Well, the big day came and went without too much of a bang. There was no reminder on my Facebook feed, nor was there a huge amount of comment in the press. For those in the know, however, the LSE’s Alternative Investment Market (AIM) marked its twentieth year of existence.
For some investors, however, AIM has been nothing more than a graveyard for their hard-earned cash. Indeed, it is true that almost 75% of the stocks that have listed in this market have actually lost investors either some, or all of their money.
As an investor myself, I can say that I have been there, done that, and indeed got the T-shirt – anyone remember Pursuit Dynamics? How clever I thought I was looking at my 250% paper gain, only to see that evaporate to an almost total loss as the company’s fortunes soured, taking the story with it.
That said, AIM should not be considered a no-go zone – investors just need to know where to look. Just look at the 10-year chart below, which shows investors just how well we can do when we invest in the right type of stock.
Hopefully, you can now see the attraction — so let’s take a look at three stocks that I think you can hold for the next 20 years and still turn a profit…
Making A Clean Getaway….
The first company I’m looking at today is Tristel (LSE: TSTL). For those of you not familiar with this business, it is based in the UK and engaged in manufacturing of infection control, contamination control and hygiene products. The company operates in three segments: Human healthcare, Contamination and Animal healthcare. These products are based around the company’s proprietary chlorine dioxide chemistry.
Management has been steadily growing the business as it moved away from the declining legacy products. This has resulted in the company swinging back into profit in 2014. Accompanying the results, management sounded very confident for the prospects of the business going forward — this optimism proved correct as the company guided the market higher with a positive-sounding trading update on 21 May this year. Following this, on 18 June the company announced a special dividend of three pence per share to be paid on 6 August as there was no need for the extra cash, even after the considerable investment going into new markets and in its products.
As one would expect, the shares have re-rated, currently changing hands at over 20 times forward earnings. But with earnings growth expected to be at least 40% ahead of last year, this leaves the PEG (price to earnings growth) at less than one, leading me to believe that the shares could well re-rate higher still.
Next up is OMG (LSE: OMG), also known as Oxford Metrics Group. This company is engaged in the development, production and sale of image understanding solutions. It operates in three business segments: Vicon Group, which is engaged in the development, production and sale of computer software and equipment for the engineering, entertainment and life science markets; Yotta Group, which is engaged in providing services for the management of infrastructure and taxation, highway surveying and associated software development; and OMG Life: this segment’s engaged in product development, and is currently loss-making.
What brought this company to my attention was the sale of the 2d3 business on 10 April 2015 to Insitu, a subsidiary of Boeing for $25 million, resulting in net proceeds of £11.3 million. Since this transaction, shareholders have received 4.5 pence per share as a special dividend on 15 May, and can expect a further 5 pence per share dividend on 10 July 2015.
Going forward, management has reduced the cost base of OMG Life, which was obscuring the profitability of the company as a whole. Both Vicon and Yotta have secured new business, enabling management to expect results to be in line with market expectations. The shares aren’t cheap at around 18 times forecast earnings, but they are supported by £8.6 million in cash (not including the post-period cash in and out flow) and, if OMG Life can start to deliver, the shares may go higher from here.
Bang On Trend?
Finishing on one of the stars of AIM, let’s look at ASOS (LSE: ASC). Capitalised at over £3 billion, this company would be part of the FTSE 250 if it were to list on the main market.
As the chart above shows, if you have held onto your shares in this business for the last 10 years, you could well be seriously rich… but what does the future hold for this growth star?
On the positive side, it was nice to see that ASOS’s zonal pricing rollout appears to be working out according to plan. Additionally, this appears to have allowed management to guide the market “in-line” (with expectations), something shareholders will be thankful for after last year’s guidance revisions.
On the negative side — and something that I’m watching — is the operating margin, which currently stands at 4.27%. Compare that to Boohoo (LSE: BOO), also an online retailer, at 7.56%
Whilst I would concede that ASOS is investing in its business for the long term, and this will put pressure on its margins in the short term, I am also mindful that the shares trade on a forward PE of over 73 times forecast earnings. Should we see the missteps of last year, I don’t think that Mr Market will be too forgiving…
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Dave Sullivan owns shares in Tristel and OMG. The Motley Fool UK owns shares of ASOS. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.