The Motley Fool

My 3 top picks for the next decade: HSBC Holdings plc, United Utilities Group plc and WM Morrison Supermarkets plc

The Chinese economy looks set to be the engine room for global economic growth in the long run. That’s because the Chinese middle class is increasing both in number and wealth, with demand for consumer goods and financial services likely to soar in the coming years. Therefore, HSBC’s (LSE: HSBA) exposure to the world’s second-largest economy could prove to be a major catalyst affecting its financial performance and share price.

Furthermore, with HSBC trading on a relatively low valuation there’s plenty of scope for an upward rerating over the medium-to-long term. For example, HSBC has a price-to-earnings (P/E) ratio of just 10.7 and with its bottom line due to rise by 8% next year, this equates to a price-to-earnings growth (PEG) ratio of only 1.3. Both of these figures represent excellent value for money and with HSBC expected to make large-scale redundancies and cut operating costs, its bottom line could surprise on the upside over the coming years.

Sound strategy

Also offering excellent long-term growth potential is Morrisons (LSE: MRW). Clearly, the operating environment for supermarkets is hugely challenging, but Morrisons now appears to have a sound strategy through which to grow its top and bottom lines.

Key to this is leveraging Morrisons’ status as one of the UK’s biggest food producers. Its deal with Amazon to supply groceries could be a highly profitable one in the long run, while its decision to sell its convenience stores and focus on its core offering could help it become more streamlined and reconnect with former customers.

With Morrisons trading on a PEG ratio of 1.6, it seems to offer a potent mix of high growth and good value for money. And with the rate of growth of no-frills operators such as Aldi and Lidl likely to slow, market sentiment towards Morrisons could pick up over the medium-to-long term. In fact, the company’s shares have already outpaced the FTSE 100 this year and could continue to do so in the remainder of the year and beyond.

Defensive stock

Meanwhile, United Utilities (LSE: UU) remains a defensive stock with capital gain potential. Clearly, the water services industry is highly robust and reliable, which may have appeal in the short-to-medium term. However, the liberalisation of the water services market next year could give established, well-prepared players such as United Utilities the opportunity to expand their profitability. And with rising profitability could come a higher rating for the firm.

Certainly, it trades on a P/E ratio of 21 and while this may be high relative to the wider index, the company’s yield of 4.1% indicates that it offers good value for money. With there being the potential for bid rumours moving forward, now could prove to be an opportune moment to buy a slice of United Utilities for the long haul.

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Peter Stephens owns shares of HSBC Holdings, Morrisons, and United Utilities. The Motley Fool UK owns shares of and has recommended The Motley Fool UK has recommended HSBC Holdings. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.