5 ASX and global companies to hold for the next 10 years

Everyone dreams of owning a growth unicorn that will explode in the next 10 years, but what if doing your portfolio a favour didn’t need to involve taking significant risks?

Some of the world’s greatest investors have taken a quieter approach – consistently investing in high-quality compounding businesses that can withstand economic cycles. It may not sound exciting – no stories of buying a start-up at mere pennies only for it to end up at Nvidia-like heights – but you are more likely to sleep well at night in the process and (hopefully) lose less money along the way.

I challenged three fund managers to suggest their picks for companies they would hold for the next 10 years (assuming there are no major changes to their circumstances, such as management or another major disruptor):

• Stephen Arnold, Aoris Investment Management
• Steve Johnson, Forager Funds Management
• Michael Steele, Yarra Capital Management

The result? One international pick that you've almost certainly used and definitely heard of, three tried and true ASX picks and one growth company to watch.

The importance of quality and compounding to your portfolio

The general investment rule is that a portfolio of high-quality companies which you consistently invest in over the long term will serve investors better than speculative picks or attempts to time the market. Research generally supports this.

What does a quality compounding business look like?

• Durable earnings growth and strong competitive position
• High returns on capital
• Strong balance sheets
• Experienced management teams

These characteristics are critical to long-term survival.

As Arnold highlights, “A business that is balanced and diversified across end markets, combined with a strong balance sheet, allows companies to withstand periods of economic stress and take advantage of opportunities, such as acquisitions or even share buybacks."

Steele explains that investors shouldn’t necessarily be jumping on businesses that have the highest earnings growth over short periods, but rather consistent and growing returns over the long term – 5% each year over 20 years will stand you in far better stead than a quick burst.

“A compounder creates shareholder value through growing earnings consistently that then compound over time: the compounding creates a multiplying impact as growth compounds on growth from prior years,” Steele says.

He adds that holding such companies for long periods can reduce tax and brokerage costs for investors.

Companies can compound their growth by increasing market share and revenue through a sustainable competitive advantage, careful innovation in products and services, selective acquisitions that support their strategic offering, investment in research and development, and experienced management.

Companies that meet the criteria

1. Intercontinental Hotels Group (LON: IHG)

Nominated by Stephen Arnold, Aoris Investment Management

Investors may well be familiar with IHG, famed for its portfolio of 21 hotel brands, including InterContinental and Crowne Plaza, as well as its two largest brands, Holiday Inn and Holiday Inn Express. The latter two brands are responsible for about half of IHG’s gross revenue.

IHG accounts for around 4% of the world’s hotel rooms, but 10% of the industry’s pipeline, which bodes well for growing market share in the years ahead.

The business model is structured around franchising and uses a global loyalty program, IHG One, which has more than 130 million members; a reservation platform and sophisticated revenue management system. The loyalty program is responsible for more than half of the hotel stays – Arnold notes that this is particularly lucrative for IHG compared to having to rely on third-party operators like Booking.com which can take up to 25% of the hotel booking payment.

“It’s highly attractive to franchisees because they can access IHG’s network of suppliers at a more cost-effective price point than operating independently, as well as take advantage of IHG’s platforms, systems and exposure to the vast membership of the loyalty program,” Arnold says.

Aoris added IHG to its highly concentrated portfolio last year and it has been one of the best-performing stocks of the year.

“IHG has a pipeline of contracted hotel openings over the next decade that represents about a third of the existing business today. Even if they don’t sign another deal, that pipeline will provide attractive growth,” Arnold says.

2. Catapult Sports (ASX: CAT)

Nominated by Steve Johnson, Forager Funds Management

Catapult is a sports performance analytics company that develops wearable GPS devices and video analysis software to track a range of metrics, such as speed, distance and acceleration. Catapult has clients across the globe, including the NFL, Premier League and NCAA.

Catapult has even played a role in the FIFA World Cup through its Catapult Vector devices and ClearSky system.

“The share price has halved over the past nine months, so it is at a much more attractive entry point than it has been. It’s been growing at 18–20% p.a. for the past decade and I don’t see anything stopping that in the next 10 years,” says Johnson.

Johnson notes that the industry continues to grow, with Catapult the dominant player in the space.

“They have an R&D budget that is five times the size of that of their nearest competitor. They’ve done a few acquisitions over the past few years that can be plugged into their platforms to grow and they’ve got pricing power when the time is right. I think those things are a decade of growth right there,” he says.

Johnson believes the pricing lever may be around a decade away but will be powerful for Catapult. He explains that teams with millions in annual budgets are paying only tens of thousands of dollars a year for Catapult’s products and services and this could jump substantially over time.

3. Auckland Airport (ASX: AIA)

Nominated by Michael Steele, Yarra Capital Management

Investors have limited access to listed airport operators on the ASX since Sydney Airport was acquired by the Sydney Aviation Alliance in 2022. Auckland Airport remains the only ASX-listed opportunity for investors seeking exposure to this form of essential infrastructure.

New Zealand’s largest airport handles about 75% of international arrivals and departures. It owns over 1,500 ha of land and hosts services such as retail and duty-free, car parking, hotels, warehouses and offices. It also has a 25% stake in Queenstown airport.

Steele notes the aeronautical industry has strong barriers to entry and significant longer-term earnings growth from airport expansion projects.

“We view Auckland Airport as a compounder which will grow earnings consistently over the next 10 years, creating significant shareholder value. While future earnings growth at 9% might not sound that impressive, with a 10-year view, this compounds to be a cumulative 135% increase in earnings,” Steele says.

He highlights that the regulated asset base is expected to more than triple in the next decade and is the key driver of earnings – the airport is currently tracking under-target returns due to lower-than-expected flight volumes.

He also points to low levels of debt and the ability to fund future growth projects from the balance sheet, with hidden value across the existing property portfolio and the ability to further develop excess land.

“The short-term headwind for Auckland Airport from the US-Iran conflict has also created an attractive entry point for investors,” Steele adds.

4. Breville (ASX: BRG)

Nominated by Michael Steele, Yarra Capital Management

Chances are you own or have owned a Breville appliance at some point in time. The Australian multinational manufacturer and marketer of small home appliances includes the brands Breville, Sage, Kambrook, Baratza and Lelit.

Steele highlights that Breville generates the bulk of its revenue overseas – “only 15% of its sales are in Australia and New Zealand.”

Breville has continued to expand into new markets, with 10 countries added in the last five years, each of which have offered a material earnings uplift. There are more geographic expansion opportunities in the pipeline.

“Coffee is the dominant business. This market is a relatively defensive growth play, underpinned by premiumisation, while Breville has taken significant market share via its premium market position,” says Steele.

He notes that the balance sheet is net cash and it has low capital requirements and significant cost flexibility.

“Breville reinvested a large portion of the COVID-19 excess demand back into product and marketing, supporting a sustainable margin starting point. Its margins are currently depressed relative to normal levels, given the impact of trade tariffs,” Steele adds.

Like Auckland Airport, Breville’s share price has faced headwinds from the US-Iran conflict, along with tariffs, and Steele believes this offers an attractive entry point for long-term investors.

Bonus: a business with high potential to watch

Nanosonics (ASX: NAN)

Nominated by Steve Johnson, Forager Funds Management

Nanosonics is a healthcare company known for infection-prevention technologies. It is best known for the Trophon device which disinfects ultrasound probes using specialised hydrogen peroxide mist.

Healthcare has been a challenging sector in the last few years, with inflation and labour costs hitting hard. Johnson notes that in the case of Nanosonics, high labour costs are actually a good thing – its main competition comes from staff manually disinfecting equipment rather than using its devices

“Nanosonics has a loss-making division – the Coris Device System - that is clouding the profitability of its core product and it’s crunch time for that division to either start making money and become a growth engine, or stop. You’ll know in the next five years,” says Johnson.

The division relates to the development of the Coris Device System to disinfect endoscopes, which was cleared by the FDA earlier this year.

“We’ll know in the next few years whether this product will transform the financials of the business. At the very least, we’ll see just how profitable the core business (Trophon) is. At best, it could become a second growth engine that will mean in 10 years' time, you have a much bigger business,” Johnson says.

Investing for the long-term

Each of the fund managers cautions that investors should never rest on their laurels when it comes to investing. 

An unexpected catalyst or change in management can hurt a quality long-term compounder and it’s important to maintain due diligence on all holdings and be aware of their key competitors.

All things going well, though, these businesses are well positioned at this point in time and may be worth a closer investigation for investors considering their next move.