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Investing in these 2 stocks now could make you a millionaire retiree

While buying shares in companies that have experienced recent difficulties may increase the risks facing an investor, such stocks can also deliver high rewards. This is particularly relevant for investors with an extremely long-term focus, since it can mean a high degree of portfolio volatility and uncertainty in the short run. However the payoff, while potentially years away, could make up for the short-term challenges facing the business in question.

With that in mind, here are two companies that have experienced a difficult recent past but which could post high returns in the long run.

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Improving outlook

Releasing a production update for the second quarter of the year on Tuesday was Vedanta Resources (LSE: VED). The company’s operational performance during the period was relatively robust. Refined zinc-lead metal production rose 27% versus the same quarter of the previous year, while refined silver production was at a record level, which was 31% higher than last year.

The company also posted record aluminium production as well as record quarterly copper cathode production. Its oil and gas division also made progress, with the company commencing a 15-well infill drilling campaign at Mangala.

With Vedanta having returned to profitability last year after two years of losses, the company now seems to be on track to deliver improved financial performance. Next year, for example, it is expected to record a rise in its bottom line of 59%. This puts its shares on a price-to-earnings growth (PEG) ratio of just 0.2, which suggests that it offers significant upside potential.

Furthermore, the company is expected to have a dividend yield of 4.2% from a dividend which is due to be covered 2.7 times by profit. This suggests that additional dividend growth could be on the cards. As such, while commodity prices will inevitably fluctuate over the medium term, Vedanta appears to have significant investment potential in the long term.

Turnaround potential

Also offering upside potential in the long run is platinum producer Lonmin (LSE: LMI). The company has not yet been able to return to profitability after a challenging period that has seen the price of platinum come under pressure. Concern about the future use of diesel cars means demand for the commodity has fallen, and this means that Lonmin is forecast to remain in the red over the current year and into next year.

Despite this, the company could have investment potential. It has a sound turnaround plan which is aiming to make the business more efficient. In addition, it has recently acquired the Pandora JV and has been able to obtain a potential waiver of its banking covenants in the short run. This move could provide the company with some breathing space while it implements its strategy and may lead to improved financial performance in future.

While Lonmin is clearly a relatively risky stock to own, it has the potential to deliver improved share price performance through a mixture of cost cuts and growth prospects.

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Peter Stephens has no position in any of the 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.

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