Returns from FTSE 100 and FTSE 250 shares have largely disappointed over the last decade. Since 2015, these two UK share indexes have delivered an average annual return of 8% and 5.3%, respectively.
That’s not terrible. But it’s some way below the S&P‘s corresponding return of 14%.
But there’s a chance returns on British large- and mid-cap stocks could improve. Money continues to move out of US shares as worries over high valuations and ‘American exceptionalism’ advance. UK shares are well placed to capitalise given their current excellent value.
Here are seven dirt-cheap FTSE 100 and FTSE 250 shares I think could deliver stunning capital gains as investors pile in. The forward price-to-earnings (P/E) ratio for each sits comfortably below the Footsie average of 12.4 times.
Seven top stocks
The first two stocks to consider are HSBC and Standard Chartered (LSE:STAN), major heavyweights on the global banking scene. More specifically, they have significant growth potential thanks to their focus on fast-growing emerging markets. That’s even though US trade tariffs and their impact on world trade could take the shine off their performances.
I also like GSK, a world-class drugs manufacturer whose improving product pipeline underpins long-term earnings visibility. Miner Rio Tinto also looks cheap to me. It’s worth mentioning that operational issues — like poor drugs testing results and production outages — are ever-present threats facing these businesses.
Looking outside the Footsie, housebuilder Vistry faces near-term interest rate risks. But I’m confident it will deliver robust long-term returns as demand for new homes balloons.
Broadcaster ITV has significant opportunities to capitalise on the streaming boom. And Greencoat UK Wind stands to benefit from soaring renewable energy investment. However, there are possible near-term problems in volatile advertising budgets and rising project costs.
A FTSE 100 star
Standard Chartered’s one I’m currently considering adding to my own portfolio. Unlike HSBC, which sources the lion’s share of profits from Asia, this FTSE bank’s geographical footprint also includes large parts of Africa. This provides added opportunities and diversification benefits.
StanChart stands to benefit as surging wealth and population levels in these core markets boom. In particular, it’s enjoying stunning growth in its investment banking and wealth management arms, which helps reduce (if not eliminate) interest rate risks.
These divisions drove the bank’s underlying pre-tax profit 34% higher in quarter two.
Today, Standard Chartered’s shares trade on a forward P/E ratio of 9.6 times. They also trade on a sub-1 price-to-earnings (PEG) ratio, underlining the bank’s excellent value credentials.
A £560k portfolio
The long-term average return on global stock markets sits at 8%-10%. I’m hopeful that the mini shares portfolio I’ve described here could deliver a return over the coming decade of around 9%, at the midpoint of that range and better than the last 10 years.
Based on the typical Brit’s monthly investment amount of £500, that sort of return could create a portfolio worth £560,561 after 25 years. While profits are never guaranteed, I believe this diversified set of shares could deliver significant returns.
