Today, the best flexible Cash ISA on the market offers savers an interest rate of just 1.36%. By comparison, over the past decade, the FTSE 100 has produced an average annual return for investors in the region of 7%.
One of the index’s top performers during this time is the London Stock Exchange Group (LSE: LSE). Over the last 10 years, this stock has produced an average annual return for investors of 26.3%, turning every £10,000 into £103,000.
An investor who was savvy enough to put £100,000 into the stock 10 years ago would have an investment worth more than £1m.
Global leader
I think this trend can continue because the LSE is one of the world’s most important financial institutions. As well as operating the London Stock Exchange, the group also owns one of the largest clearing houses in the world, which provides the essential plumbing for the stock markets.
And the group has also recently agreed on the purchase of data and analytics company Refinitiv. When this deal is complete, the LSE will become a significant distributor of market data, on top of everything else, making it one of the most influential businesses in the financial markets.
I believe this competitive edge justifies the stock’s premium valuation. It’s currently dealing as a forward P/E of 36.
The LSE’s earnings growth also justifies a high multiple, in my opinion. Earnings per share have grown at a compound annual rate of 20% for the past six years, and City analysts are forecasting growth of around 20% per annum for 2019 and 2020.
If the financial services provider continues to post high double-digit earnings growth, I think there’s a good chance this stock could help you make a million over the long term, just as it has done for investors since 2009.
Data is king
Credit rating agency Experian (LSE: EXPN) has also produced outstanding returns for shareholders over the past 10 years. The stock has outperformed the market by around 10% per annum since 2009, enough to turn an initial investment of £100,000 into nearly £1m, with additional contributions of £1,000 a month.
I think the stock’s performance could actually accelerate over the next two years. Over the past six years, Experian’s earnings per share have grown at a compound annual rate of around 0.9%. However, in 2020 and 2021, City analysts are forecasting an acceleration in earnings growth to 23% and 11% respectively, as the company consolidates its position in the global financial data services market.
If all else remains equal, this earnings growth could push the stock higher by nearly 40% over the next two years, implying an investment in Experian will almost certainly outperform a similar investment in a Cash ISA during this period.
And I think it’s highly likely the stock will continue to produce market-beating returns for investors for decades to come because Experian has an unrivalled insight into consumers’ financial behaviour. You just can’t build up this kind of data overnight. It takes decades to accumulate the sort of information available to third parties, and that’s Experian’s edge.
As long as the company doesn’t make any serious mistakes, it’s likely to continue to remain a data leader.
