Over the past two decades, the FTSE 100 index has averaged gains of around 6.3% a year, including dividends.
That’s what chartered financial analyst Edward Sheldon discovered recently after carrying out research and writing about it on The Motley Fool. Sheldon reckons those average annual gains delivered an overall return of 241% over the 20-year period.
A Footsie index tracker fund would have beaten cash in the bank. But Sheldon’s unimpressed. He suggests at least diversifying over other indices, such as America’s S&P 500. But he also thinks it may be a good idea to pick individual company shares from the FTSE 100 with the aim of beating the index.
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This one looks cheap
That got me thinking. What would I pick right now? Well, I’d research and consider insurance company Beazley (LSE: BEZ). The business is a potential value investment because its cheap on the numbers.
For example, with the share price near 790p, the forward-looking price-to-earnings (P/E) ratio is just over seven for 2025. That compares to a rating of about 13.5 for the FTSE 100 as a whole.
But the stock comes with plenty of risk. Earnings can be cyclical in the industry and insurance companies never know when they’re going to be hit by a tsunami of claims because of some disaster.
The share price chart reveals some of the volatility.
One thing makes me a bit nervous about the shares — City analysts predict flat-lining earnings this year and next. Perhaps the business is near the top of an earnings cycle. After all, earnings progression has been robust for several years now.
Nevertheless, August’s first-half results report’s impressive and has a positive outlook statement. With the goal of beating the performance of the FTSE 100 index, I’d definitely consider this one.
Is growth about to reboot for this business?
However, I’d also run the calculator over global omnichannel sports fashion brands retailer JD Sports Fashion (LSE: JD). To me, this business scores well as a quality and growth proposition.
For example, the dividend’s notched up a compound annual growth rate of just over 92% over the past few years. I reckon a company’s dividend performance can speak volumes about the strength of an underlying business.
That said, with the share price near 130p, the forward-looking dividend yield’s only about 0.8% for next year. So income’s unlikely to provide the greatest gains available on the market today.
But when companies pay modest dividends, it can often be because their directors see plenty of opportunity to reinvest cash flow for further growth. Indeed, City analysts predict an uplift in earnings of just over 15% for next year.
One of the risks though, is that retailing is a cyclical sector. So any half-decent downturn in the economy could torpedo earnings and the share price causing shareholders to lose money. The stock’s suffered much volatility over recent years, as if to prove the point!
Nevertheless, I’m bullish about the forward-looking prospects for retailers and this company has good form as a fast-growing enterprise. So I’d consider it now.
