2 very high quality ASX shares to be held on September 22, 2021
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Some high quality ASX stocks may be worth holding for the long term.
Quality investments can offer better growth potential or greater reliability over time.
There are a number of factors to consider with businesses including their market share, profit margins, and continued growth.
Here are two to consider:
Xero is one of the world leaders in cloud accounting software. Its clientele is focused on small and medium-sized businesses. It has built a very impressive market share in its national New Zealand market, but the growth is not really slowing down – in fiscal 21 New Zealand subscriber numbers increased by 14% to reach 446,000.
Indeed, the ASX share is growing strongly in several countries. In FY21, Australian subscribers jumped 22% to 1.12 million, UK subscribers jumped 17% to 720,000, North American subscribers increased 18% to 285,000, and subscribers the rest of the world rose 40% to 175,000.
Xero actually has a very high gross profit margin, one of the highest in ASX. The gross profit margin was 86% in FY21, an increase from 85.2% in FY20. Despite the company’s preference for a high growth strategy, involving a lot of investment, it is experiencing a high level of growth in its free cash flow. Free cash flow for fiscal 21 increased 110% to $ 57 million.
ASX stock may already have some revenue growth for FY22 and beyond. While FY21 operating revenue was $ 849 million, its annualized monthly recurring revenue was $ 964 million (up 17%) and its total subscriber value increased 38% for reach $ 7.65 billion.
Despite the huge growth it has already achieved, Xero still aims for long-term growth. It says:
Xero will continue to focus on growing its global platform for small businesses and will maintain a preference for reinvesting the cash generated, subject to investment criteria and market conditions to generate long-term value for shareholders.
Betashares Nasdaq 100 ETF (ASX: NDQ)
It’s a exchange-traded funds (ETFs) which aims to give investors exposure to 100 companies on the NASDAQ, which is a stock exchange in North America.
As it turns out, most of the North American tech giants have chosen to list with NASDAQ.
So when you look at the top headlines in ASX stock, it is full of names like Apple, Microsoft, Amazon, Alphabet, Facebook, and Nvidia..
But the ETF isn’t just limited to these few tech giants. There are many industry leaders including Tesla, Adobe, PayPal, Netflix, Costco, Moderna, Advanced micro-devices, intuitive surgery, reservation, MercadoLibre, ASML, Regeneration, Zoom, Autodesk and Docusign.
Having such a quality group of companies gives this ETF the potential to perform well over time.
While past performance is not a reliable indicator of future performance, it does show how well the ETF has performed in the past. Including management fees of 0.48% per annum, it has generated an average annual return of 27.9% over the past five years.
Many of the companies in this portfolio are the ones launching new products and services. This means that as a group they can capture market share, open up new sources of income and hopefully achieve rising profit margins.