If you’re fortunate enough to have a long-term investment horizon and you’re patient enough to ‘set and forget’ an allocation of your portfolio, I may have just the stocks for you.
There are two ASX200 stocks in particular that I would buy if I had a long-term horizon, due to their relatively stable sources of revenue and their long-term growth prospects. These are listed below.
InvoCare Limited (ASX: IVC)
InvoCare is the largest funeral provider and private cemetery/crematorium operator in Australia, operating over 270 funeral locations and 16 cemeteries and crematoriums across Australia, New Zealand and Singapore.
It is often said that only two things in life are certain; death and taxes. While we almost always think of death as a dark and harrowing reality of life; the certainty of people dying every year gives InvoCare a consistent and reliable revenue stream. Moreover, as the proportion of elderly people in the Australian population continually rises due to the ageing of the baby boomer generation, the death rate will rise in a similar fashion. This means more demand for funeral services, for lots in cemeteries and for crematorium services.
While the funeral market underperformed in FY18, which has negatively affected the share price of InvoCare this year, the long-term picture is strong irrespective of these short-term fluctuations. InvoCare also has a lot of market power, owning over 40 brands in the Industry and having around 30% market share, a share which is continually growing. What also attracts me to InvoCare, is that the company has been de-leveraging consistently over the last 10 years, while consistently improving operating margins and bottom-line returns year on year. InvoCare is currently trading at a price-to-earnings multiple of 17.9.
Estia Health Ltd (ASX: EHE)
Estia Health is one of Australia’s leading providers of residential aged care services, operating 68 aged care homes across the country. The clear fact here is that the demand for aged care, clinical healthcare, and respite care – like the demand for funeral services – will rise as the population ages.
Estia Health reported EBITDA (earnings before interest, tax, depreciation and amortisation) of $90.1 million in FY18, up 4.1% on FY17. The company successfully opened 2 new homes last year and has started construction on 3 new homes, while 2 new homes are in the advanced stages of planning. In addition to this, 19 homes have been recently refurbished and the refurbishment of 13 more homes is underway. By continually growing and improving its network, Estia Health will increase the quality of its offering and could increase its occupancy rates.
Estia Health has also been significantly reducing its debt in recent years, currently holding net bank debt of $64 million with a gearing ratio of 0.7x EBITDA. The company also offers a healthy fully franked dividend yield of more than 10% and is trading at a modest price-to-earnings ratio of 13.4.
I believe that both InvoCare and Estia Health have strong long-term prospects as a result of their reliable income streams and Australia’s rapidly ageing population. I would put them up there with Primary Health Care Limited (ASX: PRY) and Healthscope Ltd (ASX: HSO) as great ‘buy and hold’ investments for investors focusing on long-term value.
Discover why this legendary Australian stock-picker just issued a “Double Down” buy alert to his exclusive group of insiders… and why he’s convinced this might be the single most attractive entry point for years to come.
Motley Fool contributor Gregory Burke has no position in any of the stocks mentioned. The Motley Fool Australia has recommended InvoCare Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.