Which ‘high conviction’ ASX 200 shares is this fundie backing to beat the market?

The S&P/ASX 200 Index (ASX: XJO) shares I’m going to write about below have been backed by one of Australia’s leading fund managers.

TMS Capital runs a high-conviction portfolio that is focused on long-term capital growth and tax-effective income. It aims to beat the All Ordinaries Accumulation Index (ASX: XAOA) over a rolling 5-year period.

It wants to choose companies where earnings per share (EPS) growth could beat the market over a 5-year period.

TMS Capital wants those businesses to have proven management teams, high returns on capital employed, strong balance sheets and operate in industries that are seen to have structural tailwinds.

It aims to own between 15 to 25 ASX shares. The below three ASX 200 shares are three that it likes right now.

Altium Limited (ASX: ALU)

Altium is one of the fund’s biggest 10 positions. The electronic PCB design software company’s FY23 half-year result was “hard to fault” according to TMS Capital.

It was noted that revenue is expected to grow by between 15% to 20%, with revenue forecast to double by 2026. The fund manager also pointed out that Altium’s recurring revenue is sticky and is now 73% of total revenue.

There has been a “significant acceleration in the sales cycle” after the launch of the ASX 200 share’s cloud offering Altium 365. The Altium CEO told the fund management team that the sales cycle has reduced from 6.5 weeks to 2.5 weeks.

The fund manager believes that the rapid decision-making of potential clients to sign up is a “key signal the flywheel around the platform is accelerating.”

WiseTech Global Ltd (ASX: WTC)

WiseTech is the provider of the global logistics software CargoWise. TMS Capital suggested that the growth over the past 12 months was “highly impressive”.

The fund manager suggested that as a business grows, it needs to spend more on things like marketing, research and development and an increase in staff numbers to deliver that growth.

But, the WiseTech revenue growth is happening faster than cost growth. It’s becoming more capital light and margins are rising, leading to rapidly growing net profit after tax (NPAT) growth.

WiseTech continues to make bolt-on acquisitions that can help the business develop and expand geographically.

It continues to offer customers a better software offering, such as its new customs platform. The ASX 200 share continues to new clients such as Kuehne and Nagel, the world’s largest global freight forwarder.  

Wesfarmers Ltd (ASX: WES)

Wesfarmers was one of the other choices. It operates businesses like Bunnings, Kmart and Officeworks.

The fund manager noted that Wesfarmers’ management is optimistic that their value offerings “will benefit in an environment where consumers are watching what they’re spending.”

TMS Capital pointed out that the lithium mine Mt Holland is expected to come online in the second half of 2024, with a full year of earnings contributed in FY25. This mine could be “one of the ten largest lithium mines globally.”

The fund manager suggested that the mine could generate over $1 billion annually for Wesfarmers. The ASX 200 share’s valuation could start to factor that in at some stage, particularly if the lithium price remains robust.

The post Which ‘high conviction’ ASX 200 shares is this fundie backing to beat the market? appeared first on The Motley Fool Australia.

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More reading

• Morgans names more of the best ASX 200 dividend shares to buy in April
• Want growth and passive income? Here are the ASX shares I’d buy for the best of both worlds
• Blue chip beat-down: 5 huge ASX 200 shares cementing new 52-week highs today
• Is Wesfarmers a good defensive ASX 200 stock to buy in the current climate?
• Buy Pilbara Minerals and these ASX growth shares in April: experts

Motley Fool contributor Tristan Harrison has positions in Altium. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Altium and WiseTech Global. The Motley Fool Australia has positions in and has recommended Wesfarmers and WiseTech Global. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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