3 Stocks Set To Beat The FTSE 100: Vodafone Group plc, Prudential plc And Direct Line Insurance Group PLC


Vodafone’s (LSE: VOD) (NASDAQ: VOD.US) strategy of buying undervalued European assets such as Kabel Deutschland and Spain’s Ono, could finally be starting to pay off. Certainly, it has meant relatively weak earnings growth and investor sentiment for a sustained period, but with the Eurozone likely to see a major improvement from the effect of QE, Vodafone’s bottom line is set to benefit from a boost moving forward.

In fact, Vodafone is forecast to increase its earnings by 19% in financial year 2017, which would be a major improvement on the profit declines that have become all too common in recent years. And, with Vodafone also set to benefit from an increased diversity of income through the provision of other services such as pay-tv and broadband, its earnings could become more stable over the medium to long term, too.


Although there is a relatively large choice when it comes to high quality insurance companies on the FTSE 350, Prudential (LSE: PRU) remains a stock with significant long-term profit potential. That’s at least partly because it offers excellent growth prospects, with its bottom line forecast to rise by 14% in the current year, and by a further 12% next year.

That’s ahead of the wider market’s growth rate and, despite this, Prudential trades at a rather enticing discount to the FTSE 100. This means that its shares could benefit from an upward rerating over the medium to long term. In fact, Prudential has a price to earnings (P/E) ratio of 14.7 versus around 16 for the FTSE 100, which is a difficult discount to justify given Prudential’s track record of profit growth, diversity and sound growth strategy.

Of course, there could be some instability in the short run as Prudential adapts to a new management team, but for long term investors it looks like a sound buy compared to the FTSE 100 at the present time. And, while today’s first quarter update showed relative weakness in the US and UK markets, Asia continues to be a strong growth area for the company and this highlights how Prudential’s diversity provides stability, as well as upbeat growth prospects, over the long term.

Direct Line

Although Direct Line (LSE: DLG) has reported lower gross premiums in today’s first quarter results, the insurer remains on-track to meet its full-year expectations. As such, shares in the company have risen by 1%, meaning they are now up by 27% over the last year.

And, with Direct Line’s combined operating ratio set to be between 94% and 96% this year, the company appears to be making sound progress, while cost cutting is moving in the right direction. In fact, Direct Line has managed to reduce costs to £220m from around £245m in the same quarter of the previous year.

Despite its strong share price performance, Direct Line still offers excellent value for money. For example, it trades on a P/E ratio of 11.9 and this indicates that its shares could continue to be rerated upwards and it looks set to beat the FTSE 100 over the medium to long term.

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Peter Stephens has no position in any shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.