While the results of companies can sometimes disappoint, it often takes them less time than expected to turn their performance around. As such, there are often opportunities for investors to benefit from investing in stocks that may not be among the most popular at the present time, but which have the potential to become firm investor favourites over the medium to long term.
For example, GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) remains a relatively unpopular stock among investors. Evidence of this can be seen in the company’s share price performance, with GlaxoSmithKline’s valuation having fallen by 11% in the last year as investor sentiment has remained weak due to disappointing sales and profit performance, as well as concerns regarding bribery allegations in the company’s recent past.
However, looking ahead, GlaxoSmithKline is likely to deliver significantly improved performance. For example, its sales are forecast to be 8% higher in 2016 than they were in 2014, with the company’s bottom line expected to rise by as much as 6% next year. Certainly, this growth rate may still be behind a number of the company’s peers, but with an excellent pipeline of drugs that is well-diversified and includes the significant potential of the ViiV Health Care division’s HIV treatments, GlaxoSmithKline could be on the cusp of a very different era of financial performance.
Furthermore, concerns regarding the wider economy are unlikely to significantly hurt GlaxoSmithKline’s performance. For example, worries about the impact of interest rate rises on the US and UK economies are unlikely to affect GlaxoSmithKline due to its relatively low correlation with the wider macroeconomic outlook. And, while GlaxoSmithKline has a beta of 1, its shares are likely to be less volatile than those of its index peers due to its lack of cyclicality, which may appeal to investors over the medium to long term.
Meanwhile, despite automotive dealership operator, Vertu Motors (LSE: VTU), having seen its share price rise by 120% in the last five years, it still trades on a relatively low valuation. In fact, Vertu Motors has a price to earnings (P/E) ratio of only 11.7 despite the outlook for the global automotive industry being relatively positive and the company itself being forecast to increase its earnings by 5% in the current year, and by a further 11% next year.
In fact, these forecast growth numbers put Vertu Motors on a price to earnings growth (PEG) ratio of just 1, which indicates that its share price could move significantly higher. And, while it currently yields just 1.7%, Vertu Motors has a rather low payout ratio of 20% which, when combined with its strong earnings outlook, means that impressive dividend growth prospects are likely to be ahead over the medium to long term. As a result, its shares could continue their upward trajectory – especially since the next five years are likely to be more prosperous than the last five for the global economy.
