Two monster growth and income stocks I’d buy for the next decade

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2018 has been a tough year for mining stocks but FTSE 100 listed Anglo American(LSE: AAL) is trading 16% higher than one year ago, and up a whopping 178% over three years.

Copper bottomed

It slumped 2.95% this morning after publishing its Q3 production report to 30 September, despite a 1% year-on-year rise in total copper equivalent production, excluding the Minas-Rio stoppage in Brazil, where operations were suspended in March due to leaks.

CEO Mark Cutifani nonetheless hailed the group’s focus on driving efficiency and productivity to deliver “another strong quarter”, with production per employee up 5% due to “relentless discipline on controllable costs”.

Metal masters

Anglo American is a well-diversified £22.7bn behemoth producing platinum, palladium, iron ore, diamonds, metallurgical coal and thermal coal, as well as copper. Cutifani said full-year production guidance remains at 34m-36m carats but should be at the higher end of that range.

I am a little edgy about recommending mining stocks at the moment due to the trade war and fears of a global slowdown, both of which could hit demand. Yet this does look a tempting entry point, with Anglo American trading at just 9.2 times earnings, which gives it capacity for growth despite the share price rally of recent years. Alan Oscroft reckons it is a good long-term buy and its forecast yield of 4.6%, covered 2.4 times, adds to the case.

Cleaning up

Household goods giant Reckitt Benckiser Group(LSE: RB) is one of those companies you expect to perform well through thick and thin, because it supplies a plethora of products that global consumers use every single day. Air Wick, Clearasil, Durex, Finish, Harpic, Scholl and Strepsils (I would mention Cillit Bang too, but I’m still reeling from seeing one of its deliberately tacky adverts on daytime TV yesterday).

Reckitt Benckiser’s takeover of Mead Johnson has turned out to be a mixed bag, hitting profit margins, while negative currency movements, a cybersecurity breach, and a failed new footwear range inflicted further damage. Given these setbacks, investors were relieved to see it abandon its £15bn takeover of Pfizer’s consumer lines. One future threat to consider is the mooted healthcare products tie-up between Amazon, Berkshire Hathaway and JP Morgan.

Bang for your buck

Share price performance looks respectable when compared to the FTSE 100 as a whole. Reckitt is up 45% over five years against just 3.3% for the index. Over 12 months it is up just 1.5% but that compares to a drop of 7% for the index, which suggests it still retains its defensive qualities.

Recent earnings per share growth has been impressive with three years of successive double-digit gains (12%, 11%, 10%), although this is expected to slow to 2% this year before climbing to 8% in 2019. I am seeing this pattern a lot right now.

Entry point

Reckitt is never cheap by conventional metrics, but this makes today’s forward valuation of 20.9 times earnings look a potential entry point. Its yield always looks low and currently you get a forecast 2.5%, with cover of 1.9. This could be one to buy in the next dip. As ever, the question isn’t should you put Reckitt Benckiser in your portfolio, but why isn’t it there already?

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harveyj has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.