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2 FTSE 100 stocks with strong growth prospects

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Chart showing an upwards trend, possibly in the FTSE 100
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FTSE 100 stocks can be great for high dividend yields and sometimes even cheap share prices. The mature businesses, which have grown to become the largest listed firms, often (but not always) generate large amounts of cash and return this to shareholders. This can be profitable, if a little unexciting, and their share prices tend on the whole to be more steady compared to smaller companies.

Yet within the FTSE 100, there are stocks with strong growth prospects. Two in particular I like are Ashtead (LSE: AHT) and Entain (LSE: ENT).

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FTSE 100 company making its money in the US

Ashtead is a construction equipment hire business, making most of its money in the US. Therefore, it can be expected to benefit in the coming years from the infrastructure spending unleashed by Joe Biden. The US Senate recently struck an agreement for a $1.2trn (£860bn) infrastructure bill. That will require a lot of machinery, which Ashtead’s Sunbelt business can provide.

Historically, growth has been very strong and management has been very good at boosting returns on capital employed. These are great signs. Return on equity is about 22. Revenue went from £2.55bn in 2016 to £5bn in 2021. It’s forecast to rise to £5.73bn by 2022.

I feel it’s always prudent as an investor to consider what the downside could be. So what could go wrong and make the share price fall? One issue would be any surprise hit to the US economy. Equipment rental is capital-intensive and can be cyclical, so the industry goes through boom and bust times. Ashtead needs the economy to be doing pretty well to prosper. Another would be a rise in interest rates, as the group carries £4.2bn of net debt.

Stateside opportunity

Entain is another business looking over the pond for its success. The liberalisation of gambling legislation in the US has given new impetus to UK-listed shares and made them acquisition targets. Caesars bought William Hill for £2.9bn, for instance.

In the US, Entain operates BetMGM, a joint-venture with MGM Resorts. The partnership was created to “capitalise on the opportunities presented by the regulation of sports betting and gaming”. And it has done well. According to recent results, it’s the number two operator of sports betting and iGaming across the US with a 21% market share.  

In the first half of 2021, growth at Entain was strong. It stated that total group net gaming revenue grew 11% in H1 and 42% in Q2.

When considering the downside, the big one is any stalling or reversal around gambling licences and rules in the US. Also, Entain has made massive acquisitions in the past and as a result, still has a substantial retail gambling business. That makes it a lower-margin business than online-only competitors.

I think that overall, despite the risks, Ashtead and Entain are both FTSE 100 stocks with very significant growth potential. I’ll consider adding both to my portfolio when I have enough cash and if the share prices dip.

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Andy Ross owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.

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