If you are investing for the long-term, I would always favour stocks and shares over a Cash ISA (which pays next to no interest) and gold (which pays none at all). The following two FTSE 100 companies have been racing ahead of the index, and merit your attention, I feel.
InterContinental Hotels Group
InterContinental Hotels Group (LSE: IHG) is a FTSE 100 top performer, up 123% in the past five years. It has absolutely crushed the index, which rose just 13% over the same period.
However, the hotel trade is plugged into the global economy, and can suffer in a slowdown, when personal and business travel demand slumps. The stock is down around 3% today after a Q3 trading update shows a 0.8% drop in the all-important revenue per available room (RevPAR) figure, due to “tougher trading conditions in the US and China, and ongoing unrest in the Hong Kong”.
However, CEO Keith Barr said the group still managed to deliver “a 4.7% increase in net system size despite a strong comparable”, and he expects this to accelerate in the coming quarter, with industry-leading growth over the medium term.
InterContinental Hotels has changed its business model, away from the capital-intensive job of actually owning hotels, franchising them out instead, which should boost profitability and cash conversion, benefiting shareholders.
Today the group said it has received the first franchise applications for its “upper midscale brand” Atwell Suites, and strengthened its loyalty offer through an exclusive partnership with luxury and boutique travel club Mr & Mrs Smith. This end of the market could offer recession-proofing.
My one concern is that even after today’s drop, the £8.3bn group looks a little expensive trading at 19.6 times forward earnings, while the 2.1% forward yield underwhelms, although it does have cover of 2.5. It has posted four consecutive years of double-digit earnings growth, but this may slow slightly with analysts predicting 5% this year and 8% next. It still looks a lot more solid than most stocks on the index right now, though.
You don’t find many companies much sturdier than data specialists Experian (LSE: EXPN) these days. Its share price is up a thumping 156% measured over five years, and 33% over the last 12 months, destroying the index.
The £21.6bn group’s data helps global businesses gauge lending risk and fight fraud, and it has a strong presence in 40 countries including the UK, US, Brazil, India, Australia and Colombia. Some 80% of its revenues come from business-to-business customers.
It continues to expand globally and win hundreds of thousands of new customers, while Q1 figures showed 7% total revenue growth at constant exchange rates, 4% at actual rates.
The big hurdle when approaching this success story is whether you can stand the current valuation, currently a whopping 30 times forecast earnings, and a PEG of 4.7. As is often the case, you have to pay for success.
The yield is well below the FTSE 100 average of 4.7%, at just 2.1%, although cover of 2.5 gives scope for progression. Operating margins of 24.1% impress, as does a stonking return on capital employed of 766%. Forecast earnings growth looks steady too. Experian looks reassuringly expensive.
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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Experian and InterContinental Hotels Group. 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.