Could Sirius Minerals plc make you an ISA millionaire in 20 years?
Making a million from an ISA is becoming easier thanks to higher allowances which are now in place. However, this still doesn't solve the question of which stocks to buy. At a time when the wider stock market is volatile, it is easy to adopt a short-term focus. But in doing so, it may mean that investors miss out on long-term growth opportunities which could help their ISA to reach seven-figure status.
One company which could help investors to achieve that goal is Sirius Minerals(LSE: SXX). It released a quarterly progress update on Thursday. Although its shares have been volatile, they could generate high returns in the long run.
In many ways, the update from the company was a case of 'so far, so good'. The construction of its ambitious production facility in North Yorkshire is moving ahead as planned, with there being no cost or time overruns at the present time. There has also been progress in terms of finding the right contractors. In fact, on this front the company has been able to make pragmatic changes in recent months which may lead to the delivery of first production up to six months earlier than previously anticipated.
The development of further customer relationships remains a key goal for the business. It anticipates there will be progress in this regard over the medium term. It is also continuing to make progress with agronomy trials, while it expects developments to be made on its mineral transport system following the progress on early works and mine shafts.
Since Sirius Minerals is not due to commence production for around two or three years, the prospect of a significantly higher share price during this time may be somewhat limited. However, the potential for the business to generate high levels of capital growth once production commences seems to be significant.
One reason for this is the company's net present value of $15.4bn. This assumes production of 20m tonnes per year of its POLY4 fertiliser, which at the present time seems to be an achievable goal. Since the stock has a market cap of £1.4bn (around $2bn at current exchange rates), there seems to be a wide margin of safety. Therefore, over the long run there could be scope for significant share price growth if the company is able to continue to deliver on its strategy.
Also offering growth potential over the long run is Sirius Minerals' sector peer Croda(LSE: CRDA). The company has a solid track record of earnings growth, with its bottom line increasing in four of the last five years. During this time its net profit increased at an annualised rate of 8%. Looking ahead, it is expected to grow at a similar pace over the next couple of years. This could make it relatively appealing to investors at a time when uncertainty is starting to build across the index.
While Croda has a relatively high price-to-earnings (P/E) ratio of 23.8, its consistency could mean it is worthy of a premium rating compared to many of its sector and index peers. And with dividends being covered 2.2 times by profit, its 2% dividend yield could become much more enticing over the coming years. As such, now could be the right time to buy it for the long run.
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Peter Stephens owns shares of Sirius Minerals. 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.