The Motley Fool

How Anglo American plc could help you retire with a million

Investing in companies with the ability to generate a lot of surplus cash can be a good strategy for beating the market. Today I’m going to look at two such firms.

Motoring ahead

Car dealership group Marshall Motor Holdings (LSE: MMH) rose by 7% on Tuesday morning, after the company’s half-year results came in ahead of analysts’ forecasts.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Although the board emphasised its “cautious” outlook for the car market, the group’s underlying pre-tax profit rose by 32.9% to £18.6m during the period. Shareholders were rewarded with a 19.4% increase in the interim dividend, which rose to 2.15p.

These figures were flattered by last year’s acquisition of rival Ridgeway. But even excluding this, like-for-like revenue rose by 6.7%.

Strong asset backing

Car dealership groups often rely on debt financing to purchase vehicles. Marshall is no exception, but the group’s adjusted net debt of £35.1m seems comfortable when set against trailing 12-month net profit of £23.2m.

The company also owns a portfolio of freehold and long leasehold property worth £112.5m, providing solid asset backing for this debt.

What could go wrong?

New cars carry very thin profit margins. Dealers make most of their profit from used cars and after-sales. One risk for investors is that the value of used cars will collapse. This could crush profits from leasing and used car sales.

In Tuesday’s results, management reported “margin pressure” on used car sales and “lower levels of disposal unit profitability” in its leasing business. To me, this suggests that used car values are falling, albeit slowly.

Too cheap to ignore?

This sector of the market is modestly valued. But even so, Marshall shares stand out for being unusually cheap. At the last-seen share price of 152p, the company’s stock trades on a 2017 forecast P/E of about 5.5, with a prospective yield of 4.1%.

In my view, this low valuation discounts quite a lot of risk. I believe the shares could be worth a closer look.

A mountain of cash

Global mining group Anglo American (LSE: AAL) has made a stunning comeback over the last year. But the firm’s shares still look very affordable to me.

Cash generation has rocketed and net debt has fallen by almost half to $6.2bn over the last year. As a result, Anglo has said it will resume dividend payments. A full-year payout of $0.76 per share is expected for 2017, giving a prospective yield of 4.7%.

Looking back over the last 12 months, Anglo stock now trades on a trailing P/E of 7 and a trailing price/free cash flow ratio of 5.2. Both figures seem very cheap to me.

However, analysts expect profits at all of the big miners to be lower in 2018 than in 2017. For Anglo, the forecast is for a 24% fall in earnings to $1.60 per share. That sounds quite drastic, but it still leaves the stock on a 2018 forecast P/E of 10, with a potential yield of 3.9%. These forecasts are also likely to change. Broker profit forecasts for 2018 rose by 7% last month. They could easily rise (or fall) again.

My view is that Anglo American’s modest valuation and strong cash generation could make the group a bid target. Even without this, the shares look good value to me.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

Roland Head owns shares of Anglo American. 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.

Where to invest £1,000 right now

Renowned stock-picker Mark Rogers and his select team of expert analysts at The Motley Fool UK have just revealed 6 "Best Buy" shares that they believe UK investors should consider buying NOW.

So if you’re looking for more top stock ideas to try and best position your portfolio in this market, then I have some good news for your today -- because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.