Today I’m looking at three FTSE 100 (INDEXFTSE: UKX) that look expensive on paper, but which I believe offer terrific investment opportunities.
Beverages beauty
Drinks giant Diageo (LSE: DGE) has long carried earnings multiples that soar above the big-cap average.
This is no different for both this year and next. Indeed, for the period to June 2016 Diageo boasts a P/E rating of 21.3 times, sailing outside the FTSE 100 average of 15 times. And the reading remains elevated at 19.3 times for fiscal 2017.
Still, investors are quite happy to pay a premium for the stock, reflecting the unrivalled pulling power of Diageo’s beverage labels like Captain Morgan rum and Smirnoff vodka.
The evergreen appeal of these drinks enable the London firm to raise prices irrespective of wider pressures on drinkers’ wallets, a critical quality for growth seekers.
And Diageo is building its brand power with massive organic investment, not to mention boosting its global exposure by buying up other hot brands — indeed, the firm bought out Tequila Don Julio just last year.
I reckon the drinks darling’s delicious long-term growth prospects more than offset its heady near-term valuations.
Power play
Likewise, I reckon Reckitt Benckiser’s (LSE: RB) brilliant earnings outlook more than offsets high earnings multiples in the more immediate term.
Not only does Reckitt Benckiser also carry formidable brand strength through labels like Vanish stain remover and Strepsils lozenges, but the company’s products can be found across the home, giving its earnings prospects that little extra security via diversification.
On top of this, Reckitt Benckiser is also doubling-down on emerging markets to give its long-term outlook an extra shot in the arm. And this comes as little surprise — the manufacturer saw like-for-like sales in developing regions leap 10% during January-March.
So in my opinion Reckitt Benckiser remains a splendid stock bet despite elevated P/E ratings of 24.4 times for 2016, and 22.3 times for next year.
In rude health
At first glance Smith & Nephew (LSE: SN) may also cost an arm and a leg. However, I believe exploding healthcare investment across the globe makes the joints play a brilliant selection for long-term investors.
Despite the impact of current sales turbulence in Asia, Smith & Nephew’s dominance in North America continues to deliver the goods, and the company saw total underlying revenues rise 4% during January-March.
As well as reaping the fruits of massive investment in fast-growing therapeutic areas (high demand for its shoulder repair products helped Q1 sales surge 11% at its Sports Medicine Joint Repair division), Smith & Nephew is also busy on the M&A to front to deliver further growth.
Indeed, the purchase of robotics-assisted orthopaedic surgery specialist Blue Belt Technologies is a huge statement in what’s an exciting future growth market.
So although Smith & Nephew deals on hefty P/E ratios of 19.7 times and 17.8 times for 2016 and 2017, respectively, I reckon this still represents a great level to dial into the firm’s long-term outlook.
