Here at the Fool UK, we’re big fans of buying stocks for the long term (and certainly for more than one year). That said, of course it is possible to do really rather well in the market over a short period if a) you pick the right shares and b) have the sense to hold them in a Stocks and Shares ISA, thereby allowing you to avoid paying capital gains or income tax.
With this in mind, here are the top three gainers from the FTSE 100 that you wished you’d bought 12 months ago.
On the podium
London Stock Exchange (LSE: LSE) has been the third biggest gainer since this time last year, rising 67%. Contrast this with the index that has climbed ‘only’ 7.4% in value.
Much of this outperformance can be attributed to the company becoming a takeover target. Back in October, however, Hong Kong’s stock exchange withdrew its £32bn bid after the LSE stated that this fell “substantially short” of what it considered to be an appropriate valuation. Since then, the latter has gone on to report a 12% rise in sales (to £587m) over Q3 and completed the £22bn acquisition of data firm Refinitiv that its suitor was opposed to.
As a result of the positive momentum witnessed over the last year, LSE’s shares are now changing hands for 35 times earnings, reducing to 30 based on analyst projections for FY20. That seems rather a lot to me, so I wouldn’t be a buyer at the current time.
Another winner has been engineering, design and information management software provider Aveva (LSE: AVV). Had you bought the stock this time last year and done nothing at all, you’d now be sitting on a gain of 85%.
One reason for this has been a rise in the proportion of overall revenue that is now reoccurring (from existing clients). Recent results from the company showed this had soared 42.1% over the six months to the end of September.
Like LSE, the only problem is that Aveva’s shares now look prohibitively expensive on 42 times earnings. Should the company achieve the 12% growth expected by analysts in the next financial year, this valuation reduces to 37 times earnings based on the current share price. That’s still high for any stock but particularly so for one whose margins and returns on capital have both significantly fallen in recent years.
By far the best early Christmas present you could have bought yourself last year, however, was retailer JD Sports (LSE: JD). Twelve months later, its share price has more than doubled. Aside from being a superb result for holders considering the carnage in the sector, this is also evidence that you don’t necessarily need to buy into risky small-cap stocks to make good money in the market.
September’s half-year results showed just how well the company is negotiating the pressure on the sector with revenue jumping by 47% to £2.72bn and pre-tax profit 6.6% higher at just under £130m. On top of this, JD commented that its international development continues at pace with a raft of stores opening in Europe, Asia and the US.
Again, the one question prospective buyers must ask is whether — at 24 times earnings for the current year — all the good news (and some expectation of bumper sales over Christmas) is already priced in to this classy business.
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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.