Starting a portfolio from scratch can be daunting. Many new investors will be drawn towards big names on the FTSE 100 that they’ve heard of.
However, for those of us looking to beat the market and limit losses, the best way to invest is with a data-driven approach.
This often means cutting out all the noise and focusing on valuation metrics and the earnings forecasts. With that in mind, let’s take a closer look at some stocks.
My favourites
| P/E Year 1 | P/E Year 2 | P/E Year 3 | Div/cash adjusted PEG | Average share price target | |
| Hikma (LSE:HIK) | 12 | 10 | 9 | 0.8 | +35% |
| Jet2 | 6.7 | 6.2 | 5.7 | 0.2 | +41 |
| London Stock Exchange Group | 22 | 20 | 18 | 2.2 | +39% |
| Melrose | 16 | 13 | 10 | 1 | +5% |
Ok, so Jet2 isn’t part of the FTSE 100. It’s an AIM-listed stock, but I believe it’s an exceptional opportunity that complements the above.
Interestingly, there’s a good amount of diversification in those stocks too.
So, why have I chosen these stocks? Well, the obvious link is the price-to-earnings-to-growth (PEG) ratio when adjusted for cash/debt and dividends.
Traditionally, stocks with a PEG ratio under one were considered undervalued, but the truth is it depends on the industry.
Hikma and Jet2 are both relatively low margin stocks, but clearly appear to be trading below fair value.
Melrose is a surging aerospace business. Management have pointed towards earnings per share (EPS) growth in excess of 20% in the coming years. It still trades at a vast discount to Rolls-Royce.
And then there’s the London Stock Exchange Group. It is expensive relative to the others, but has strong margins, strong growth, and a technological moat.
Why Hikma is worth considering
Let’s focus on Hikma, as it’s not a stock I write about all that often.
It’s caught my eye because of the valuation above all, but it’s also a quality company that’s perhaps overlooked at the bottom end of the FTSE 100.
Hikma Pharmaceuticals is forecast to deliver steady top-line growth, with sales projected to rise from $3.32bn in 2025 to $3.71bn by 2027.
Earnings per share are expected to climb from $1.96 to $2.57 over the same period, reflecting continued momentum across its injectables, generics, and branded segments.
On the operational side, there are a few things to consider.
Currency fluctuations haven’t worked in the companies favour recently.
Tariffs have also been an issue. Hikma is investing $1bn in expanding its US manufacturing capabilities — about 70% of its US sales are already produced domestically.
However, the generics industry isn’t typically cyclical. Yes, costs can fluctuate and there’s often a rush to roll out new generics when patents end, but demand is pretty steady here.
It’s also worth remembering that there’s a host of GLP1s patents — weight-loss drugs — that will expire in the coming years.
That’s a huge opportunity for Hikma and its peers, purely on a volume basis. For example, approximately 2.9% of adults in Great Britain used GLP-1s for weight loss.
So, I certainly believe it’s a stock worth considering.
