Tired of the FTSE 100’s low returns? Consider these large-caps that’ve doubled in just two years

The FTSE 100 (INDEXFTSE: UKX) may be famous for its income focus, but these constituents show it also harbours growth stars.

| 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.

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.

With the FTSE 100 returning a miserable 12.5% over the past five years, growth investors would be forgiven for ignoring the large-cap index entirely in favour of riskier mid- or small-cap stocks. However, within this mediocre-at-best performance, a few large-cap stocks have more than doubled in just the last few years.

A sea change in opinion

One is online grocer Ocado (LSE: OCDO), whose share price has risen 130% in the past five years… and over 200% in just the past 12 months. The key to this rapid share price run-up is the long-term potential from the proprietary systems the group has developed to run highly-automated grocery delivery logistics facilities.

Understandably, investors are more enamoured with this part of the business that involves patent-protected technology, the potential for high profitability, and ability to sell anywhere in the world than the cost-sensitive, low-margin online grocery delivery business that it’s still best known for in the UK.

That said, the future for Ocado from here is unlikely to be all sunshine and butterflies. The company’s market cap has rocketed to £6.1bn, while analysts are expecting losses for each of the next two years as management builds out the delivery warehouses for international partners. As operations are still loss-making, this means investors could be tapped for funds once again, as they have been twice over the past year.

Also, with its valuation built almost entirely on its long-term potential, there could be significant share price volatility over the next few years if any international contracts are cancelled, delayed, or end up being too expensive.

Ocado is in a better position than it has been in years as long-promised international agreements are being signed, one after the other. But with a sky-high valuation, recent share sales by insiders, and little information on the particulars of its distribution agreements, I’m happy to sit on the sideline for the time being.

A Middle East money spinner 

An even more impressive performer than Ocado has been Middle East healthcare firm NMC Health (LSE: NMC), whose share price has risen nearly ten-fold in just the past five years. That’s thanks to soaring demand for its healthcare facilities across the Emirates and Saudi Arabia, plus a series of acquisitions that have added to its clinic numbers and expanded its offerings into everything from IVF treatment to home nursing.

In the half year to June, the group’s revenue rose 20.2% to $932m, while higher occupancy rates at its hospitals and acquisition synergies boosted EBITDA by 32.1% to $225.5m. A recently-announced joint venture to bulk up the group’s offerings in Saudi Arabia should also provide significant growth potential over the medium term as healthcare spending in the Kingdom is relatively low compared to Western nations. But it’s rising fast as incomes increase and rates of chronic disease rise.

Looking forward, the group still has considerable potential to grow by increasing occupancy rates at its facilities, branching out into extra services, and expanding into neighbouring countries. While net debt of $1,152m at period-end is worryingly high, and its valuation of 32 times forward earnings is lofty, investors looking for a cash-generative business with long-term tailwinds at its back, plus plenty of expansion opportunities, may find NMC Health an interesting growth option to back for the long-term.

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.

Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has recommended NMC Health. 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

Investing Articles

Empty Stocks and Shares ISA? I’d snap up these 3 stocks to start with!

Sumayya Mansoor explains how she would start to build wealth from scratch with an empty Stocks and Shares ISA and…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

7.7% yield and going cheap! Why is this unknown FTSE 250 stock flying?

It's no household name, but there's one FTSE 250 stock with a high dividend yield and booming profits that looks…

Read more »

Photo of a man going through financial problems
Investing Articles

I’d stop staring at the Nvidia share price and buy this FTSE 100 stock instead

This writer reckons there is a smarter way to invest in Nvidia today without taking on stock-specific risk. Here is…

Read more »

Young lady working from home office during coronavirus pandemic.
Top Stocks

5 stocks that Fools have been buying!

Our Foolish freelancers are putting their money where their mouths are and buying these stocks in recent weeks.

Read more »

Young Asian man drinking coffee at home and looking at his phone
Dividend Shares

These 3 FTSE 250 stocks offer me the highest dividend yields, but should I buy?

Jon Smith considers FTSE 250 shares with a very high yield, but questions whether the income is going to be…

Read more »

View of Tower Bridge in Autumn
Investing Articles

Is FTSE 100 takeover target DS Smith a great buy?

A mega-merger between FTSE 100 giants DS Smith and Mondi has the City abuzz. But is there any value in…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

The WPP share price dips as profits fall. Here’s why it could be a top dividend buy

I'm starting to think the WPP share price undervalues the stock, especially if the long-term dividend outlook comes good.

Read more »

Black father and two young daughters dancing at home
Investing Articles

A £3K investment buys me 632 shares in 2 stocks for a second income!

This Fool explains how a second income is possible through dividend-paying stocks and details two picks that could help her.

Read more »