Can Vodafone Group plc (LON: VOD), GKN plc (LON: GKN), Weir Group PLC (LON: WEIR), ITV plc (LON: ITV) and Kingfisher (LON: KGF) deliver market-beating total returns?
To me, capital growth and dividend income are equally important. Together, they provide the total return from any share investment and, as you might expect, my aim is to invest in companies that can beat the total return delivered by the wider market.
To put that aim into perspective, the FTSE 100 has provided investors with a total return of around 3% per annum since January 2008.
Quality and value
If my investments are to outperform, I need to back companies that score well on several quality indicators and buy at prices that offer decent value.
So this series aims to identify appealing FTSE 100 investment opportunities and during recent weeks I've looked at Vodafone Group (LSE: VOD), GKN (LSE: GKN), Weir Group (LSE: WEIR), ITV (LSE: ITV) and Kingfisher (LSE: KGF). This is how they scored on my total-return-potential indicators (each score in the table is out of a maximum of 5):
|Price to earnings||4||4||3||2||4|
|Total (out of 25)||18||18||18||21||20|
ITV wins on the scoring, but each share has its attractions:
In a mixed recent trading update, Vodafone said that trading in Europe is still difficult despite growth in other markets. The firm has activities in over 30 countries and provides a wide range of services including voice, messaging, data and fixed broadband. More than 60% of Vodafone's customers are from emerging markets, and 15% of service revenue comes from data transmission, which has been growing at a 22% rate. Investors waiting for growth to add to total returns might be comforted by the, roughly, 6.5% dividend yield currently offered by Vodafone shares. That looks tempting.
Engineering company GKN's products, like drive shafts and axle joints, are responsible for making most of the cars around the world move. The firm supplies vehicle manufactures around the world and, last year, around 46% of revenue came from the company's Driveline division, 24% from Aerospace, 14% from Powder Metallurgy, 14% from Land Systems and 2% from other sources. Europe is the most important region producing around 47% of revenue, followed by the Americas at 37% and 16% from the rest of the world. Although growing in the longer run, GKN's business responds to economic cycles and recently the directors have mentioned softening demand in some areas. The company is on my watch list.
Pump and flow-control equipment manufacturer Weir describes itself as a global engineering solutions provider focused on the minerals, oil and gas, and power markets. Business has been growing strongly around the world. Last year, around 54% of revenue came from the firm's Minerals division, 33% from Oil & Gas and 13% from Power and Industrial. The valuation looks full to me so, given that the outlook appears to have weakened recently, I'm keeping Weir on my watch list for the time being.
Commercial television and media
Three year ago, commercial television network provider ITV took decisive action to stem declines in viewer numbers and advertising revenues by launching its five-year transformation programme, which involves a focus on cost cutting and targeting investment in its creative offering. The firm aims to deliver higher quality programming to win back market share. In addition, the company has embraced the digital media revolution and is working on ways to participate, thus reducing its traditional dependence on free-to-view content. As a result, viewer numbers, revenue and profits, have increased recently and the firm is winning advertising market share in an otherwise flat advertising market. The firm is performing well and the shares have had a good run. I've put ITV on my watch list.
Home improvement retailing
Home improvement retailer Kingfisher is known for its B&Q and Screwfix brands in the UK, and is Europe's largest home-improvement player, operating over 1000 stores through eight countries in Europe and Asia. With the enticing prospect of economic recovery in Europe, and potential growth in Asia, I think that, given the current valuation, the shares are attractive. However, it's not going to be easy for Kingfisher to grow; the firm's nine-store Irish operation has recently been placed in examinership (similar to the process of administration in the UK) after a period of persistent losses, and attempts to penetrate the market in China have been unprofitable so far.
I've yet to take the plunge with these shares but I'm thinking of investing in some of them soon. If we want to achieve superior investment returns as investors, it makes sense that we should seek out superior investment opportunities. Keeping a keen focus on a company's ability to deliver a superior total return is one way of doing that. Indeed, step four in the Motley Fool's report "Ten Steps To Making A Million In The Market" asserts that 'shares beat funds' and I think that is good advice, particularly if you are targeting superior total returns. In fact, I recommend the report for any ambitious investor. Click here to download it while it is still free and you can find out the other nine steps recommended that could transform your wealth.
> Kevin does not own shares in any of the companies mentioned in the article. The Motley Fool has recommended shares in Vodafone.