Today I’m looking at two high-quality stocks I’d be happy to buy today and hold until I retire.
One way to earn a place in my retirement portfolio is to deliver market-beating growth over long periods. A company that fits this description is travel catering specialist SSP Group (LSE: SSPG).
This firm operates branded and franchised food outlets at airports, railway stations and motorway services. It currently operates more than 2,500 units in over 30 countries. The company’s brands include Ritazza, Upper Crust and James Martin Kitchen in London.
Although SSP has been in business for 50 years, it only floated on the London market in 2014. Since then, the firm’s shares have nearly tripled in value. Profits have also risen rapidly.
Tasty growth in Q3
In a trading statement on Tuesday, the group said that its revenue rose by 7.3% during the third quarter of its financial year, excluding currency effects. This figure was broken down into like-for-like sales growth of 2.7%, new contract wins worth 3.3% and a 1.3% increase from a small acquisition.
This diverse mix is one of the attractions of this stock for me. There’s a lot of room for growth in this market. Although profits can be affected by short-term dips in passenger numbers, I think it’s fair to assume that passenger numbers will keep rising over the long term.
Expensive but worth it
This business is a significant player in a large, growing market. And it’s surprisingly profitable. Although the group’s operating margin is only about 7%, return on capital employed (ROCE) has risen to 18.5% over the last 12 months.
These high returns are backed by strong cash generation. This has allowed the firm to double its profits since 2015, while reducing net debt.
SSP Group shares currently trade on 28 times 2018 forecast earnings. Although that’s not cheap, I believe the group’s long-term growth potential justifies a hold rating here. I’d aim to buy on the dips.
A 4.7% yield I’d buy
SSP’s growth potential impresses me, but its 1.5% dividend yield isn’t that exciting. To improve the income yield of my retirement portfolio I’d also like to include a few high-yield stocks as well.
One company that would be near the top of my list would be ingredients firm Tate & Lyle (LSE: TATE). This business may lack the excitement of a growth stock, but this FTSE 250 firm offers a forecast dividend yield of 4.7% and hasn’t cut its payout for at least 15 years. This kind of consistency can be very valuable for retirement investors.
What about growth?
Tate & Lyle’s sweeteners and ingredients businesses are unlikely to deliver spectacular growth. But this company has been around for more than 150 years and is continuing to adapt to a changing food marketplace.
These efforts seem to be delivering results. Adjusted pre-tax profit rose by 13% to £286m last year, excluding currency gains. Adjusted free cash flow rose by £22m to £196m, helping the firm to cut net debt by £60m to just £392m.
Tate shares remain modestly valued, probably because profits are expected to be flat this year. But with the shares trading on just 12.5 times forecast earnings, I’d argue that this could be a good buying opportunity for long-term investors. I’d be happy to buy this stock today and forget about it for 20 years.
Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.
Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.
The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.
But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.
Roland Head has no position in any of the shares mentioned. The Motley Fool UK owns shares of SSP Group. 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.