I think some of the most interesting FTSE 100 stocks represent companies with the smallest market capitalisations in the index.
Some of those smaller businesses score well against quality indicators and often look and feel more dynamic. As well as dividend income, I reckon many of them are capable of delivering capital growth via a rising share price. I’d aim to buy these stocks when their valuations make sense for a long-term investment and then hold them for at least 10 years.
Over a decade, the underlying businesses will have time to grow. And I could see a decent return. However, as with all shares, positive returns are not certain. And it’s possible for me to lose money even when investing over such a long period.
A FTSE 100 stock positioned for growth
Nevertheless, I like the look of Weir (LSE: WEIR), the engineering business serving mining, infrastructure and oil & gas customers in more than 50 countries. In early March, chief executive Jon Stanton said the business was “resilient” in 2020. And the company has transformed itself recently into a “premium” mining technology provider. He reckons Weir is positioned to benefit from powerful long-term structural growth themes in the industry “for many years to come”.
Stanton says underlying trading conditions are favourable. And he’s “confident” the business will outperform its markets over the next three years and deliver sustainable long-term profitable growth. But such an outcome is not guaranteed, of course. And one potential negative is that the mining industry is notoriously cyclical. If a general downturn arrives, Weir’s business could suffer and investment returns could decline for the company’s shareholders.
Meanwhile, with the share price near 1,744p, the forward-looking earnings multiple is around 20 for 2022. And the anticipated dividend yield is close to 1.8%. That isn’t a cheap valuation. So, although I’m keen on the business, I’d put Weir on watch for the time being and aim to pick up a few shares at a better buying point.
Serving today’s digital world
I’m also keen on security software company Avast (LSE: AVST). At the beginning of March, the company reported “another strong year of top-line organic growth, high levels of profitability and cash flow generation”.
Cybersecurity products were in high demand during 2020. And chief executive Ondrej Vlcek explained that more people and businesses turned to technology “to keep their lives and their work enabled“.
Looking ahead, Vicek is “confident” Avast can “unlock” new opportunities for growth with its commitment to ongoing product and technological innovation. Meanwhile, City analysts expect earnings to grow by around 65% in 2021 and 7% in 2022.
With the share price near 479p, the forward-looking price-to-earnings rating is just below 17 for 2022. And the anticipated dividend yield is around 2.6%. I reckon that’s a full-looking valuation. And it could end up looking even higher if the company misses its earnings expectations. If that happens, we could see the share price fall. Meanwhile, the business has a record of volatile earnings and shareholder dividends have only been around since 2018.
Nevertheless, I’d aim to pick up the stock on dips, down-days and general stock market corrections with the aim of holding for the long term
