All investors are constantly looking for the best stocks in which to invest their hard-earned cash. However, finding the most profitable investment opportunities can be a challenging task and, even if they are found, an opportunity to make money can often be disguised as a potential disaster that could lose money.
For example, take Rio Tinto (LSE: RIO) (NYSE: RIO.US). It is enduring one of the most difficult periods in its recent past, with the price of iron ore collapsing to a multi-year low. And, while Rio Tinto has other operations, its dependence on iron ore for over 90% of its profit has been evident in terms of the impact of the commodity’s price fall on its bottom line, with Rio Tinto set to deliver a 52% decline in its net profit in the current year. As a result, its share price has fallen by 21% in the last year alone, thereby making many investors wary of investing in the Australian miner.
However, Rio Tinto offers excellent long term investment potential. For starters, it trades on a very low valuation, with a price to book (P/B) ratio of just 1.3. This indicates that there is significant scope for an upward re-rating of Rio Tinto’s shares, since a price to book ratio that is so low appears difficult to justify while the company remains well-financed and with such low cost curves. Furthermore, profit growth is set to return next year, with the mining giant forecast to post bottom-line growth of 13%, which could catalyse investor sentiment and push its shares higher.
Equally, BAE (LSE: BA) (NASDAQOTH: BAESY.US) may appear to be a rather risky investment at the present time, with defence cuts being a reality for much of the developed world. However, with an improving global economy, BAE’s income prospects appear to be much more stable than they were a year ago.
For example, BAE currently yields a very impressive 4.3% and, with earnings set to rise by 6% next year, it means that there is significant scope to move shareholder payouts upwards at a faster rate than inflation over the medium term. And, with dividends being covered 1.8 times by profit, BAE appears to be a relatively stable income play which could see its share price rise due to continuing high demand for higher yielding stocks over the medium term.
Meanwhile, convenience food producer, Greencore (LSE: GNC), continues to be one of the more reliable stocks in which to invest. Unlike Rio Tinto and BAE, it has an excellent recent track record of growth, with its bottom line having risen at an annualised rate of 16% during the last five years. And, looking ahead, it is expected to post growth of 14% in the current year, followed by 13% next year.
Despite such a strong growth profile, Greencore trades on a price to earnings growth (PEG) ratio of just 1.1 and this indicates that its shares could move significantly higher over the medium term. And, with a yield of 2% from a payout ratio of only 35%, Greencore could become a top notch income choice over the medium term, too.
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Peter Stephens owns shares of BAE Systems and Rio Tinto. The Motley Fool UK has recommended Greencore. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.