Over the last five years, shares in Standard Life (LSE: SL) have risen by a hugely impressive 131%, which is a much stronger performance than the FTSE 100’s gain of 21% in the same time period. And, looking ahead, more outperformance is set to come, since Standard Life has a higher growth rate than the wider index, and yet trades at only a slight premium to the FTSE 100.
For example, next year Standard Life is forecast to grow its bottom line by 20%, while the FTSE 100’s growth rate is due to be in the mid to…
Over the last five years, shares in Standard Life (LSE: SL) have risen by a hugely impressive 131%, which is a much stronger performance than the FTSE 100‘s gain of 21% in the same time period. And, looking ahead, more outperformance is set to come, since Standard Life has a higher growth rate than the wider index, and yet trades at only a slight premium to the FTSE 100.
For example, next year Standard Life is forecast to grow its bottom line by 20%, while the FTSE 100’s growth rate is due to be in the mid to high single-digits. Despite this, Standard Life’s price to earnings (P/E) ratio of 17.1 is only slightly higher than the FTSE 100’s P/E ratio of 16. As such, its shares look all set to continue beating the index.
Also offering greater growth potential than the FTSE 100 is Diageo (LSE: DGE) (NYSE: DEO.US). It is expected to increase its bottom line by 9% next year and, although this is only slightly ahead of the wider index, Diageo has a much more defensive business model than most of its peers in the FTSE 100. As such, it has greater earnings visibility and, with a beta of just 0.9, is likely to be less volatile than most of its index peers.
Furthermore, Diageo has an excellent track record of earnings growth, with the company’s bottom line rising in four of the last five years. As such, a turbulent FTSE 100 could lead many investors to seek out perceived safer stocks, which could enable Diageo to beat the FTSE 100.
Over the course of the last year, Burberry (LSE: BRBY) has easily outperformed the FTSE 100, being up 24% versus just 4% for the wider index. A key reason for this is upgrades to the company’s outlook, with earnings growth of 10% and 11% now being pencilled in for the next two years. This shows that Burberry is taking the right decisions regarding pricing and leveraging its brand so as to appeal to customers at a higher price point, which is a challenging strategy to successfully deliver on.
Furthermore, Burberry has an extremely strong balance sheet and resilient cash flow, which means that even when interest rates start to rise it is unlikely to see its margins squeezed significantly. As such, its long term outlook remains upbeat, while consistently high return on equity (it was 27.5% last year) provides evidence that shareholder returns are very appealing.
Over the last year, RSA (LSE: RSA) has underperformed the FTSE 100 by a not inconsiderable 12%. That’s because the insurer continues to undergo a major transition that is seeing it improve efficiencies and rationalise its business following a challenging period that included two years of losses and an accounting scandal.
And, while profitability is set to return this year, RSA is expected to increase its bottom line by a rather lowly 4% next year. That’s behind the FTSE 100’s growth rate but, with RSA trading on a P/E ratio of just 13.8 (versus 16 for the FTSE 100), there is considerable scope for an upward rerating over the medium term, with the catalyst being improved financial performance as the company re-emerges under a new management team.
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Peter Stephens owns shares of RSA Insurance Group and Standard Life. The Motley Fool UK has recommended Burberry. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.