.In my view, one of the best ways to build serious wealth over time is investing money in high-quality businesses and holding the shares for the long term. What’s more, in the aftermath of a stock market crash, such companies can often be found trading on vastly reduced valuations. As a result, investors who capitalise on these buying opportunities can expect favourable returns further down the line.
With that in mind, here’s a cheap UK stock that I think could boost your prospects of building a six-figure investment portfolio, if held for the long term.
Investing money in first-class contract catering Compass Group (LSE: LON:CPG) is a multinational contract catering company headquartered in the UK. As the largest contract foodservice group in the world, Compass has operations in 45 different countries, employing over 600,000 people.
After reaching an all-time high in September, the group’s share price has since plunged 46%. That’s mostly thanks to the combination of Covid-19 and the subsequent stock market crash.
The company’s share price demise is hardly a mystery. As chief executive Dominic Blakemore stated in May, the coronavirus pandemic has “changed everything” for the foodservice group.
An uncertain future outlook Group organic revenue fell 44% in the third quarter of 2020, reflecting the period over which lockdown measures were most severe in the markets in which Compass operates. Evidently, this will take its toll on the group’s finances and recovering from the damage caused by the lockdown won’t be straightforward.
However, Blakemore is confident that the business is “well-placed to succeed in a post-Covid-19 world”. I’m inclined to agree with him. By the end of June, around 60% of the business was open again. Additionally, the group has reported a positive performance in the healthcare, defence and remote divisions of the businesses.
Provided the economy can continue to recover over the coming months and years, Compass should be able to kickstart operations in other business areas. This should in turn fuel share price appreciation and make sit a worthy focus when you’re investing money for your future.
A dirt-cheap UK stock Speaking of share price appreciation, Compass Group shares will have to bag a near 70% return in order to recover their pre-crash valuation. But over the long term, I think it’s entirely feasible for those investing money today to expect attractive returns.
With that in mind, a P/E ratio of 13.5 seems more than justified. Especially when considering the company’s healthy balance sheet and the overall strength of the underlying business.
Building a £1m investment portfolio Ultimately, I think shares in Compass Group could go a long way in helping you build serious wealth. Owning some as part of a diversified investment portfolio could even boost your prospects of making a million. That may sound ridiculous to you, but let me explain.
Let’s say you’re thinking about investing money monthly into a mixture of UK shares. £500 sounds like an affordable figure. Assuming an annual return of 8% (identical to the average return of the FTSE 100 index) you’d have an investment pot worth £1,078,202 after 35 years. This illustrates the power of a combination of time and compounding returns.
The post Investing money in the stock market? I think this cheap stock could help you build a £1m portfolio appeared first on The Motley Fool UK.
Matthew Dumigan has no position in any of the shares mentioned. The Motley Fool UK has recommended Compass Group. 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 2020
First published on The Motley Fool
