One of billionaire investor Warren Buffett’s most famous quotes is that “our favourite holding period is forever”.
Mr Buffett has made this approach work. But is it really possible for private investors like us to select and buy shares that will provide attractive returns over a lifetime of investing?
I believe it is. Indeed, I invest a lot of my own money on this basis. Today I’m going to look at two stocks I believe could be suitable buys for investors seeking long-term income and capital gains.
Still going strong after 200 years
I don’t want stocks that are the financial equivalent of Olympic sprinters. What I’m looking for are top marathon runners.
Precious metal refining and chemicals group Johnson Matthey (LSE: JMAT) is a good example, in my view. This firm has been in business for 200 years.
Among other things, it’s the world’s largest manufacturer of automotive catalytic converters. That’s a business that didn’t exist 50 years ago, and may not exist in 50 years’ time. But the firm has clearly evolved to find new growth opportunities. Unsurprisingly, Johnson Matthey is currently targeting a move into battery technology.
A trading statement on Thursday showed a 2% increase in sales during the third quarter, excluding the impact of exchange rate shifts. But Johnson has been a massive beneficiary of the weaker pound. The group’s actual revenues rose by 19% during the third quarter.
This currency boost has helped to lift the share price, and Johnson Matthey’s forecast yield for 2016/17 has fallen to 2.4%. But I’m not overly concerned.
This dividend has risen by an average of 7.5% every year for at least the last 20 years. That’s better than most pensions and salaries and is worth paying a little extra for, in my view.
A 5.9% yield you can bank on
Johnson Matthey is on my personal watch list. But HSBC Holdings (LSE: HSBA) is a stock I’ve owned for years and don’t intend to sell.
Shares of the Anglo-Asian bank — which was established in 1865 — have risen by 45% over the last year. You might now think that it’s too late to buy. But I disagree. Last year’s gains came from a very low level, as investors fretted about the quality of the bank’s assets.
The outlook is much better now. HSBC’s Common Equity Tier 1 ratio, a key regulatory measure, rose from 12.1% in June 2015 to 13.9% in September 2016. This makes it one of the strongest of the big UK banks.
I think that a better way to value HSBC is based on its book value, dividend and earnings potential.
At 675p, the bank’s shares currently trade in line with their last-reported book value. That’s a fairly undemanding valuation for a bank that’s in reasonable health.
Forecast earnings of $0.56 for 2016 are expected to rise to $0.61 per share in 2017. This puts HSBC on a forecast P/E of 15, falling to 13.8 this year. This recovery in earnings means that the dividend of $0.50 per share is now covered, and probably won’t be cut.
This payout provides a prospective yield of 5.9% at current exchange rates. Given HSBC’s proven ability to adapt to a changing world, I’d rate the shares as a buy at current levels.