As I’ve said before, the main reason why I’m not convinced about Bitcoin’s potential as an investment is the fact that it doesn’t generate any cash flow.
While the crypto asset may have some use as a store of value, I think investors would do better buying shares in companies like Bodycote (LSE: BOY) if they want to get rich.
Time to buy?
Bodycote is somewhat of a unique, specialist business. The company designs and manufactures thermal technologies for specialist markets like defence and aerospace. More specifically, the group produces technologies that help companies use heat in manufacturing processes like nitriding, carburizing, annealing and tempering, among others.
As it turns out, the demand for these services is running hot. Today, the company reported better than expected results for its financial year ending 31 December 2018. Revenue grew 6.7% overall with double-digit growth at its Specialist Technologies business and Civil Aviation revenue up 8%.
Overall, operating profit increased by 12% and return on capital employed — a measure of profit for every £1 invested in the business — rose to 20.5%, from last year’s reported figure of 19.3%.
Management is so pleased with these numbers it’s decided to reward shareholders with a special dividend of 20p per share.
Built for the long term
When I look at Bodycote, I see an enterprise that has many of the qualities I look for in attractive long-term buy and forget investments. The company has a business that’s difficult to replicate and its high return on capital employed tells me that the business dominates the markets it operates in.
With this being the case, I think the stock’s current valuation of 14 times forward earnings isn’t too expensive considering the specialist nature of the business. On top of this, there’s a 2.5% dividend yield on offer for investors — that’s excluding today’s special payout.
Bodycote might not be as exciting as Bitcoin, but if you’re willing to buy and forget this stock, I think it could create a tremendous amount of wealth for shareholders over the next 20 years.
I’m also highly optimistic about the outlook for Bodycote’s FTSE 250 peer John Laing Group (LSE: JLG).
If you’ve not heard of John Laing, it specialises in managing and investing infrastructure projects. Infrastructure is the perfect long-term asset because developments such as roads and bridges are built to last for decades, generating an equally long-term income stream for investors.
Book value growth is the best way to evaluate an infrastructure business and how effective it is at creating value for shareholders.
Over the past six years, John Laing’s book value per share has grown at a compound annual rate of 24.6%. Including dividends to investors (the dividend yield stands at 2.6% today) the stock has produced a total return of 27.5% per annum over the three years it has been a public business.
At this rate of return, every £1,000 invested will double every 2.6 years. Indeed, if you had invested at the IPO in 2015, your investment would have already doubled in value. And, according to my numbers, if John Laing continues to compound shareholder wealth as it has done since its IPO, in two decades time, every £10,000 invested will be worth £2.3m. With these returns on offer, it’s difficult to argue that Bitcoin is the better buy.