Lloyds Banking Group (LSE: LLOY), AstraZeneca (LSE: AZN) and Rolls-Royce Holdings (LSE: RR) have a combined total of 483 years of operating history.
I’d say the chances of each firm delivering another 100 years or so of successful trading are pretty high. That being so, all we need to do as long-term investors is to buy shares in each company when they’re cheap enough to offer a good chance of above-average returns.
Is now the right time to buy?
AstraZeneca
Although shares in Neil Woodford favourite AstraZeneca are down by 14% from their 52-week high, they aren’t screamingly cheap.
Trading on a forecast P/E of about 15 and with a dividend yield of 4.5%, I’d say they seem about right for now.
But that’s a short-term view. AstraZeneca is going through a lean period at the moment due to patent expiries, but this won’t last forever. In the long term, I believe Astra is almost certain to deliver steady growth. New products will boost earnings and the global market for pharmaceuticals will continue to expand.
Given Astra’s above-average yield and strong balance sheet, I’d happily buy the shares today and tuck them away for the next ten years.
Lloyds
In my view, Lloyds’ share price is currently being held back by the government’s gradual disposal of its stake in the bank. I suspect that much of the institutional demand for the stock is being satisfied by the government’s share sales, rather than in-market sales.
This phase won’t last forever. Once Lloyds is back in private hands, I’d expect the bank’s planned dividend growth to help drive up the share price. Current forecasts suggest a payout of 2.5p per share for 2015, rising to 3.9p in 2016. That gives prospective yields of 3.3% and 5.5%, respectively.
Lloyds’ focus on UK retail banking has helped it cut costs and boost profits much faster than some of its peers. The bank’s cost:income ratio is less than 50%, which is outstanding.
Lloyds shares currently trade on just 9.2 times 2015 forecast earnings. To me, this seems an excellent buy.
Rolls-Royce
The decline of Rolls-Royce shares this year has provided an excellent buying opportunity for new and existing investors, in my view.
Rolls shares have fallen by 30% over the last twelve months, leaving the firm’s stock trading at a level not seen since the start of 2012. Is this the bottom? We can’t be certain, but I think it might be.
Rolls has issued a number of profit warnings, damaging the credibility of the firm’s market guidance. However, I suspect that following the appointment of Rolls’ new chief executive, ex-ARM Holdings boss Warren East, all the bad news is now in the open.
New bosses traditionally like to make public as much bad news as possible when they start a new job. In Rolls’ recent interim results, Mr East said that the firm’s full-year guidance remains unchanged.
On that basis, I think investors can be fairly confident in City forecasts, which place Rolls on a 2015 forecast P/E of 14 and a prospective yield of 3.1%.
The firm may face further short-term headwinds, but I believe the long-term outlook for its aero engine and marine power divisions is strong. At close to 700p, I rate Rolls-Royce shares as a buy.