The FTSE 100’s 27% rise in the last year has caught many investors by surprise. After all, the ‘leave’ vote in the EU referendum and Trump’s election victory were supposed to send share prices lower, according to the majority of forecasts. However, that has not been the case and the outlook for the global economy remains bright. As such, these two fast-growing shares may see their prices rise over the medium term.
A solid mining play
Describing a mining company as ‘solid’ may sound rather strange. After all, its financial performance is highly dependent on the price of the commodity it produces. However, Randgold Resources (LSE: RRS) has a sound financial position, with the company having a net cash position of over $500m, strong cash flow and a robust outlook.
The gold price should provide a hedge against possible challenges in 2017. Inflation caused by Trump’s potentially loose fiscal policy may push the precious metal’s price higher, while uncertainty caused by Brexit may lead to an upward re-rating in its valuation. Looking ahead, Randgold Resources’ bottom line is expected to increase by 26% this year and by a further 20% next year. This puts it on a price-to-earnings growth (PEG) ratio of only 1.2, which indicates there is capital gain potential.
While the company may not be as robust as a utility or tobacco play, for example, for a resources stock it offers a degree of resilience against a possible decline in the macroeconomic outlook. Alongside sound management, a long-term exploration plan and a relatively well-diversified business model, Randgold Resources seems to be a strong buy for patient investors.
A recovering bank
It may seem somewhat obvious to describe a banking stock as ‘recovering’. After all, much of the global banking sector continues to be in a questionable state of repair following the credit crunch. However, Standard Chartered (LSE: STAN) is in the midst of controlling its costs and generating efficiencies that are expected to boost its profitability.
For example, in the current financial year Standard Chartered’s earnings are set to more than double. Next year they are forecast to rise by a further 55%. This puts it on a PEG ratio of just 0.3, which indicates that it has a wide margin of safety. It also means that dividend growth could be strong. In the 2018 financial year, for example, Standard Chartered is expected to yield 3.7% from a dividend which is covered more than twice by net profit. Therefore, it could gradually become a worthwhile income play.
Certainly, the global banking sector may endure an uncertain period. Discussion of increasingly protectionist policies by the US and the challenges posed by Brexit could lead to downgrades to global GDP growth. This would hurt the bank’s financial performance, but since it has such a wide margin of safety it appears to be a sound long-term buy.
Peter Stephens owns shares of Randgold Resources Ltd. and Standard Chartered. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.