Some of the most successful investors prefer to buy shares and hold them for a long time, with one of the most notable advocates of this strategy being none other than Warren Buffett. Here are two companies I think are primed for success over the long term.
First up is the cybersecurity company Avast (LSE: AVST). Its share price has been on the charge, up 10% this year and by 45% over the last 12 months. The driver of this performance has been the company’s growth – which has continued to keep pace with investor expectations, unlike its competitor Sophos.
First-quarter results which covered the period to the end of March, showed revenue up 8.5%. This was in line with previous quarterly growth showing sustained momentum. Best of all given the growth, is the value of the shares. They are cheap compared to many growth stocks as they only trade on a P/E ratio of around 13, which is far lower than other high potential technology shares. Softcat, for example, has a P/E of 31 and the Sophos P/E is even higher at 35.
Artificial intelligence (AI) is certainly an exciting area right now with many companies trading at massive premiums due to the technology’s potential. Avast has 60+ data scientists and threat researchers, including the Avast machine learning team, and has 159 patents granted, so it is clearly very innovative. The firm claims to have stopped 1.5bn PC attacks a month of late. Its innovation, demand for its cybersecurity products and Avast’s stellar growth up to now makes me think it is a company primed for further expansion over the next decade.
Another company that looks well positioned for further growth into the 2020s is car sales website Auto Trader (LSE: AUTO). Its share price growth has really been accelerating so far in 2019 and it has revved up by 35%. That may call into question whether now is the best time or not to buy the shares, because the P/E ratio has now shot up to nearly 33. However, I believe over a longer time frame, say a decade, the company is well worth considering.
It is still a growing company, Auto Trader’s full-year revenue for the year to the end of March 2019 rising by 8% to £355.1m. And by keeping cost growth down, its operating margins improved from 67% to 69%, which in turn meant operating profit was up 10% to £243.7m. As a website, it is an asset-light company. It doesn’t have to buy machinery for example, meaning it can turn profits into cash and future potential for shareholders rewards is high — good news if you hold the shares.
Auto Trader is well known and it takes full advantage of this. It has become indispensable for car dealers, and so can squeeze more money from its existing customers. In addition to raising prices, Auto Trader has been looking to make more money from new products such as extra analytics services. Innovation like this should continue and keep pushing the company on, and that’s what makes it an attractive investment over the longer term in my view.
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Andy Ross has no position in any of the shares mentioned. The Motley Fool UK has recommended Auto Trader. 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