Finding stocks capable of beating the FTSE 100 has never been easy. One challenge facing investors seeking to do so is that share prices are often reflective of the growth potential which they offer. Therefore, if a stock has high growth potential, its shares may fail to offer investment appeal due to a narrow margin of safety. Likewise, stocks with uncertain or downbeat futures may offer wide margins of safety, but lack the catalysts to deliver high investment returns.
Despite this, there are a number of shares which have the potential to beat the wider index. Here are two prime examples which could be worth a closer look.
Reporting on Wednesday was specialist media platform, Future (LSE: FUTR). Its shares gained around 10% after it announced that it expects profit for the year to 30 September 2017 to be ahead of previous expectations. Trading for the year was positive, with the group delivering strong cash conversion which allowed year-end leverage to be less than one times adjusted EBITDA (earnings before interest, tax, depreciation and amortisation).
The company’s Media division performed well, with strong revenue growth – especially in eCommerce and events. Its Magazine division benefitted from the added scale and operational efficiencies of the Imagine Publishing, Team Rock and Home Interest acquisitions. They have improved the diversity of the company and, with integrations going to plan, the outlook for the business remains upbeat.
Future is forecast to post a rise in its bottom line of 31% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.5, which suggests it could offer upside potential. Although the prospects for the FTSE 100 may be bright due to a weaker pound, Future could outperform the index in the long run.
Also offering index-beating potential is Burberry (LSE: BRBY). The company has made significant changes to its business model and management team, with a focus on improving efficiencies and becoming better organised. This could help to catalyse the company’s growth outlook, while demand for Burberry’s products also remains high. This is particularly the case in the emerging world, where the business has a strong foothold.
With the stock forecast to deliver a rise in its bottom line of 12% in the next financial year, it could see investor sentiment improve. Its PEG ratio of 1.7 may not be the cheapest in the index, but considering the high degree of customer loyalty and brand strength which it has, it appears to be a very fair price to pay.
With dividends expected to rise by 9% next year, Burberry could also become a more attractive income stock. It may yield only 2.3% at the present time, but with dividends covered twice by profit there could be high growth in shareholder payouts over the long run.
Peter Stephens owns shares in Burberry. The Motley Fool UK has recommended Burberry. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.