Investing in great companies is a long-term pursuit.
Just like we all work hard in our jobs in the hope and expectation of better pay and conditions in the future, we all invest in companies that we believe will be better in 2, 5, 10, or 20 years' time.
Down and Out!
With this in mind, investors should consider companies that are a little unloved by the market but have the potential to deliver huge dividends and growth in the future. These companies are often found dwelling near their 12-month lows and analysts will be a little unsure as to whether they can relive their former glory.
Forgotten Stars
There are two blue-chip companies that used to be must haves for long term and income-focussed investors that have fallen out of favour in the last 12 to 18 months.
The first is Coca-Cola Amatil Ltd (ASX: CCL). Coca-Cola has disappointed investors by struggling to combat competition from Pepsi and private-label brands in Australia. This led to the CEO standing down and the appointment of Alison Watkins to the post. She is planning on refocussing the company to return it to growth but it could be a long road based on recent commentary.
Coca Cola is currently trading at around $9.40, well below its 12-month high of $13.40, and is expected to slash the dividend payout this year. If Ms. Watkins can turn the company around to the same level of profitability in 2013, Coca Cola could pay a dividend of 60 cents per share for a yield of nearly 6.4%.
My Favourite
The company with the most turnaround potential in my eyes is perennial disappointment QBE Insurance Group Ltd (ASX: QBE). QBE has been a terrible investment in recent years as it repeatedly failed to achieve forecast profitability and unveiled a swathe of problems in its US business.
The stock is up nearly 8% this month as investors have started to believe that good news will be coming soon, but the share price is still 50% below its 12-month high of $17.53. If QBE can return profitability to levels last seen in 2008, 2009, 2010, or 2011, it will have the ability to return over 120 cents per share to investors. That would correspond to a yield of up to 11% based on the current price!
