In my view, one of the best ways to increase your returns is to increase your holding period. Holding ASX shares for the long term gives your capital plenty of time to experience the full effects of compounding. Allowing your capital to compound pre-tax (without selling and paying capital gains tax) can make a significant difference over the long term.
That's why when I look to buy ASX shares, I'm looking to hold for the long term – usually for a minimum of 2-3 years, but often for longer than 10 years.
Below are two ASX shares I own and plan to hold beyond 2030.
Propel Funeral Partners Ltd (ASX: PFP)
Propel Funeral Partners has grown its footprint of funeral, crematorium and cemetery facilities from a single location in 2013 to 128 today. The company has expanded throughout both Australia and New Zealand, with 8 locations being added in the most recent half.
Why buy Propel Funeral shares?
Propel Funeral has been growing its revenue and profit strongly, with its 1H20 revenue up 21% and operating net profit after tax (NPAT) up 22.6%. Pleasingly, this growth was achieved through a number of avenues, with both funeral volumes and average revenue per funeral growing. This was, however, prior to the current restrictions on public gatherings.
These restrictions are expected to temporarily impact Propel's financial performance, despite streaming services still being available. However, Propel is well funded to navigate through these current economic conditions which have been created by the coronavirus. Propel's debt facilities have recently been expanded with the earliest term debt maturing in August 2022, and the company has approximately $65 million of available funding capacity.
Why hold Propel Funeral shares?
I believe Propel Funeral shares are worth holding for the long term, and I plan to hold my shares beyond the next 10 years.
Not only is there a strong tailwind created by an ageing population, but Propel has also been increasing its market share within this growing market.
According to ABS datasets, death volumes in Australia are expected to grow at 2.5% per year until 2029, and 2% from then until 2050. And within the highly fragmented Australian funeral market, Propel has increased its market share from ~1.2% in 2015 to ~6.3% in 2019. This represents a growing slice in a growing pie.
Putting all this together, I see a growing market share in a growing market, coupled with increasing revenue per funeral – once conditions return to normal of course. But I have the patience to hold and wait until then.
ResMed Inc. (ASX: RMD)
ResMed shares are listed on both the NYSE and the ASX. The company is an innovative designer and manufacturer of healthcare devices and cloud-based software solutions, focusing on sleep apnea, chronic obstructive pulmonary disease (COPD) and other respiratory conditions.
Why buy ResMed shares?
ResMed has a strong history of revenue and profit growth, with its ASX share price following suit and returning over 200% in the past 5 years, not including a small quarterly dividend. Despite past performance being no guarantee of future performance, it is, however, a great place to look at how a company has been managed.
A fast-growing segment is ResMed's software-as-a-service (SaaS) portfolio. Here, it is a leading provider of cloud-based software solutions to improve out of hospital care, with ResMed's breadth and scale providing it with a competitive advantage. Currently, this segment makes up around 12% of total revenue and is growing quickly, with revenue increasing by 37% in 2Q20 compared to the prior corresponding period.
Why hold ResMed shares?
ResMed has a global presence. Despite over half of its 2Q20 revenue being generated in the US, it is also growing throughout Europe and Asia.
On top of this, its markets are largely underpenetrated, with a staggering 22% of US adults currently unaware they are suffering from sleep apnea. This gives ResMed a massive total addressable market if we crudely extrapolate these figures to account for the global population.
In addition, ResMed has been successful in steadily growing its gross margin over time, with benefits from product mix changes and manufacturing and procurement efficiencies being recent primary drivers. I believe the company has the ability to continue margin growth as its higher-margin SaaS portfolio continues to grow.
ResMed also spends around 7-8% of revenue on research and development, which should help the company continue its growth through innovation well into the future.
