If you have $12,000 to invest into ASX shares then you're in luck. There are plenty of quality options to choose from.
The share market has rebounded strongly from the COVID-19 share market selloff a few months ago. There are plenty of ASX share ideas where prices may have reached almost as high as they can reach in the medium-term such as Coles Group Limited (ASX: COL) and Afterpay Ltd (ASX: APT).
I want to invest in ASX shares where there's likely to be strong profit growth over the long-term but the valuation still seems reasonable.
If I had $12,000 to invest, this is where I'd put the money into these ASX shares:
Share 1: Pushpay Holdings Ltd (ASX: PPH) $4,000
Pushpay is one of the most exciting ASX growth shares in my opinion. It helps large and medium US churches to receive electronic donations. This is very useful during this COVID-19 era considering all of the social distancing and restrictions that is going on in the country. Pushpay also offers a livestreaming service to its church clients so it can still connect with its congregation.
I think Pushpay has a lot of growth potential. It was generating growth before COVID-19 came along but the unfortunate circumstances have really brought forward the adoption curve.
In FY20 it grew its revenue by a third to US$129.8 million and in FY21 it's expecting to at least double its earnings before interest, tax, depreciation, amortisation and foreign currency (EBITDAF) to US$50 million..
I'm impressed that its gross margin is growing at a strong rate – in FY20 its gross margin improved from 60% to 65%. I also thought its recent acquisition of Church Community Builder was a really smart move. The combined business has a stronger offering. The two businesses can also sell to each other's customer base.
Over the long-term the ASX share is aiming for US$1 billion of annual revenue which would make Pushpay a much bigger business if it achieves the goal.
At the current Pushpay share price it's trading at 30x FY23's estimated earnings.
Share 2: Bubs Australia Ltd (ASX: BUB) – $3,500
I think Bubs is a quality business with a lot of growth potential. Its management have proven they can grow the infant formula business effectively. I like how it used acquisitions to secure its supply chain with its own Chinese-approved manufacturing facility.
The ASX share has grown strongly over FY20 despite the issues relating to COVID-19. FY20 revenue increased by 32% to $62 million. Its FY20 fourth quarter showed the international growth potential – Chinese direct sales increased 26% and other export market sales grew by 71%.
I'm not expecting Bubs to be as globally successful as one of its competitors, but I think it has a very long growth runway geographically. It can expand with new products like Vita Bubs and the organic grass-fed cow milk infant formula range.
Over the long-term I think this ASX share could grow substantially in size. The growing gross profit margin will help drive the bottom line higher.
Share 3: WAM Microcap Limited (ASX: WMI) – $4,500
WAM Microcap is a listed investment company (LIC) which targets ASX small caps with market caps under $300 million. It's this hunting ground which can generate really strong long-term returns because not many investors are searching in this area.
The investment team at Wilson Asset Management (WAM) have proven to be very effective at delivering strong returns.
At 30 June 2020 its portfolio had made a gross return of 32.9% over the past three months and 15.9% per annum since inception in June 2017. I think the WAM team can continue to outperform over the long-term with the investment style and focus on ASX growth shares.
Another of the attractive things about the LIC is the good dividend payments. WAM Microcap is growing its ordinary dividend and it keeps paying special dividends.
At the current WAM Microcap share price it offers a grossed-up dividend yield of 5.75%.
Foolish takeaway
I think each of these ASX shares are capable of producing strong returns over the next five years. WAM Microcap offers great diversification, but I believe both Pushpay and Bubs can grow into much larger businesses over time.
