Much as training to become a Wimbledon champion requires years of persistent training, dedication and discipline, so investing for the long-term requires the same qualities. For investors with a long-term vision, buying shares in great companies and waiting for their value to increase, while ignoring short-term noise and fears, is a sound strategy. All the while an investor with patience will benefit from dividends – which should grow year-on-year.
Here are two shares I think perfectly fit the mould of hidden gems that could massively increase in value over the long run.
The tech giant Software company Sage (LSE: SGE) is a bit of an under-the-radar name and yet it’s one of Britain’s most successful technology companies, especially given that it’s in the FTSE 100. I think its results show it has good long-term prospects, especially as its move to cloud computing takes hold. On that front it’s doing well, with Sage Business Cloud gaining traction and growing 82% in the first half of 2019.
As it branches out into more areas beyond accountancy and payroll software, more opportunities will open up for the group to increase its value. I think it was undervalued late last year and earlier this year and with H1 having seen revenue growth of 6% and an operating margin of 23.2%, other investors have seemed to agree with me.
The shares were undervalued, but the share price has been rapidly rising, up 35% in the year to date. The downside of this is that they’re now expensive and low yielding, with the P/E being 25 and the yield around 2%. Nonetheless, over the long term, the share price should continue to grow if the company can execute its transition into more services and into the cloud.
The cheap paper company Mondi (LON:MNDI) (LSE: MNDI) is a paper and packaging company and like its competitors, environmental concerns have weighed on the sector’s share price so far this year. The upside is that Mondi shares are now cheap, with a P/E of just under 11 and on top of that, they yield nearly 4%. With e-commerce booming, the need for packaging isn’t going away and Mondi is confident this will continue to underpin future growth.
The company has been delivering for investors. It enjoyed a strong performance in the first quarter, achieving higher selling prices, with growth from previous acquisitions and lower closures of operations due to maintenance. This meant its underlying EBITDA for the first quarter was €471m, 16% above the prior year period and 6% up on the fourth quarter of 2018.
With Mondi continuing to invest in new facilities and production (for example, it’s pouring money into building a new 300,000 tonne p.a. kraft top white machine in Slovakia), investors should expect even better growth around the corner. Capital expenditure is estimated to be between €700m and €800m annually for 2018 and 2019, showing the extent to which Mondi invests in itself.
From my point of view I think both these FTSE 100 companies look to be hidden gems. Lurking among the more well-known brands that make up the FTSE 100 index, they can easily be overlooked, but I think their past successes and future prospects make them very good shares to buy and forget.
Andy Ross has no position in any of the shares mentioned. The Motley Fool UK has recommended Sage Group (LON:SGE). 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.
Motley Fool UK 2019