When looking at the meagre share price returns of the FTSE 100, it may be tempting to ignore the index altogether. Why bother with it in an ISA when all the really sexy returns are being generated in New York?
However, overlooking the Footsie in favour of higher potential returns elsewhere can be a mistake. For proof, consider these three blue-chip shares. Five grand invested in each of them just two years ago would now be worth around £55,000 in total!
Rolls
The star of the show has been Rolls-Royce (LSE: RR). Since the start of 2023, shares of the iconic engine maker have soared 520% higher!
That was when CEO Tufan Erginbilgiç took the helm. Since then, international travel has bounced back and there’s been a significant rise in defence spending. Rolls’ profit margins and balance sheet have improved massively.
Looking ahead, the company forecasts underlying operating profit of £2.5bn-£2.8bn by 2027, up from an expected £2.1bn-£2.3bn last year.
However, the stock now trades at 27 times this year’s forecast earnings, which isn’t cheap. It suggests to me that much of the anticipated growth is priced in.
Therefore, if earnings come in light — because of ongoing supply chain issues, for example — then the stock could fall sharply.
M&S
Perhaps surprisingly, the next stock is Marks and Spencer Group (LSE: MKS). Shares of the posh supermarket are up by a whopping 178% since January 2023.
I don’t follow M&S too closely, but clearly I should, since it returned to the FTSE 100 in mid-2023. The reinvigorated company has achieved market share gains across clothing and food categories for four consecutive years.
On 23 December, it recorded its biggest ever day of food trading, while its online joint venture with Ocado is now delivering a record number of orders per week.
However, one risk worth noting here is the recent rise in the National Insurance and minimum wage announced in the UK Budget. To preserve profits, M&S may be forced to pass these higher costs on to customers. This might prevent it taking more market share in the ultra-competitive supermarket industry.
IHG
Finally, shares of InterContinental Hotels Group (LSE: IHG) have been on fire, surging 111% in the past two years to sit just off an all-time high.
Like Rolls, IHG has enjoyed a strong recovery in travel since the pandemic. It owns a diverse range of brands, including Crowne Plaza, Holiday Inn, and InterContinental (luxury).
In Q2, global revenue per available room (RevPAR) grew 3.2%, then ticked up another 1.5% in Q3. Impressively, the latter was achieved despite a 10.5% drop in RevPAR in Greater China. This highlights the strength and quality of the firm’s diverse global portfolio.
After its two-year doubling, the stock is trading at 24 times this year’s forecast earnings. That valuation doesn’t leave much room for error if, say, weakness in China spreads to the Americas and Europe.
Foolish takeaway
Admittedly, there was an element of cherry-picking here. Yet all three shares are well-known blue-chips, not obscure names.
Moreover, 3i Group stock (up 172%) actually did better than IHG, as did International Consolidated Airlines Group (up 148%).
So this proves that there are likely plenty of wealth-building UK stocks about, just waiting to be found.
