I’d be looking for a few key things. First, diversification across different industries (more specifically, industries that are likely to be around for decades to come). Second, geographical diversification. And third, a culture and history of prudent, long-term management.

With these things in mind, the blue-chip stocks I’d buy are Associated British Foods (LSE: ABF), Hikma Pharmaceuticals (LSE: HIK) and Schroders (LSE: SDR). Let me tell you more about these businesses and my thinking.

Industry diversification

ABF’s revenues are split approximately 50/50 between consumer goods (grocery, ingredients, sugar and animal feeds) and consumer services (clothing retail, namely Primark). Healthcare firm Hikma’s revenue comes entirely from pharmaceuticals, but is diversified across three segments (injectables, generics and branded). Schroders is in the financial industry, and the majority of its revenue comes from asset management, but some from private banking and associated wealth management services.

Will there ever come a time when the world no longer needs food or clothes? I can’t see it, and I reckon ABF owns attractive businesses in these areas.

Meanwhile, it’s widely believed ageing populations in the western world and rising wealth in emerging markets will fuel demand for healthcare in the coming decades. I think Hikma’s pharmaceuticals businesses should benefit from this long-term tailwind.

Finally, Schroders, as an asset manager, is essentially a geared play on stock markets, which we know tend to rise over the long run. As such, provided the company is well managed, the stock should outperform a market like the FTSE 100 over a long holding period.

If I had to use my ISA allowance to buy these three companies, I’d put £10,000 in ABF and £5,000 in each of the other two. This would give me an equal 25% exposure to 4 of the 10 broad industry categories. Namely, consumer goods, consumer services, healthcare and financials.

Geographical diversification

As well as being happy with the business diversification, I’d also be happy with the geographical diversification. ABF, Hikma and Schroders all generate international revenues, and I calculate the aggregate exposure as: Europe, Middle East & Africa (37%), UK (27%), Americas (23%) and Asia-Pacific (13%).

Prudent long-term management

Management change at companies is inevitable over time, but I think the cultures and histories of Hikma, ABF and Schroders put them at an advantage in terms of maintaining continuity. They were founded in 1978, 1935 and 1804, respectively, and at all three companies, descendants of the founding families maintain a significant presence both on the shareholder register and in the boardroom.

At such companies, a strong balance sheet and prudent stewardship of the business ensure future security to the family, so longer-term planning takes priority over short-term results. I think this philosophy is well-aligned with the interests of an investor who is looking to buy a stock and never sell it.

Finally, I’m not too worried about near-term earnings multiples and dividend yields. All three stocks are currently trading at discounts to previous highs, and that’s good enough for me for a holding period of forever.

The post 3 FTSE 100 stocks I’d buy in an ISA and hold forever appeared first on The Motley Fool UK.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Associated British Foods and Hikma Pharmaceuticals. 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.

According to my calculations, the two are currently the bottom-ranked FTSE 100 companies. They’re poised to be pushed out of the blue-chip index by FTSE 250 firms Polymetal International and Hikma Pharmaceuticals, which both occupy automatic promotion slots.

Do I think now is a good time to buy shares in any of the four companies?

No spark at Marks

Marks & Spencer has been in the FTSE 100 ever since the index was established in 1984. It narrowly escaped demotion at the last quarterly review, but I think it would take a miracle for it to dodge the bullet this time around.

The sinking value of the company, and the humiliation of its demise from blue-chip bellwether to just another mid-cap retailer, is symbolic of the troubles on the UK high street, but also testament to M&S’s repeated failures to successfully adapt its business over the last two decades.

It may have a single-digit P/E and high dividend yield, but the bottom line is this is a structurally challenged company in a structurally challenged sector. Is it a stock I need to own? No, has been my answer for a long, long time. And I continue to see it as one to avoid.

Mad cap

Arguably, Centrica, which also trades on a low P/E and high yield, is a similarly challenged company. However, it’s a utility, not a retailer, and while it has some similarities with M&S in the consumer-facing part of its business, the main challenges it faces are rather different.

Regulatory headwinds, notably a price cap on certain tariffs imposed on energy companies earlier this year, have had a damaging impact on profitability in the sector, and even on the viability of some companies. History suggests heavy-handed regulatory price caps, which produce market distortions and unintended disincentives, get discarded sooner or later. And for this reason, I wouldn’t entirely write Centrica off.

For sure, it faces a host of challenges, but I think the business can survive and recover when the madness and pernicious consequences of price caps become apparent, and policy is changed. Personally, I wouldn’t buy the stock today, but if I owned it I’d be inclined to continue to hold.

Two I’d buy

I named gold miner Polymetal as my top share for 2019 at the start of the year. Despite the strong rise that’s taken it to the brink of entry into the FTSE 100, I still see value in the stock and rate it a ‘buy’. It has a low double-digit P/E and forecast high-teens earnings growth, as well as a decent 4% dividend yield.

Generic medicines firm Hikma is more highly rated, on a high-teens P/E and with a sub-2% dividend yield. The company has yo-yoed in and out of the FTSE 100, but I think the long-term outlook for the business is so promising that it’ll become a fixture in the top index in due course. As such, I also rate this one a ‘buy’.

The index changes announced by the FTSE on Wednesday will take effect from Monday 23 September.

The post Marks & Spencer and Centrica set for FTSE 100 exit. Time to buy? appeared first on The Motley Fool UK.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals. 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.

Looking ahead, BT may continue to recover. It has appointed a new CEO, is delivering on its cost-reduction strategy and still appears to have a low valuation. Here’s why it could continue to outperform the FTSE 100 alongside another stock that released a positive update on Thursday.

Improving prospects

The company in question is multinational pharmaceutical group Hikma (LSE: HIK). It released a trading update having delivered strong performance since the start of the financial year. It has raised its guidance for the full year, delivering revenue and profit growth which is ahead of its expectations. Both its Generics and Injectables businesses are performing well, while in the MENA region, its Branded business is continuing to grow steadily. It is continuing to benefit from new product launches, as well as a diversified product range.

Alongside its trading update, the company also released news of a partnership with Vectura. It will develop and commercialise the company’s Open, Inhale, Close (OIC) dry product inhaler platform. With the generic respiratory market being a key growth area for Hikma, this could lead to improving prospects over the long term.

While the stock has a price-to-earnings (P/E) ratio of around 23, it seems to offer growth potential due to its improving financial prospects. Having gained 105% in the last year, the stock could post further capital growth.

Recovery potential

As mentioned, the BT share price has enjoyed a very positive six-month period. Its recent update showed that it has started to implement an aggressive strategy change which has seen 2,000 roles made redundant already. Further job cuts are ahead and, while they are painful for those involved, they could create a stronger business over the medium term.

The company has also announced the appointment of a new CEO. Although there is a risk that he will seek to make major changes and this could cause instability, the progress that is seemingly being made as a new strategy is delivered may mean that the company is in a stronger position by the start of 2019.

Despite its 20% rise in the last six months, BT continues to have a price-to-earnings (P/E) ratio of 9. This indicates that it may still be trading at a discount to its intrinsic value, which could suggest there is more scope for growth. Although it may have been one of the FTSE 100’s more disappointing shares in previous years, a new strategy and new management team could catalyse the company’s future performance. While uncertainty remains, it has the potential to keep beating the FTSE 100.

The post The BT share price soars by 20%. Here’s why I think it could beat the FTSE 100 appeared first on The Motley Fool UK.

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Peter Stephens owns shares of Hikma Pharmaceuticals. The Motley Fool UK has recommended Hikma Pharmaceuticals. 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.

One year top performers

Over the last 12 months, the best performing stocks have been Fresnillo (+95%), Randgold Resources Limited (+66%), Paddy Power Betfair (+60%), Admiral Group (+46%) and Mediclinic International (+43%).

This is certainly a diverse selection of stocks and there’s every chance that investors who own a portfolio of ‘mainstream’ popular stocks might not own any of these stocks.

Fresnillo and Randgold Resources produce silver and gold, respectively, and their share prices have clearly been boosted by the market uncertainty over the last year. Indeed, on the back of the EU referendum result on Friday, Randgold spiked 28% higher, while Fresnillo jumped 12%.

Paddy Power Betfair has steamed ahead after the merger, while Admiral Group has enjoyed strong momentum after lifting its dividend by 16% for FY2015.

Mediclinic International has likely gone under the radar for many investors since joining the FTSE 100 in March. But with revenues forecast to power ahead over the next two years, it’s no surprise this stock is on the top performer’s list.

Three year stars

On a three year view, the best performing stocks on an annualised basis have been Hikma Pharmaceuticals (+37%pa) , DCC (+37%pa), Mediclinic International (+35%pa), London Stock Exchange Group (+30%pa) and Shire (+28%pa).

Once again, several of these stocks are not mainstream ones. Furthermore, many have been promoted into the FTSE 100 quite recently, which illustrates the importance of looking outside the FTSE 100 when looking for growth opportunities.

Headquartered in Jordan, Hikma joined the FTSE 100 for the first time last year, before being demoted from the index in March and then re-entering the index earlier this month. The company has an excellent record of generating strong shareholder returns and could certainly provide an alternative to the larger slow-burning healthcare stocks such as GlaxoSmithKline.

International sales, marketing, distribution and business support services group DCC has seen strong earnings growth in the last few years and the company’s promotion to the FTSE 100 in December last year has clearly generated extra interest in the stock.

London Stock Exchange Group jumped after acquisition interest from Deutsche Bourse earlier this year, although this merger may clearly face challenges after the recent Brexit vote.

Shire makes the ‘three year best performing’ list despite the company’s share price falling from over 5,700p in August last year to 4,100p today.

Five years champions

Lastly, over a five year period, the top performing stocks on an annualised basis are Ashtead Group (+47%pa), Barratt Developments (+34%pa), easyJet (+34%pa), Taylor Wimpey (+34%) and Persimmon (+33%pa).

There’s a clear theme here, with property development stocks taking three of the top five positions, even after all three companies were hit heavily on Friday after the EU referendum result.

International equipment rental group Ashtead claims the top spot after enjoying fantastic growth in earnings over the last five years, although it was starting from a low base after the Global Financial Crisis.

EasyJet joins makes the top five after seeing earnings rise dramatically in the last five years.  

The post Do you own the FTSE 100’s best performing stocks? appeared first on The Motley Fool UK.

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Edward Sheldon owns shares in GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Stop digging!

Shares in mining goliath Anglo American (LSE: AAL) have stabilised since the start of January thanks to a solid uptick in the iron ore price. Many investors are speculating that the bottom has finally been ploughed, while extra US dollar weakness and a cancellation of ‘short’ positions has also sent shares in Anglo American hurtling skywards during the past week.

I’m convinced this strength presents nothing more than a fresh selling opportunity, however. Sure, iron ore prices may have received a welcome uptick more recently. But with Chinese economic cooling still accelerating, and domestic steelmaking activity sinking as the construction sector struggles, I reckon Anglo American’s surge is likely to peter out.

The London business is aggressively downscaling its operations to mitigate a poor earnings outlook, from ramping up cost savings and capex reductions to slashing around 60% of its asset base. But while wise in the current climate of falling commodity values, massive project sales are likely to seriously constrain profits growth once supply/demand imbalances eventually improve.

A medical marvel

Medicines giant Hikma Pharmaceuticals (LSE: HIK) had cause for further cheer last week as its share price continued to ignite. To say that the healthcare play has been volatile in recent months would be something of a colossal understatement, and I believe further turbulence can be expected in the weeks ahead as market sentiment shakes.

But in the long term I believe Hikma will prove a lucrative stock selection as earnings appear on course to surge.

All has not been rosy in the garden in recent times as weak demand for its Generics products forced the business to cut its full-year profit expectations for last year. Still, investors should be hugely confident in Hikma’s accelerating progress across the Middle East and North Africa, regions where healthcare spend continues to head higher.

And acquisitions like that of US-based Roxane Laboratories for $2.65bn last year are also bolstering the firm’s already-hot product pipeline, not to mention turbocharging its exposure to other white-hot geographies and product areas. I fully expect sales to explode at Hikma in the years ahead.

Gold bounce set to last?

I’m not so bullish over the long-term prospects of gold producer Acacia Mining (LSE: ACA) however, thanks to the fragile outlook for metal prices in 2016 and potentially beyond.

Investor appetite for the so-called ‘hard currency’ has exploded in recent sessions, a combination of dollar erosion and bubbly safe-haven buying pushing metal values markedly higher. Indeed, gold was dealing just shy of $1,180 per ounce just this morning, its most expensive since October.

Still, steady dollar appreciation put paid to commodity prices in 2015, and I expect these pressures to materialise again in the coming months as currency devaluation across the globe propels the greenback. And further Fed rate hikes can’t be ruled out either, despite poor economic data more recently casting some doubts over the scale of monetary tightening this year.

When you also factor-in a backdrop of low global inflation, not to mention still-weak physical gold demand in Asia, I believe the revenues outlook at Acacia — despite the potential impact of steady production increases — remains on shaky footing.

The post Can Last Week’s Winners Anglo American plc, Acacia Mining PLC & Hikma Pharmaceuticals PLC Keep Charging? appeared first on The Motley Fool UK.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.