2 top FTSE 100 stocks I’d buy for 2018

These two FTSE 100 (INDEXFTSE: UKX) stocks rival small-caps for growth.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It is widely believed that to make the most money investing, you have to own small-cap stocks. While there is some truth in this, you can still make a very good return investing in the UK’s leading blue-chip index, the FTSE 100

Blue-chip profits 

The great thing about investing in FTSE 100 stocks is that, unlike small-caps, the chance of you losing your hard-earned cash is significantly reduced. Some investors believe that the trade-off for this security is lower returns, but this is not true for the market’s top growth champions.

Compass Group (LSE: CPG) is a great example. Over the past 10 years, shares in Compass have produced a total return of 18.9% per annum including dividends. Over the past five years alone, the company’s expansion has been enough to turn £10,000 into £30,000. 

But what does the future hold for the group? Well, the catering business is a reasonably defensive industry, although it has razor-thin margins. This is where Compass excels. The company’s size allows it to achieve economies of scale in markets where others struggle. It operates in around 50 countries, employs over 550,000 people and serves over 5.5bn meals a year.

By reinvesting its profits back into operations, the group has been able to grow revenue at a rate of 6% per annum for the past five years, and as margins have improved with scale, net profit has expanded by 14% per annum over the same period. 

City analysts are expecting more of the same for 2018. Earnings per share growth of 5% for the year off the back of revenue growth of 4.7%. And due to the size of the firm, I don’t believe growth will slow any time soon as it continues to succeed where others fail. 

A running elephant 

Whitbread (LSE: WTB) is another running elephant. Owner of the Costa Coffee, Premier Inn, and Beefeater brands, Whitbread is one of the UK’s largest and most prominent businesses. Despite its size, the firm has grown earnings per share by 88% over the past five years. If it hits City targets for growth for the next two years, by 2019, earnings per share will be up 100% in seven years. 

Like Compass, Whitbread’s size has enabled it to achieve wide profit margins through economies of scale. Reinvesting this cash into the business has helped the firm compound book value (shareholder equity) by just over 14% per annum for the past five years. 

Nevertheless, despite this impressive growth, shares in the business currently trade at a relatively undemanding forward P/E of 15.6, falling to 14.6 for the year after. As well as this, the shares also support a dividend yield of 2.5%. 

City analysts also believe that Whitbread is massively undervalued based on a sum-of-the-parts basis. By breaking itself up, analysts speculate, the shares could be worth as much as £52.20, 31% above the current level of £40.00 — that’s a tremendous potential upside for one of the UK’s largest companies. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Compass Group. 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.

More on Investing Articles

Black woman using loudspeaker to be heard
Investing Articles

I was right about the Barclays share price! Here’s what I think happens next

Jon Smith explains why he still feels the Barclays share price is undervalued and flags up why updates on its…

Read more »

Investing Articles

Where I’d start investing £8,000 in April 2024

Writer Ben McPoland highlights two areas of the stock market that he would target if he were to start investing…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Ahead of the ISA deadline, here are 3 FTSE 100 stocks I’d consider

Jon Smith notes down some FTSE 100 stocks in sectors ranging from property to retail that he thinks could offer…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »