With house prices being close to record levels when compared to average incomes, the capital growth potential of buy-to-let investments may be somewhat limited.
By contrast, the FTSE 100 appears to offer significant long-term growth prospects. A number of its members trade on fair valuations, and are expected to post improving financial performances as they deliver on their strategies.
Here are two prime examples of such companies. Buying them now could be a worthwhile move, since they may outperform buy-to-let investments in the coming years.
The recent third-quarter update from AstraZeneca (LSE: AZN) highlighted the rapid pace of growth that the FTSE 100 pharmaceutical company is experiencing. Its core earnings increased by 36% in the quarter compared to the same period of the prior year. This highlights the success of its strategy, with the company’s pipeline suggesting that a rapid rate of growth may be maintained over the long run.
As a result of its improving financial performance, the stock now trades on a price-to-earnings (P/E) ratio of around 27. While this may seem to be high, the stock is forecast to post a rise in its bottom line of 20% next year. This could justify its current valuation – especially since its balance sheet and cash flow provide the financial firepower it needs to maintain a high level of investment in its pipeline.
AstraZeneca’s defensive characteristics may appeal to investors in 2020. The company’s financial performance is less dependent on the wider economy than is the case for many of its FTSE 100 peers. As such, now could be the right time to buy a slice of it, with its current growth strategy set to lead to an improving share price performance.
Another FTSE 100 share that has a solid growth strategy is Burberry (LSE: BRBY). The premium fashion business has changed its senior management team in the last few years, and is embarking on major strategy shifts that seem to be working well.
For example, it is working to move even more upmarket, is cutting costs, has launched a wide range of new products under its new creative head that are proving popular with consumers, and is seeking to boost its sales through the use of social media and influencers. Its focus on its highest-end luxury products also involves store closures and store upgrades, all of it potentially leading to improving financial performance.
Although Burberry’s share price now trades on a P/E ratio of 24, it is forecast to produce a 10% rise in net profit next year. Beyond this, its exposure to fast-growing consumer markets across Asia could strengthen its investment appeal. Therefore, while there may be cheaper stocks available in the FTSE 100, the company’s financial prospects and its economic moat that is derived from a high degree of brand loyalty could lead to significant capital growth in the coming years.
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Peter Stephens owns shares of AstraZeneca. The Motley Fool UK has recommended AstraZeneca and 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.