As an investor, I want to have the confidence to buy a stock and hold it for the long term. Stocks that are held for several years instead of several months historically tend to perform better. Short-term swings can be offset by the longer-term upward trend of the stock market. For example, even though Burberry had a bad year in 2020, losing around 20% in value, over five years the share price is still up 60%. Holding a stock for the long term can also yield higher results than you might think. The top-performing FTSE 100 stock over this period has gained a whopping 813%!
A golden nugget
The company in question is Anglo-American (LSE:AAL). The mining company can boast being the world’s largest producer of platinum. Over the past five years, the share price had moved from being around 280p to now just under 2,600p. Growth of this scale over a long period shows that the business has been growing in a sustainable way. It’s the top-performing stock in the FTSE 100 over this period, and I wouldn’t blame you for being slightly surprised.
You may have expected high-growth companies such as Ocado or JD Sports Fashion to take the top spot. The businesses mentioned are among the top 10 performers, but the stalwart Anglo-American takes the crown.
Why the high growth?
The Anglo-American share price has performed well for several reasons. To start with, the five year timeline started when the business was struggling. In the summer of 2015, large-scale job cuts were announced, with further cuts at the end of the year totalling around 66% of the workforce. Earnings before interest and tax fell 55% in 2015. A large restructure of the business began, with cost-cutting a priority. As such, the dividend was cut. All of these elements saw the share price fall lower and lower.Â
I didn’t think to buy the stock in early 2016, but looking back with hindsight the stock did appear undervalued. Over the course of the next five years, the business successfully executed the turnaround strategy, with the share price back to levels seen pre-crisis. As the business has built back up, it’s been able to take advantage of new opportunities.
For example, there was a lot of focus on Sirius Minerals last year, as the company struggled to stay afloat. In the end, Anglo-American bought out Sirius at a very cheap price of 5.5p per share. Although we have to wait and see whether the polyhalite fertiliser project that Sirius was working on is actually profitable, it appears a shrewd financial decision for Anglo-American.
Can it continue to be a top-performing stock?
The growth has been exceptional, and I personally don’t think the share price can continue to move at such a pace. But this doesn’t mean I’d sell the stock, or rule out buying it now. The dividend yield of 2.13% is low but still higher than cash deposits and inflation. The share price could offer stable returns as well, as it has navigated the pandemic so far without any major issues.