Value stocks

3 valuable stocks to buy in 2022 and hold forever

When the stock market displays are awash in a sea of ​​red, it can be easy to feel helpless and throw in the towel. But long-term investors know that strong companies tend to weather tough times. These strong companies include royal gold (RGLD 1.07% ), Ford engine ( F 2.85% )and Hexcel (HXL -1.37% ).

You may not recognize all the companies, but they all have reasonable valuations and strong fundamentals, which is critical in today’s rising interest rate environment. Here’s a breakdown of each company and why the three value stocks might be worth buying now.

Image source: Ford Motor Company.

Gild your wallet with this shiny stock

Scott Levine (Royal Gold): With the S&P500 down more than 8% so far in 2022, now is a great time to start scouring the discount rack for quality stocks — ones that can fortify a long-term portfolio. A name that fits this criteria well is Royal Gold. Unlike electric vehicle (EV) and metaverse stocks, gold stocks are not among the most popular buys these days. But Royal Gold is not an ordinary yellow metal stock.

A royalty and streaming company, Royal Gold does not operate metal producing assets. Instead, it acts as a specialist broker, providing capital to mining companies in exchange for the right to buy the mined metal at a pre-determined price or to receive a percentage of the metal produced.

Furthermore, it is important to recognize that Royal Gold is more than just an investment in gold – it is far from being synonymous with simply buying gold bullion, which only increases in value when the market price of gold rises. Consider the performance of the stock over the past 10 years, relative to the price of gold:

Chart of the price of gold in US dollars

Gold prices in US dollars given by YCharts.

Investors who have held Royal Gold in their portfolios for the past 10 years have seen significantly better returns than they would have obtained by buying gold coins – or gold mining stocks, whose movements are strongly correlated with the price of gold. Unlike many gold stocks, Royal Gold rewards shareholders with a dividend, which currently offers a forward yield of 1.2%.

How attractive is the stock price right now? Currently, shares of Royal Gold are trading at 29.4 times trailing earnings. That might sound expensive, but consider the fact that its five-year average earnings ratio is 73. The stock’s valuation in terms of operating cash flow also looks attractive: shares are trading at 17.6 times operating cash flow, which is a discount to their five-year average multiple of 21.1.

Maintain profitability with this electric vehicle manufacturer

Daniel Foelber (Ford): Ford stock jumped 3% on Friday despite a day of decline in the broader stock market, after CEO Jim Farley considered splitting Ford’s electric vehicle (EV) business from its engine business. internal combustion engine (ICE). Interestingly, the announcement comes just weeks after Ford management was chastised for its reluctance to run the two different businesses separately during its Q4 2021 conference call.

For now, the news is just speculation. And whether Ford splits its business or not, it may be worth considering how the company is doing now and where it might be headed. What impresses me most about Ford is that it’s able to maintain high profitability despite increased EV spending.

Ford expects its profit before interest and tax (EBIT) margin to be 10% in North America in 2022, a target originally set for 2023. The North American EBIT margin was 7.1% in 2021, compared to the company’s overall EBIT of 4.7%. margin. North American production accounts for about half of Ford’s total production, but it accounts for nearly all of Ford’s EBIT. North America and Ford’s International Markets Group (IMG) were the company’s only positive EBIT segments; Ford lost money in South America, Europe and China in 2021.

Ford is targeting 2022 adjusted EBIT between $11.5 billion and $12.5 billion, which would represent a 15% to 25% increase from 2021. This would also give Ford a price to EBIT ratio of just 5.98, giving Ford an inexpensive valuation. , especially given its growth rate. Ford’s net income – which is a generally accepted accounting principles (GAAP) measure – includes its interest in Rivian Automotive. The value of this stake soared by hundreds of millions of dollars, even more than a billion dollars, in a single day. Therefore, investors are probably better off tracking EBIT than net income for 2022.

Add in a 2.3% dividend yield, and there’s good reason Ford will be the best EV stock to buy and keep for decades.

This advanced composites company has strong long-term growth prospects

Lee Samaha (Hexcel): Tasked with suggesting a “buy and hold forever” action, I figured I’d take the less beaten path and suggest advanced composites company Hexcel.

The company specializes in advanced carbon fiber composites that offer a weight and strength advantage over aluminum. About half of its sales are currently destined for the commercial aerospace market, a third for space and defense and 17% for general industrial markets, including automotive and wind energy.

The key to its growth prospects lies in commercial aviation, and it is one of the best stocks to buy to play an aviation recovery. With composites, Boeing and Airbus can reduce aircraft weight, make them more economical to operate and therefore reduce waste. In addition, composites add strength. So there is a general trend towards newer aircraft using more composites and thus generating more revenue for Hexcel in the process, especially on widebody aircraft where weight is more of an issue. I expect this trend to continue in the future and for Hexcel’s sales to recover over several years as aircraft production ramps up.

As for “value,” let’s go back to Hexcel’s earnings before the pandemic began. In the three years to 2019, Hexcel generated an average free cash flow (FCF) of $225 million. If the aerospace industry takes another few years to return to 2019 levels (Boeing and Airbus are ramping up production), then you can expect at least $225 million for FCF for Hexcel, which puts it at 21 times the market capitalization current in 2024. .

This is excellent value for money for a company with such strong growth prospects. As aircraft manufacturers produce more aircraft with greater quantities of advanced composites, I expect Hexcel to grow its revenue for many years to come.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end advice service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.