FTSE 100 stocks tend to be steady, rather than spectacular. But there are a few outstanding growth names that investors should know about. One in particular looks really attractive to me right now as the stock’s been falling. So I’ve finally added it to my portfolio.
Investing strategy
My investing strategy is to focus on buying shares in high-quality companies. The advantage of this is that it should work relatively well in any situation.
The best businesses are able to do at least one of two things: charge higher prices and incur lower costs. Companies in this position have a huge advantage in just about any situation. And that’s why I think they make for great investments.
Pricing power and lower costs are beneficial when things are going well, but they can also make businesses more resilient in difficult situations. That’s why I think finding the right companies is more important than predicting the future. And the FTSE 100’s a great place to look.
Finding a dynamic, growing business trading at an attractive price isn’t easy. But I think it’s possible right now.
Contract catering
Compass Group‘s (LSE:CPG) a contract caterer that’s bigger than its next two competitors combined. And it has a simple business model.
The firm’s size gives it a cost advantage that it uses to offer customers low prices. That increases its scale further and the cycle continues. That scale is extremely difficult to replicate. And this makes it very hard to see how this type of business can be disrupted by competitors.
Compass also looks to grow through acquisitions. This can be risky, but the ability to reduce costs goes some way to offsetting this.The contract catering market is extremely fragmented and that means there’s a lot of scope for the firm to keep making acquisitions.
Compass isn’t a complicated business, but a durable competitive advantage and strong growth prospects are an attractive combination.
Threats and opportunities
Despite what I see as some clear strengths, the stock’s been falling. And there are a couple of reasons for this. One is that organic sales growth has slowed to 7%. But that’s still impressive and the firm anticipates this stabilising.
Another is that there are potential threats on the horizon. One of these is artificial intelligence (AI) replacing workers. If AI agents take over from humans, demand for catering services in offices might fall. And that’s something to keep an eye on.
It’s important to note though, that there are also opportunities. A tough macroeconomic environment encourages organisations to bring down costs. One way of doing this is by outsourcing services. And Compass is able to offer better savings than its competitors for firms looking to do this.
Hard to resist
I set a Buy price of $28 (the share price is quoted in dollars) for Compass Group. And the stock finally reached that level this week.
It was incredibly tempting to just buy it when it got close. But I’m delighted to have got the price I really wanted.
The stock could absolutely fall further from these levels. My view though, is that it’s cheap enough to be worth me buying at my target price..
