Two of the very best-performing shares on the FTSE 100 over the last 20 years rocketed again in last week’s stock market rally. Frankly, I’m surprised. Not because they’re bad investments, but the reverse.
I would have expected unloved FTSE 100 stocks to lead last week’s charge, as investors took advantage of their lowly valuations. Instead, they piled into multichannel branded sports and leisurewear retailer JD Sports Fashion (LSE:JD) and global betting, gaming, and entertainment provider Flutter Entertainment (LSE: FLTR).
Winners win again
They were the second and third-best performers on the index over the last five days, up 10.11% and 10.09% respectively. That’s four times the average FTSE 100 return of 2.56%. Only Chile-focused copper miner Antofagasta did better, rising almost 12%. I highlighted its success on Friday.
A few weeks ago, I asked AJ Bell to supply figures showing the top-performing FTSE 100 stocks of the last 20 years. Equipment rental firm Ashtead Group was the big winner with a stunning total return of 45,532%. JD Sports was the second best returning 12,739%, while Flutter returned 5,350%.
JD would have turned a £5,000 investment into £636,950 in that time, while Flutter transformed the same sum into £267,500. Over the last year, Flutter is the FTSE 100’s number one performer, up 110.05%, while JD grew a respectable 22.84%.
As an investor, I’m wary of buying winners, scared they’ll suddenly turn into losers and I’ll have overpaid. Instead, I’ve been loading up on dirt cheap FTSE 100 dividend shares, drawn by their low valuations and high yields.
One of those was housebuilder Persimmon, which rose 9.49% last week, I’m happy to say, but my other value buys posted far more modest returns.
Coincidentally, I wrote about both JD Sports and Flutter Entertainment a few days before the FTSE 100 rocketed on Wednesday as investors celebrated US inflation falling to just 3% in June.
I was wrong to be wary
I was surprised to discover that JD still traded at just 10.3 times earnings, despite its incredible growth. Its international ambitions and £1.47bn net cash pile also impressed me, but I fretted over how rapidly winners can become losers in the volatile fashion market. My conclusion? JD had more in its locker. I was right about that.
I was impressed by how fast Flutter was growing in the US, with Q1 results showing a 92% jump in US gaming revenues to £908m. Yet I was worried it may take an outsize hit from upcoming UK gambling reforms.
I was wary of Flutter’s £4.19bn debt pile and walloping valuation of 84.13 times earnings, but added that if it continues to fly “I might be kicking myself”. I am now.
In both cases I said I would wait for a dip before buying. Yet I may not get the opportunity, especially if the stock market rally continues. Yet as a value investor I have been reminded of an important lesson. There are times when success breeds success. That’s certainly the case with JD Sports and Flutter Entertainment. Both shares have their risks, but as I saw last week, they also offer outsized rewards.
