Octogenarian multi-billionaire Warren Buffett knows a thing or two about investing for the long term. Like him, I reckon backing top-class trusted brands that consumers buy day in and day out is a terrific way to grow your wealth and ultimately to achieve financial independence.
Brand powerhouses are wonderful businesses to have a long-term stake in, I believe and Buffett agrees. He says that “it’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” Of course, the qualities of such businesses are widely appreciated and their shares tend to command a premium price in the market. However, a broad sell-off of equities (as we saw last month), or a quarterly earnings miss by a company, or some other temporary setback, can provide an opportunity for investors with a long-term perspective to buy at a good price.
Two FTSE 100 stocks I’d be happy to buy right now, and hold for decades, are Coca-Cola HBC (LSE: CCH) and Harpic-to-Durex group Reckitt Benckiser (LSE: RB).
October sell-off discount
Coca-Cola HBC (CCH) is one of world’s largest bottlers of drinks brands from The Coca-Cola Company. The latter supplies the concentrates and syrups, and CCH manufactures, packages, merchandises and distributes the final branded products to trade partners and consumers. It operates in 28 countries across three continents.
The stock closed yesterday at the top of the FTSE 100 leader board (up 5% on the day at 2,376p) after a solid Q3 trading update in which it reported year-on-year revenue growth of 2.6% (4.5% at constant exchange rates). Nevertheless, the shares are 9% below their 2,615p level at the start of October and 15% below their summer high of a tad above 2,800p.
Back in May, at the time of its Q1 results, I thought CCH’s valuation of 21.2 times forecast 2018 earnings was attractive for such a high-quality business. At today’s share price, the multiple is more appealing still — 20.1 on latest forecast earnings of €1.35 a share (118p at current exchange rates). In addition, long-term investors should not underestimate the value of a 2.3% dividend yield.
Double whammy opportunity
Reckitt Benckiser’s shares not only fell because of the market sell-off during October but also suffered from a negative response to its Q3 trading update near the end of the month. As a result, the current price of 6,264p is 12% down from 7,155p in early October and over 20% below last year’s high of just north of 8,000p.
The company said Q3 sales to a number of markets were affected by a temporary manufacturing disruption. It added that while this was resolved by the end of the quarter, it expects some residual impact in Q4 and into 2019. However, due to momentum in the overall business, management reiterated its previous full-year revenue target and added that like-for-like growth would be at the upper end of its 2% to 3% range. Nevertheless, the market didn’t like it.
I see October’s broad sell-off of equities and Reckitt’s poorly received Q3 update as just the kind of situation long-term investors can take advantage of. As a result of the double whammy, the stock is trading at 19.2 times forecast 2018 earnings (a bit cheaper than CCH) and with a prospective dividend yield of 2.7% (a bit fizzier than the drinks firm).