Stock markets may be volatile at the present time, but there appears to be a number of shares which offer excellent long-term potential. Here are two stocks which may not be the lowest-risk companies in the index, but their wide margins of safety could indicate that now is a great time to buy them.
Growth potential
Today’s news of a change in CEO at online takeaway ordering service Just Eat (LSE: JE) has caused its share price to decline by 6%. This is perhaps understandable, since it’s unexpected and rather sudden. However, it’s due to personal reasons and, unfortunately, these things do happen sometimes.
Looking ahead, Just Eat has an excellent growth profile and seems to be well-placed to benefit from a rising trend towards online ordering among consumers. It’s forecast to record a rise in its earnings of 45% in the current year, followed by further growth of 39% next year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.6, which indicates there’s upward rerating potential ahead.
As well as growth potential, Just Eat also offers a degree of geographic diversification. This could help it to take advantage of potential currency tailwinds, while also providing a lower risk profile in case Brexit hurts consumer confidence in the UK. Realistically, though, consumers could trade down to takeaways from more formal dining options if the UK economy endures a difficult period. Therefore, Just Eat may prove to be a beneficiary from the uncertainty which looks set to be a central theme of Brexit.
Turnaround stock
The turnaround in the oil price over the last year has been nothing short of remarkable. It has doubled in a year and this is set to return Petrofac (LSE: PFC) to profitability. The oil and gas services company is expected to build on profit in 2016 with growth in earnings of 27% in the current year. However, the market doesn’t seem to have yet priced this in to the company’s valuation. For example, Petrofac has a price-to-earnings (P/E) ratio of just 9.3, which could move well into double-digits over the medium term.
The outlook for the oil price is relatively upbeat. Supply from OPEC countries is likely to remain at reduced levels through the calendar year, since the deal which lasts until the end of June is likely to be extended for another six months. As oil producers return to growing profitability, investment within the sector is likely to rise and this could have a positive knock-on effect on Petrofac’s bottom line.
As well as growth potential, it has relatively bright income prospects. It currently yields 6.1% from a dividend which is due to be covered 1.8 times in the current year. Alongside high earnings growth, this could lead to a rapidly rising dividend in future years. As such, Petrofac’s total returns over the long run could be relatively high.
