While the FTSE 100 may reverse its gains of the last week and post falls in the coming weeks, the reality is that for long-term investors the present time is a buying opportunity. The world economy is in relatively good shape and, while the future of the Chinese economy is uncertain, a 7% GDP growth rate is still very impressive. And, while US unemployment figures were disappointing last week, the world’s largest economy is still in strong shape and appears ready to tighten its monetary policy.
As such, buying high-quality stocks now could prove to be a sound move. One stock which has been hurt in recent months is oil services business Petrofac (LSE: PFC). Its shares have fallen by 14% in the last six months and, with the price of oil seemingly unlikely to rise in the coming months, further cutbacks to capital expenditure and exploration spend may be on the horizon. This would hurt Petrofac’s bottom line and could further affect investor sentiment in the stock.
However, Petrofac appears to be well-placed to cope with the challenges faced within the oil industry. It is financially sound and has attempted to generate efficiencies (for example in becoming less capital intensive and improving its cash collection) so as to provide a leaner and more profitable business which, looking ahead to next year, is expected to increase its bottom line by 75%. This puts it on a forward price to earnings (P/E) ratio of 9.1, which is difficult to justify even with sub-$50 oil.
Similarly, Santander (LSE: BNC) is dirt cheap at the present time and, with the outlook for Europe perhaps being the most positive in a number of years, now could be a good time to buy a slice of it. Clearly, Europe is still struggling to post positive GDP growth numbers, but a shift in stance from the ECB appears to have provided a degree of confidence in the region’s future, with a looser monetary policy likely to aid its recovery.
This is good news for Santander and, with operations across the globe being secured via its recent placing, it appears to be worth far more than its current rating of 10.2. And, with Santander expected to yield 4.2% next year, it remains a top notch income play, too.
Similarly, fashion designer Ted Baker (LSE: TED) also has high appeal at the present time, with its recent trading update indicating that it continues to make encouraging progress. In fact its sales were up by 25% versus the same quarter from the previous year and, with growth in Asia being 31%, it indicates that the Chinese economic slowdown may not be as severe as has been reported.
Looking ahead, Ted Baker is expected to grow its bottom line by 19% this year and by a further 16% next year. This puts it on a price to earnings growth (PEG) ratio of just 1.8 which, for a company with such a reliable track record of growth (net profit has increased by at least 15% per annum in each of the last five years), seems to be a very appealing price to pay.
