While gold may continue to be a popular investment in the short run, due to its defensive characteristics, in the long run the FTSE 100 could offer higher returns.
The index’s track record shows it has the capacity to generate high single-digit returns over the long run. When compounded, they could provide a generous overall return that increases your chances of generating a seven-figure portfolio. With that in mind, here are two FTSE 100 stocks that currently appear to offer impressive risk/reward opportunities.
The recent first-half results from mining company Glencore (LSE: GLEN) highlighted the challenges faced by the wider sector. The company’s profit declined by 32% compared to the same period of the previous year, with an uncertain macroeconomic environment having the potential to weigh on its short-term prospects.
However, the company continues to be upbeat about prospects for many of its key segments. In fact, the current challenges faced by the business could present a buying opportunity for long-term investors. The company’s valuation suggests a margin of safety is currently included in its share price, with Glencore trading on a forward price-to-earnings (P/E) ratio of around 10.5.
Looking ahead, the company’s diverse range of operations may reduce its overall risk and provide it with opportunities to deliver an improving financial performance. While its dividend payout may not be among the most resilient in the FTSE 100, a yield of 6%, that’s due to be covered 1.5 times by net profit next year, indicates the stock’s total returns could be impressive over the long run.
Smith & Nephew
Another FTSE 100 stock that could offer long-term growth is Smith & Nephew (LSE: SN). The medical technology specialist has a solid track record of delivering impressive growth in profitability. This could become increasingly valuable to investors during a period where the prospects for the world economy are relatively uncertain.
Since Smith & Nephew’s financial performance is less cyclical than many of its FTSE 100 peers, the company’s shares could become increasingly popular over the medium term. Even though they trade on a P/E ratio of around 22, they could be deemed worthy of a premium valuation should investors become increasingly cautious about the outlook for the world economy.
In the long run, an ageing global population could present solid growth opportunities for the business. Its forecast earnings growth rate of 8% for next year could be catalysed by rising demand for its products over the long run.
With the company benefitting from strong growth from emerging markets and its investments in a range of products, according to its most recent results, means its long-term prospects appear to be highly attractive. As such, now could be the right time to buy a slice of the business in order to benefit from its growth potential.
Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019