I think there are some S&P/ASX 200 Index (ASX: XJO) shares that are worth being in every investor's portfolio.
ASX 200 shares are big enough that they have built strong market positions in their industry, but some of them (outside of the ASX 20) are small enough that they still have plenty of growth potential. I generally stay away from banks and resource shares.
Here are my three ASX 200 share picks that I think every investor should own:
Altium Limited (ASX: ALU)
Altium is a world-leading electronic PCB software business. It helps engineers design the latest devices and machines. Altium has software from individual engineers, all the way up to multinational giants.
The company has an impressive list of clients from many different industries such as Tesla, Space X, NASA, the Australian Federal Police, Boeing, John Deere, Bosch, Google, iRobot, CSIRO, Cochlear Limited (ASX: COH), Boston Scientific, Siemens, Honeywell, Microsoft, HP, Amazon, Disney, Fitbit, Apple, Qualcomm, Broadcom and so on. This is a high-quality list.
Over the long-term, Altium has been growing its profit margins, its cash pile on the balance sheet as well as increasing the dividend for shareholders. Altium has no debt. These many of the things you want to see from a great ASX 200 share.
I think it's one of the best ASX shares and could have a lot more profit growth to come as it gets closer to its aim of clear market leadership and US$500 million of revenue.
At the current Altium share price it's trading at 50x FY23's estimated earnings.
Rural Funds Group (ASX: RFF)
Rural Funds is a farmland real estate investment trust (REIT).
You may not think that farmland is something that every investor should own, but I do. Farming is one of the key things that Australia has an advantage over other countries. Australia's farming operations are highly efficient and the products are viewed as high-quality by global consumers.
Actual farming is a tough business, just ask regional farmers about the recent drought. Some of the listed ASX businesses like Costa Group Holdings Ltd (ASX: CGC) have also been reporting about a tough couple of years.
But as the landlord, Rural Funds doesn't take on the operational risks. That's on the tenant. However, the ASX 200 share does own a large amount of water entitlements for tenants.
There are a couple of trends that could help farm values in the shorter-term and longer-term. In the long-term, food demand is expected to grow over the next decade. I think a business like Rural Funds could be an important part of helping the global food supply.
In the shorter-term, a La Nina weather event has developed according to the World Meteorological Organization (WMO). This could mean more rainfall for Australia. This will hopefully help farm output and farm values.
Rural Funds owns a diversified portfolio of farms including cattle, almonds, macadamias, vineyards and cropping (cotton and sugar).
At the current Rural Funds share price if offers a forward distribution yield of 4.7%.
Washington H. Soul Pattinson and Co. Ltd (ASX: SOL)
I think it's good to have a few core positions that you can build your portfolio around.
Soul Patts could be the best business on the ASX for a long-term investment because of its nature. It's a conglomerate that has been operating for over 100 years. It owns a diverse array of different businesses in its portfolio including TPG Telecom Ltd (ASX: TPG), Brickworks Limited (ASX: BKW), Bki Investment Co Ltd (ASX: BKI), Milton Corporation Limited (ASX: MLT), Australian Pharmaceutical Industries Ltd (ASX: API) and Clover Corporation Limited (ASX: CLV).
The ASX 200 investment house is steadily increasing its underlying asset value. It's also steadily growing its dividend to shareholders. I think it offers an attractive mix of total returns and reliability.
Many positions in its portfolio are based on products or services that are important for everyday life. I really like the contrarian investment style of the company as well. It recently invested over $100 million into agriculture during the time of a tough drought.
As Soul Patts' underlying investments grow, its share price should steadily rise to reflect that improvement. Rising investment income from those holdings will help fund ever-rising dividends.
