With stock markets trending higher, it is arguably becoming more difficult for investors to decide where and how to invest their hard-earned cash. After all, there is a danger that share prices could lack potential upside while they trade at record highs. And since Brexit and the Trump presidency offer relatively high risks, it would be understandable for investors to decide against buying shares right now.
However, here are two stocks which could offer strong investment returns in the long run. They appear to offer relatively wide margins of safety and the potential for improving financial performance. If you have £1,000 to invest, they could be worth looking at.
An improving business
Reporting on Monday was the UK's largest specialist closed life fund consolidator, Phoenix Group(LSE: PHNX). It was able to meet its 2016 target regarding cash generation, with £486m generated during the year. This helped to boost its solvency II surplus to £1.9bn, compared to £1.3bn in the previous year. Its operating profit moved higher to £351m from 2015's £324m, which enabled an increase in dividends of 5% versus the prior year.
Phoenix Group's acquisitions of Abbey Life and AXA Wealth's pensions and protection businesses could provide improved earnings capacity in future years. To date, the AXA acquisition has generated £282m of cash. This is ahead of the £250m cash generation target that was due to be completed within six months of the acquisition. Meanwhile, the Abbey Life integration is progressing well. It is now expected to support a further 5% increase in the 2017 interim dividend.
With Phoenix Group yielding 6.3%, it continues to offer one of the most attractive income returns in the FTSE 350. Its business model appears to be sound and its acquisitions provide the prospect of improving cash generation in future years. As such, it seems to be a smart place to invest for the long run.
A growing business
Also offering potentially high total returns in the insurance industry is Prudential(LSE: PRU). Its business model is highly diversified and offers fund management, life insurance and a range of other financial products in a wide range of geographies. This provides the business with an economic moat in case one product line or region endures a challenging period. It also reduces Prudential's risk profile, which means it could deserve to trade at a premium compared to other, more focused sector peers.
With a price-to-earnings growth (PEG) ratio of 1.5, Prudential appears to offer excellent value for money given its sound business model. It also seems to have strong income prospects. In 2018, the company's dividends are due to be covered three times by profit. This indicates that they could move significantly higher, while also providing the company with sufficient capital to reinvest for future growth. As such, while Prudential has a dividend yield of just 2.6% at the present time, it could become a must-have income share.
While there are risks facing the progress of stock markets in the coming months, in the long run the FTSE 350 seems to be a sound place to invest. Accommodative monetary policies look set to stay and political risk may already be priced-in. As such, Prudential's beta of 1.8 could mean that it rises faster than the wider index in future years.
Despite this, there's another stock that could be an even better buy. In fact it's been named as A Top Growth Share From The Motley Fool.
The company in question is expected to deliver rapidly improving profitability in 2017 and beyond. Therefore, it could boost your returns and improve your portfolio's risk/reward ratio.
Click here to find out all about it - doing so is completely free and comes without any obligation.
Peter Stephens owns shares of Prudential. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.