7 growth stocks for the next 10 years

Today, we're going to be talking about stocks that can deliver compelling returns above the long-term market average. And to do that, we're joined by Nick Sladen from LSN Capital, and Adrian Ezquerro from Elvest. Okay, let's dive straight in. What's the best advantage that a growth investor can have? Nick, I might start with you.

The best advantage an investor can have: Time

This is particularly apparent for those companies that have the ability to reinvest and compound at very high rates of return. We tend to think that time will be the best friend of those companies that can self-fund their way into very deep pools of opportunity.

So if you think about the likes of Mineral Resources (ASX: MIN), Nick Scali (ASX: NCK), Technology One (ASX: TNE), and Premier Investment (ASX: PMV), it's quite a long list of good quality founder-led type companies that certainly appreciate the importance of this characteristic. They've all been multi-baggers over the past decade-plus and that illustrates the power of compounding, particularly when executed over long periods of time.

Compelling themes over the long term

Areas like AI and financial disruption like we saw with Afterpay (ASX: SQ2) a few years ago are big examples of those areas. We're also seeing emerging industries such as lithium and EV vehicles, which have grown exponentially over the last few years. You've got best-in-class operators taking share from other businesses like Premier Investments (ASX: PMV) or you've got newer businesses like Netwealth (ASX: NWL) and Hub24 (ASX: HUB) are in really good shape and taking share also from legacy players.

We look at all those as really attractive options, but equally, not discounting that some of the cyclical sectors also can be attractive at certain points in the cycle. You just need to have a really clear understanding of where you are in the cycle and what valuation looks like for some of those businesses because there can be good money to be made on those investments as well. Like Adrian though, return on invested capital is a big focus for us. So a lot of those really quality self-funding businesses are the ones that we think will do really well through the cycle.

Risks for growth investors today

There are also a bunch of businesses that are still trading on the ASX today that are probably working through their existing residual capital and there's limited prospect of self-funding going forward. So that's an area we're pretty cautious on and that's where we'd encourage others to be cautious as well.

At Elvest, we focus on those companies that are still early in their life cycle but they still have established cash flows. They're well-established businesses, and we find that's our sweet spot. I think the second risk really is just overpaying. You can go buy a great cohort of good quality businesses, but if you're buying them on 1 or 2% earnings yields, we're not convinced that will generate a good long-term return, so it's crucial just to maintain your discipline.

Fund manager picks for the next 10 years

Nick Sladen's picks: Lifestyle Communities (ASX: LIC), Hansen Technologies (ASX: HSN), Hub24 (ASX: HUB) and Netwealth (ASX: NWL).

So Lifestyle Communities is an affordable land lease business operating out of Victoria. There's obviously a significant housing shortage across Australia at the moment, so they're very attractively positioned from that perspective. This means they've got really good structural tailwinds. 

Lifestyle communities currently have seven new projects under development, which is quite a significant undertaking for them. And that is expected to deliver 50% earnings growth over the next two years, and we think you're only paying around 20 times earnings for that opportunity. So we see that as quite an attractive compelling opportunity.

Hansen Technologies is a backend software billing service focused on the telco and utility sectors and communications. It's founder-led, that founder owns 17%, it has a really excellent return on capital, and has really positive and strong cashflow generations. Over the last three years, its valuations have been inflated. They've been able to pay down their debt. They're basically net cash now. 

They've provided a good solid update today in terms of their outlook for FY24. Their second half of FY23 was very good. So we're expecting at least, or they're expecting 5 to 7% organic revenue growth. We would expect more than that in terms of earnings per share growth, and given the strength of their balance sheet, we would be looking for them to make an acquisition and multiples of comeback, which will be complementary. So we think they can comfortably deliver 10%-plus EPS growth for the next few years.

The cost management that was shown in the FY23 results will position them well for FY24. There's been a big theme of money going off-platform into term deposits over the last 12 months, but we would expect that headwind to become a tailwind and drive flow over the next 12 months for those two businesses.

Adrian Ezquerro's picks: RPMGlobal (ASX: RUL), Seven Group (ASX: SVW), and Corporate Travel Management (ASX: CTD)

So our first stock is RPMGlobal. It's a leading provider of mining software and principally, it's servicing major global resource companies. We think they benefit from the mining digitization theme, and many miners are still relatively early in terms of mining software adoption. We think that represents a significant tailwind for RPM. Looking at recent results, albeit coming off a low base, FY23 EBITDA is forecast to triple and we think that they continue to deliver really strong earnings growth from this point.

Our second stock is Seven Group. Obviously, it's a conglomerate, but most of its capital these days is deployed in industrial services. So business units like WesTrac, Boral (ASX: BLD), and Coates. WesTrac, we view as the jewel in their crown. It's wonderfully well positioned within its key markets, and benefits from increasing mining volumes and its high-margin services business is leveraged to an ageing mining fleet here in Australia.

Looking at Boral and Coates. They're leveraged to a $1.2 trillion pipeline over the next five years for work in infrastructure and construction. In aggregate Seven Group has got a good portfolio of assets, they've got long-dated tailwinds, and a really high-quality aligned management team. So we think they continue to deliver from this point.

Looking at it today, it's a top five global player in what is a $1.5 trillion industry, and yet it still commands less than 1% global share. So we think Corporate Travel just has an immense opportunity to grow both organically and by acquisition. For those investors that can stomach some volatility, they'll be well rewarded over the next five or 10 years.