I’m seeing many FTSE shares setting up with compelling long-term potential. And it’s frustrating for me because all my funds are already invested.
However, when spare cash arrives, I’ll be heading for the stocks on my watchlist. And the aim will be to pick those I believe have the potential to double my money.
And to aim for that, I’ll look for businesses that are growing and compounding their earnings with the potential to expand over a five- to 10-year timeframe.
Good trading
For example, I’m keen on Michelmersh Brick Holdings (LSE: MBH). As the name suggests, it makes bricks. And trading has been good for the business.
In November, the directors said revenue and profit were ahead of market expectations. And City analysts expect a more than 50% rise in earnings for 2022. We’ll find out more with the full-year report due on 29 March. But the outlook statement in November was optimistic about trading for 2023.
This is a small company with a market capitalisation around £89m. And its size combines with the cyclical nature of the business to add risks for investors. But I’m bullish about all things relating to infrastructure and the built environment. And I’m hopeful Michelmersh Brick can grow organically and via bolt-on acquisitions.
Meanwhile, with the share price in the ballpark of 96p, the forward-looking earnings multiple is just below 10 for 2023. And the anticipated dividend yield is around 4%.
I see the valuation as fair, given the nature of the business. But a reasonable valuation doesn’t guarantee a positive investment outcome. All businesses can face setbacks. Nevertheless, I’d be keen to dig in with deeper research with a view to investing for the long term.
Organic and acquisitive growth
However, I also like Solid State (LSE: SOLI), the electronics company supplying commercial, industrial and military markets. It specialises in value-added components and the design-in manufacturing of computing, power, and communications products.
Most of the firm’s production is for use in specialist and harsh environments. And in December 2022, it delivered a barnstorming set of interim figures.
Chairman Nigel Rogers said the business is “building strong momentum despite a more challenging macro-economic climate”.
Driving progress in the USA
The recent acquisition of a company called Custom Power added “resilience” to the overall enterprise. And the move “accelerated” the expansion of the company’s power business in the “key” North American market. Rogers said acquisitions are “a key pillar” of the growth strategy alongside organic gains.
City analysts predict revenue rises ahead. And set against their estimates for the trading year to March, the forward-looking earnings multiple is around 17. That’s with the share price in the region of 1,360p.
I don’t think that valuation is outrageous for a growth story like this when the business appears to be executing well. However, there may be challenges in the years ahead. And one potential red flag is that earnings are not forecast to grow next year. Although revenue likely will.
Nevertheless, I’d be tempted to dive into deeper research with a view to embracing the risks and holding the stock for the long term.
