With the FTSE 100 flat since the start of the year, many investors may be searching for companies that offer growth prospects underrated by the stock market. That’s especially the case since the outlook for the world economy continues to be strong, and this could create the right trading conditions in order for a variety of industries and sectors to perform well.
With that in mind, here are two stocks that seem to offer strong growth at a reasonable price. As such, they could be worth buying now for the long term.
Improving outlook
The prospects for the gold-mining sector may appear to be downbeat at the present time. The price of gold has fallen by nearly 5% since the start of the year as a tighter US monetary policy has caused investors to focus on interest-producing assets.
However, gold miners such as Centamin (LSE: CEY) could offer impressive financial outlooks. The company released a positive production update on Monday which showed that it’s still on track to meet guidance for the full year. This comes after a difficult period for the business, with its operational performance earlier in the year below investor expectations.
Looking ahead, Centamin is expected to record a rise in earnings of 6% this year, followed by further growth of 18% next year. Investors though, don’t appear to have factored in its stronger financial outlook. The stock trades on a price-to-earnings growth (PEG) ratio of 0.8, which indicates it has a wide margin of safety. And with a forward dividend yield of 5.8%, it could also offer impressive income returns in future years.
Growth potential
Also offering the potential for high total returns is sector peer Rio Tinto (LSE: RIO). The company has experienced a period of strong performance, with its bottom line rising by 14% in 2016 and by a further 70% in 2017. This is largely due to an improved performance from commodity prices, with iron ore and various other resources seeing increased demand as better-than-expected world economic growth has continued.
However, with Rio Tinto trading on a price-to-earnings (P/E) ratio of around 12.5, it still appears to offer a margin of safety. Clearly, it remains reliant on the price of iron ore. But with the stock having been focused on improving the strength of its balance sheet and offering a more sustainable dividend, its investment potential seems to be high.
With a dividend yield of around 5%, Rio Tinto could be seen as a worthwhile income investment. Although there is the scope for a more difficult period in the resources sector due to its ‘boom/bust’ nature, there could be much further to run with the current upturn. As such, buying now may prove to be a shrewd move in the long run.
