I noticed last week that the share price of one venerable FTSE 100 company reached a new all-time high.
And I wondered what other firms had similar characteristics and impressive records.
I scoured the index for stocks that had made record highs within the last six months. Then narrowed them down to those that were listed on the London Stock Exchange before the turn of the century.
I was left with seven ‘superstocks’. Which companies made the list? And what do they tell us about long-term investing?
Intercontinental Hotels Group
FTSE sector: Travel and Leisure
Share price performance: +19% (5yr); +115% (10yr); +281% (20yr)
This company emerged from Bass plc as a focused hotels business after a series of asset sales, demergers and name changes. It’s gone from strength to strength (reflected in last week’s new all-time high share price). Today, it owns 18 hotel brands, and over 6,000 hotels worldwide.
AstraZeneca
FTSE sector: Pharmaceuticals and Biotechnology
Share price performance: +86% (5yr); +245% (10yr); +325% (20yr)
Zeneca was demerged from British chemicals giant ICI in 1993. It merged with Swedish drugs firm Astra in 1999 to form AstraZeneca. The group’s mega $39bn acquisition of Alexion Pharmaceuticals in 2021 catapulted it to the top of the FTSE 100 as London’s biggest listed company by market capitalisation.
Compass Group
FTSE sector: Consumer Services
Share price performance: +18% (5yr); +112% (10yr); +395% (20yr)
Founded as Factory Canteens Limited, the business has been through mergers, demergers, and one of the biggest management buyouts in history, on its way to becoming the world’s largest contract caterer.
BAE Systems
FTSE sector: Aerospace and Defence
Share price performance: +63% (5yr); +133% (10yr); +491% (20yr)
This defence giant is a major contractor to the British and other western governments. Russia’s invasion of Ukraine has had seismic repercussions for the defence industry.
Relx
FTSE sector: Media
Share price performance: +50% (5yr); +219% (10yr); +337% (20yr)
Reed Elsevier was formed by a merger of British trade book and magazine publisher Reed International and Dutch scientific publisher Elsevier in 1993. The company was re-branded ‘RELX’ in 2015, as it continued to transform itself from a primarily print-based publisher into a digital, information-based analytics giant.
3i Group
FTSE sector: Investment Banking and Brokerage Services
Share price performance: +107% (5yr); +398% (10yr); +383% (20yr)
3i was originally formed by the Bank of England to provide long-term investment funding (‘patient capital’) for small and medium-sized enterprises. It’s grown to be a leading international investment manager focused on private equity and infrastructure.
Rentokil Initial
FTSE sector: Industrial Support Services
Share price performance: +81% (5yr); +493% (10yr); +217% (20yr)
Rentokil shareholders suffered an awful first decade of the century in the wake of a major acquisition that turned ‘the royal rat catchers’ into a sprawling conglomerate. It took considerable time for the company to refocus on its core competencies and grow into the world’s leading supplier of pest control and hygiene services.
Diversity
To put the share price performances of these superstocks into perspective, the readout for the FTSE 100 index for the periods is: -0.5% (5yr); +0.3% (10yr); +78% (20yr).
The first thing that strikes me about the superstocks is that they come from a diverse range of industries. It’s not a case of a rising tide floating all boats in one or two sectors.
I think the lesson here is that long-term investors who diversify across a range of sectors have a chance of alighting on a number of elite performers.
Acquisitions
Another thing that strikes me about the superstocks is the extent to which mergers, demergers, asset sales and acquisitions, have been a major part of the story in addition to organic growth.
However, as in the case of Rentokil, making acquisitions isn’t a one-way ticket to success. It can take many years for a company to recover from an ill-judged major acquisition.
Patience
Even the most successful companies will suffer spells of weak share price performance within multi-decade periods. This can be for a number of reasons, including strategic or operational setbacks, or major adverse external events, such as the great financial crisis and recession of 2008/9 and the recent pandemic.
The lesson here is that for long-term investors, patience is an essential quality. Long term really does have to mean long term.
Looking ahead
Finally, it’s fair to say that the stocks I’ve discussed may, or may not, be among the superstocks of the future.
Either way though, I hope I’ve shown you that there can be considerable rewards (and some challenges and pitfalls) when investing in fundamentally sound businesses for the long term.
