Investors could be heading into a period of difficult and volatile times. Many markets and stocks are at historically high valuations but economic growth is by no means assured and we have a loose-cannon president in the US and Brexit negotiations in Europe to boot.
Today, I’m discussing two stocks I’d be happy to buy and hold for the next five years.
Thriving business
H&T Group (LSE: HAT) shares moved 10% higher to 295p in early trading today after the pawnbroker and personal loans specialist reported a “strong start” to its 120th anniversary year. It said this reflected “a strong operational performance and a favourable gold price.”
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For the six months ended on 30 June, H&T posted a 16% rise in revenue and a 64% increase in earnings per share (EPS). There was solid growth in its core pawnbroking operation and strong growth in its expanding personal loans business. In the latter, customers are flocking to products that are all below the regulatory caps on interest rates and fees “with the majority significantly lower than the cap.”
So, in addition to the attractive counter-cyclical qualities of the industry in general, H&T is appealing, because its scale and sustainable business model is enabling it to thrive against a background of toughening regulation that is driving smaller, exploitative businesses out of the market.
Undervalued
Ahead of today’s numbers, analysts had been forecasting full-year EPS of around 22p, giving an undemanding price-to-earnings (P/E) ratio of 13.4. With the company having already posted EPS of 13.1p for H1, I expect to see earnings upgrades, making the P/E lower still. I also expect to see a full-year dividend of at least 10.2p, giving a prospective yield above 3.4%.
I reckon this £110m AIM-listed company is undervalued and has the credentials to outperform the market in what could be testing times ahead for many companies.
More than a stock for traders
Fresnillo (LSE: FRES) — the world’s largest silver miner, as well as a significant gold producer — is another stock I’d be happy to buy and hold for the next five years. The FTSE 100 giant has a market capitalisaton of £11.2bn at a current share price of 1,520p.
The price is 23% below the 1,983p reached in the aftermath of the Brexit vote, showing that demand for the stock can rise rapidly when markets take a pessimistic turn. But Fresnillo is more than a stock for traders of short-term, sentiment-driven price movements. I believe its business fundamentals and prospects make it an attractive proposition for medium- and longer-term investors.
The company has high-quality, low-cost assets, which allow it to extract silver and gold profitably even at times when prices of the metals are depressed. And the future looks good for many years to come, because it not only has long-life producing assets, but also high-potential development projects and advanced exploration prospects.
Growth at a cheap price
Analysts are forecasting EPS of 63 cents (48.5p) for the current year, giving a P/E of 31.3. While the P/E is on the high side, earnings growth of 39% gives an attractive price-to-earnings growth (PEG) ratio of 0.8, which is nicely on the value side of the fair value PEG marker of one.
This makes Fresnillo’s shares look very buyable to me, particularly as its earnings and dividends (current yield 1.5%) are both forecast to continue growing strongly next year.
