Redbubble Ltd (ASX: RBL).
