1 potential millionaire-maker UK stock I’d like to buy for the long haul

For long-term investors, here’s 1 UK stock to consider buying right now with the potential to help power a growth portfolio.

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Although the markets look lively, there are still plenty of UK stocks to buy for the long haul.

To me, this bull market has the smell and feel of one that may take years to fully play out rather than mere weeks and months.

I’m fully invested right now. But opportunities keep popping up. For example, I’ve found a UK small-cap stock that has the potential to help drive gains in a portfolio because of earnings growth in the underlying business.

Positive expectations are never guaranteed to materialise, of course. Businesses can suffer setbacks and challenges at any time. However, investors focused on the long haul probably have the best chance of giving their stocks time to perform as the underlying businesses hopefully expand.

Enthusiastic customers

The company in question is Character (LSE: CCT), and it designs, manufactures and distributes a range of toys, games and playthings.

However, to begin, let me lay on the table the risks this business faces. Perhaps the biggest is that it may misjudge the market for toys and its creations then fail to sell. Another is the fierce cyclicality in the sector. On top of that, it’s not the only toy maker around, so competition from other businesses could eat into the firm’s market share.

The financial and trading record shows a lot of earning volatility and wild swings in the share price:

However, there’s opportunity as well as threat in the way the stock and the business behaves. Right now, they both seem to be near the bottom of a cycle, so we could see a rebound higher soon.

One thing I like that anchors the value here is the net cash position on the balance sheet. Cyclical outfits with net cash rather than net debt are often in a strong position for their next growth spurt.

On 9 May, with the half-year results report, the company delivered an optimistic outlook statement. The directors said they are “encouraged” by the enthusiasm customers are showing for the firm’s product portfolio after the launch of the spring/summer catalogue.

Dividends and growth potential

Looking ahead, the company expects to maintain its market share in domestic territories and increase international sales, “particularly” in the US.

Meanwhile, City analysts expect a rebound in normalised earnings upwards of 45% for the current trading year to August 2024.

Set against that expectation, and with the share price near 330p, the forward-looking price-to-earnings (P/E) ratio is just below 13. That compares to the rating of the FTSE All-Share index near 12.5.

I don’t think that’s an outrageous valuation, especially if the business is entering an enduring growth phase.

However, the icing on the cake is the dividend. The yield is running at about 5.7% for this year That suggests handy income for investors to collect while waiting for further growth to materialise.

My plan here would be to dig in with thorough research and consider buying the stock to add to my diversified portfolio when I have more funds to invest.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Kevin Godbold has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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