Most retail investors are drawn to shares that pay out big, fully franked dividends. It's hard to blame them when you look at the great returns Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) have given over the last 15 years.
However, this might be as good as it gets for the big companies of Australia as there are headwinds facing nearly all of them.
Capital requirements and an economic slowdown could hurt the banks. Resource prices are high, which is the time to sell companies like BHP Billiton Limited (ASX: BHP) and others, not to buy.
Amazon could really hamper Woolworths Limited (ASX: WOW) and Wesfarmers Ltd (ASX: WES). Meanwhile Telstra Corporation Ltd (ASX: TLS) is planning on spending billions on its network, which will hamper short term profits.
So where should investors invest? I think you should look to companies that are expected to grow the underlying business strongly over the next few years. If profits are growing nicely, the share price will follow.
Here are two businesses that are predicted to grow well that are on my watch list:
Nanosonics Ltd. (ASX: NAN)
Nanosonics is a healthcare business that provides a hospital disinfectant medical device which uses ultrasound probes.
It's been growing sales strongly so that in the quarter ending 31 December 2016 sales lifted by 131% on the prior corresponding period. It's making big progress in both North America and Europe which is where most of its potential sales are. In North America it grew the number of units by 60% to 10,700.
Another good thing from its December update was that Nanosonics reported positive cash flow again. This means it can fund its own growth and it wouldn't surprise me if a net profit is achieved relatively soon.
Nanosonics is trading at 51x FY17's estimated earnings and isn't yet paying a dividend.
Freelancer Ltd (ASX: FLN)
Freelancer is the owner and operator of one of the world's biggest freelancing websites, Freelancer.com.
It's been experiencing tremendous growth thanks to the rise of globalisation, where both freelancers and people needing help are willing to come together over the internet.
It's becoming increasingly popular as shown by the 35% increase in cash receipts during its financial year in 2016. It's particularly popular in western countries where people looking for freelancers face high labour costs. Hence why the projects are so much cheaper if they can source the work from another country.
Freelancer disclosed that its number of projects increased by 40% during the quarter, up to 626,000. Freelancer isn't yet making a profit or paying a dividend.
Time to buy?
Both of these companies are expected to grow substantially over the next few years and at the current prices could be long term buys. However, if they appear to be too speculative for you, you should consider this high-flying, big dividend-paying business instead.
