The best Cash ISA available on the market today offers an interest rate of just 1.5%. According to my calculations, at this rate of return, it would take 48 years to double your money. I don’t know about you, but waiting nearly five decades to double my investment seems like a poor deal.
Luckily, there are plenty of stocks out there that I think can achieve the same return in a much shorter time frame. Today I’m going to profile three of these companies.
My first pick is the packaging giant DS Smith (LSE: SMDS). What I like about this business is the fact that it has proven over the past 10 years it is a well-run enterprise with the shares returning 22.9% per annum since 2009.
However, recently, doubts have started to surface about the company’s ability to continue this track record. As a result, the stock has lost around 30% over the past 12 months. The decline has left the stock trading at a forward P/E of just 9.4, which, with analysts predicting earnings growth of 43% for 2018, makes it look exceptionally cheap. It is currently dealing at a PEG ratio of 0.8 and supports a dividend yield of 5%.
Historically, shares in DS Smith have commanded a valuation of more than 20 times forward earnings. When confidence returns, I don’t think it is unrealistic to assume that the stock could double from current levels.
The second company I am going to look at today is homebuilder Berkeley Group (LSE: BKG). Once again, it seems as if the market is overlooking the opportunity here. Over the past 12 months, the City has been steadily increasing its figures. It now believes Berkeley will earn 419p per share in 2019, up around 10% from last year’s estimates. Despite this positive development, the stock still trades below where it was this time last year, and a multiple of just 8.7 times forward earnings does not seem to me to reflect Berkeley’s true potential.
Stripping out cash, the stock is dealing as a forward P/E of just 7.4 compared to its five-year average of around 11. Even if the share price does not return to this historical valuation, a prospective dividend yield of 5.6% implies investors could double their money on dividends alone within 14 years.
Mining group Anglo American (LSE: AAL) is my last FTSE 100 pick here. Once again, this investment offers an attractive combination of both a low valuation and market-beating income. The stock currently supports a dividend yield of 4.8% and is changing hands at a forward P/E ratio of 8.3.
However, it is the group’s long-term potential that really interests me. Anglo is one of the world’s largest mining companies, producing significant amounts of essential commodities such as copper, nickel and platinum. All of these are vital commodities in the ever-connected world that we live in and demand should only increase over the long term.
Anglo is well positioned to profit from this trend and earnings should rise at least in line with inflation for the foreseeable future, implying average annual earnings growth of around 3%, which when coupled with the current 4.8% dividend yield, suggests that the stock could return nearly 8% per annum over the long term — a steady return that could double an investment within a decade.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended DS Smith. 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.