2014 has been a mixed year for investors in Woodside Petroleum Limited (ASX: WPL) and Toll Holdings Limited (ASX: TOL), with shares in the two companies differing markedly in their performance. While Woodside Petroleum is up 10% since the turn of the year, Toll Holdings has only recently bounced back from a decline of over 10% to be up 1% year-to-date.
Despite their differing performance in 2014, both stocks could be worth holding on to for the long run. Here's why.
Strong results
Both companies recently reported upbeat results. For instance, profit at Woodside Petroleum increased by 27% year-on-year for the first half of the current year, while Toll Holdings also delivered strong results. Its underlying profit increased by 5.7% year-on-year and should benefit further from a cost savings programme that is expected to save the company around $50 million in the current year.
Great potential
Furthermore, both companies are expected to post impressive results moving forward, too. For example, Woodside Petroleum is forecast to grow its bottom line at an annualised rate of 18.9% over the next two years, while Toll Holdings' EPS is expected to grow by 4.3% per annum over the same time period.
Although lower than Woodside Petroleum's forecast growth rate, the rate of earnings growth pencilled in for Toll Holdings is significantly higher than it has been for the company over the last 10 years, where it has grown by 2.8% per annum. This could prove to be a catalyst to push the share price higher. The same can be said for Woodside Petroleum, with its 10-year average earnings growth rate being 10.2% versus the 18.9% that is forecast over the next two years.
Looking ahead
As well as growing profits in their most recent periods and being forecast to do so over the next couple of years, Woodside Petroleum and Toll Holdings both trade at very reasonable valuations. Indeed, they both offer good value for money when compared to the ASX, with Woodside Petroleum having a P/E ratio of 14.7 and Toll Holdings trading on a P/E of 14.2. With the ASX having a P/E of 15.9, there could be upside potential from a possible upward rerating.
However, share price growth could also result from the two companies' income appeal. At the moment, they offer fully franked yields of 5.4% (Woodside Petroleum) and 4.9% (Toll Holdings). With Aussie interest rates low and likely to remain low for a good while yet, increased demand for solid yields could stimulate the share prices of Woodside Petroleum and Toll Holdings. As a result, they could be worth holding on to for the long term.
