As all long term investors know, things don't always go exactly to plan when it comes to buying and holding shares. After all, there a number of known unknowns and, from time to time, the performance of all companies can be somewhat disappointing in the short run. For example, commodity prices may fall, the economy may endure a downturn, or the company's bottom line may be hit by a less than optimum strategy.
However, what separates long term investors from short term traders is the fact that the former see short term challenges as an opportunity to buy rather than to panic and sell. This can prove to be crucial for the long term performance of a portfolio, since buying low and selling high is rarely an option without challenges.
So, with that in mind, here are three stocks that may not have endured the most prosperous of times in recent months or years, but which appear to be worth buying for the long term.
Woodside Petroleum Limited
With the price of oil falling by over 50% during the course of the last year, Woodside Petroleum Limited (ASX: WPL) is expected to see a fall in its bottom line of 25.2% in each of the next two years. While disappointing, Woodside is turning disaster into opportunity and is improving its position relative to peers through multiple acquisitions which highlight its financial strength.
Furthermore, low production costs and liquefied natural gas (LNG) price rises have aided the company's performance, with it expected to have dividend coverage of 1.25 in the current year and a forecast yield of 5.3% in financial year 2015. And, while Woodside's price to book (P/B) ratio of 1.51 is higher than the energy sector's P/B of 0.63, Woodside's finances and potential appear to make it a price worth paying.
Woolworths Limited
The challenges faced by the Aussie economy are clearly not great news for Woolworths Limited (ASX: WOW), with the retailer seeing its share price fall by 8% since the turn of the year as investor sentiment has declined. However, with interest rates moving lower, consumer confidence is likely to improve in the months ahead, which would be welcome after a tough third quarter in which the company reported a 1.6% decline in total sales.
Despite this, Woolworths has turnaround potential, with a key reason for the decline in its top line being disappointing fuel sales following a change to its relationship with Caltex. As such, its bottom line is expected to fall by only 1.6% per annum during the next two years and, with a track record of growth (as evidenced by annualised earnings growth of 11.2% in the last ten years), Woolworths' price to earnings (P/E) ratio of 14.9 looks like a steal while the ASX has a P/E ratio of 16.7.
QBE Insurance Group Ltd
Having attempted to grow through acquisition, QBE Insurance Group Ltd (ASX: QBE) is now in the process of rationalising its business and is selling off non-core assets such as its North American operations. While it is not yet through its plan, QBE's results are improving and it is expected to see its bottom line increase by 59% from financial year 2014 to financial year 2016.
Furthermore, QBE still trades at a sizeable discount to its sector, with it having a P/B ratio of 1.38 versus 1.98 for the insurance sector. That's despite QBE's share price soaring by 16% in the last year and, looking ahead, its total return could be impressive given that it is expected to yield 4.5% next year.
