An original theory of capitalism is that it's a very clever way of letting society vote on what goods it wants made. Companies that produce the most in demand goods will make the biggest profits, and through share ownership we're all free to profit with them. To take maximum advantage you need to identify companies trading on good valuations relative to future demand for their products. Here are a few to consider.
Pokie machines might seem a strange choice first up, but it's amazing just how many people cannot resist spending hours on end attempting to line up four horizontal strawberries on an electronic-gaming screen. As time passes these machines require constantly smarter technology to lure the punters and Ainsworth Game Technology Limited (ASX: AGI) is an industry leader in developing it. Its machines sell like hot cakes in Australia, the United States and large South American markets.
In the first half of FY 14 total profit before tax was up 51% on the prior corresponding period to $45.6 million. South America recorded a sales increase of 380% and represented 70% of overall international revenue. However, the cash rich and under-penetrated North American market has equally large growth potential.
Selling for $3.77 Ainsworth trades on only 17.8 times FY 2014's projected earnings and pays out 40-60% of net profit after tax in dividends. Aristocrat Leisure Limited (ASX: ALL) is another electronic-gaming business with an established trajectory of profit growth and strong outlook based on market-leading technology.
The world's largest packaging company Amcor Limited (ASX: AMC) is another business that looks likely to build your wealth over time. Amcor makes food, beverage, cosmetic, toiletry and cleaning containers for households around the world. Demand from customers for its packaging products is unlikely to slow and in emerging markets it is likely to pick up quickly.
Amcor's a genuine giant with $9.5 billion of sales in the last financial year, a globally diversified business, competitive advantages and defensive earnings. Having doubled its share price over the last five years, it sells for $10.27 on a price-earnings of 17 with a 3.7% dividend yield.
Investors focused on the long term should also consider food producers with positive outlooks based on the fundamentals of capacity to expand and higher prices through growing demand. Almond grower Select Harvests Limited (ASX: SHV) looks a decent prospect, as does walnut and onion grower and exporter Webster Limited (ASX: WBA). Agricultural businesses do suffer from the known unknowns, primarily the weather, which is why they should be viewed as long-term investments over 10-year timeframes. Patience is a virtue and the higher risks carry higher rewards.
Indeed patience and a long-term focus are the key to wealth construction. Being a top-class investor is not about predicting share price movements over the next six months, it's about picking businesses built to succeed over long-term timeframes.
