Trying to find stocks that you can buy and forget about for the next few decades is a tough task. However, I believe that Spectris (LSE: SXS) is one such opportunity.
Spectris is a highly specialised business, suppling productivity-enhancing instruments and controls and providing systems to industries such as healthcare, automotive, the oil industry and utility industry. These products and services are used in critical processes that require a high level of experience as well as a high level of trust between customer and supplier.
As long as Spectris does not begin to cut corners, or misuse the trust of key clients, it should be able to maintain its reputation in the business – great news for long term investors.
Steady earnings growth
Over the past 10 years, as Spectris has grown, the value of the company’s shares has risen by 10.6% per annum, excluding dividends. Including dividends, returns are closer to 13% per annum. While there are small caps out there that may provide a better performance, Spectris is much more of a safe bet.
A return of 13% per annum is not to be sniffed at, especially when the average market return over the past 15 years is around 7-8%.
To help drive earnings growth, today the company announced the acquisition of US firm Omnicon Group Inc for $29m. This business provides a range of services to help its customers analyse and improve product reliability and safety in the aerospace and defence industries. According to management, the acquisition “represents a further step in our strategy to provide solutions using a combination of software and services to enhance productivity and create greater value for our customers.“
The combination of the group’s organic growth, coupled with bolt-on acquisitions, has lead City analysts to predict that the company will earn 134p per share this year, up from just 9p last year.
Further earnings growth of 12% is projected for the following year. Based on 2018 earnings estimates, the company is trading at a forward P/E of 16.7. Based on the specialised nature of its business, as well as past performance, I believe that this multiple undervalues the stock.
Halma (LSE: HLMA) is another highly specialised company that looks to be a great buy-and-forget investment.
Halma manufactures a range of products that protect and improve the quality of life for people. These include construction and medical safety products and devices. Environment monitoring and protection is also a growing part of the business.
Through both organic growth and bolt-on acquisitions, shares in Halma have returned 180% over the past five years, excluding dividends. Including dividends, the company has produced a total annual return in the region of 24%, eclipsing the broader market.
Unfortunately, these returns haven’t gone unnoticed. Investors have rushed to get in on the firm’s growth story and now the shares trade at a dear 27 times forward earnings. Still, I believe that this valuation is appropriate considering the specialised nature of the company’s business. City analysts are predicting steady earnings per share growth of 7% per annum for the next few years.
Looking for more growth?
You can retire on Halma and Spectris. But if you're looking for more bang for your buck, you are going to have to take more risk.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Halma. 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.