Investing for the long term can be a really challenging process. It’s difficult to predict the next couple of years, never mind the period from now until retirement. Therefore, it is easy to make mistakes and end up with shares that are either overvalued, or which lack the sustainable growth required to deliver the high returns you need in the long run.
With that in mind, here are two shares which could benefit from an investment tailwind in future years. While small and relatively high risk, they may deliver impressive total returns in the years ahead.
Reporting on Tuesday was West African gold miner Avesoro Resources (LSE: ASO). The company announced production results for the quarter to 30 June, with total gold production being 15,824 ounces. This represented a 6% increase on the previous quarter, with its 2017 production guidance being maintained at between 90,000 and 100,000 ounces. Furthermore, the company’s cash cost of $750-$800 per ounce remains in line with guidance, as does an all-in sustaining cost of $925-$975 per ounce of gold produced.
Clearly, demand for gold has been somewhat volatile during the course of 2017. Investors were anticipating higher inflation than has been recorded in the US, while interest rate rises have kept the price of the precious metal pegged back to at least some extent.
Looking ahead, uncertainty in the outlook for the global economy could increase demand for gold as it has done in the past. Fears surrounding US spending plans, China’s transition to a consumer-focused economy and Brexit may weigh on investor confidence. This may make gold miners such as Avesoro more popular and lead to a higher share price for the company.
Although it has risen by 82% since the start of the year, there could be more upside potential owing to its expected move from loss to profit next year. This could positively catalyse investor sentiment and push its share price higher.
A better option?
While Avesoro is currently a lossmaking business, other gold miners such as Highland Gold (LSE: HGM) are delivering rising profitability right now. The company is set to increase its earnings by 21% in the current year, followed by further growth of 26% next year. This puts its shares on a price-to-earnings growth (PEG) ratio of just 0.3, which suggests they offer a wide margin of safety.
As well as its growth potential and value appeal, Highland Gold also offers strong income prospects. The company currently yields 6.4% from a dividend which is covered 1.5 times by profit. This suggests that dividends could increase at a similar pace to profit in future and leave the business with sufficient capital to reinvest in its asset base for future growth. This mix of income, growth and value potential could make Highland Gold a worthwhile buy at the present time.
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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.