It’s been a volatile start to 2022 for global stock markets as geopolitical uncertainty and monetary tightening begin to bite. However, I’ve identified two FTSE 100 stocks that have bucked this trend.

With strong fundamentals and solid earnings forecasts, I believe these UK shares have the potential for substantial gains over the next five years and beyond. Here’s why.

FTSE 100 share #1 – Shell

Shell (LSE: SHEL) stock has enjoyed explosive gains of over 26% this year after superb financial results for 2021. Adjusted earnings beat expectations, rocketing to $19.29bn from $4.85bn the previous year.

Buoyed by sky-high oil prices, the FTSE 100 energy giant will undertake an $8.5bn share buyback programme by the end of Q2. Shell also intends to hike its dividend by 4% to $0.25 per share.

Yet despite its strong recent performance, the Shell share price is marginally down over five years. In addition, the plummeting values of its Russian assets have recently cost the company nearly $5bn since it ceased operations in the country.

Nonetheless, I remain bullish. Shell has sufficient geographic diversification to withstand Russian sanctions in my view. For instance, there’s its substantial on-stream oil and gas projects near Nigeria and Mexico.

Shell stock could also benefit from an agreement with Deutsche Telekom to supply renewable energy for 10,000 electric vehicle charging points in Germany. I regard this as a positive development for the fossil fuel business.

While there are signs of a greener future for the company, I still see oil as the real driver of growth for Shell’s share price. During a booming commodities cycle, the next five years should be significantly better for this FTSE 100 stock in my opinion. I’d buy.

FTSE 100 share #2 – London Stock Exchange Group

Financial infrastructure and data analytics form the core of London Stock Exchange Group (LSE: LSEG)’s business. The LSE share price is up 16% over three months and an impressive 73% over three years. This FTSE 100 company generates 44% of its earnings in EMEA, 42% in the Americas and 14% in Asia.

LSE services 40,000 customers in 190 countries. Last year, the company enjoyed revenue growth in all three of its primary divisions — data & analytics, capital markets and post trade. Adjusted earnings per share almost doubled to 287p.

It also delivered statutory total income of £6.4bn for 2021 and a 27% increase in the total dividend per share to 95p. This year, the company has ambitious plans to expand its Workspace technology to foreign exchange users at scale, reinforcing its end-to-end FX offering. Overall, the FTSE 100 stock looks well positioned for long-term growth.

However, cautious investors will note recent news concerning heavy selling of LSE shares. Institutional investors sold a total of £450m last month, according to Bloomberg, suggesting the stock could be overvalued. As Brexit tensions persist, further headwinds are posed by EU plans to move its clearing operations away from the London Stock Exchange to the eurozone by 2024.

Nevertheless, I’m optimistic about this British financial company. While not without risks, it’s a highly cash-generative business with truly global diversification. For me, LSE stock is a good investment to buy and hold for years to come.

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Charlie Carman 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.

Including dividends, BT’s performance is a little better, but it still lags the FTSE 100. Including dividends over the past 12 months, the main index has returned 9.4% for investors and BT has added 5.1%.

I don’t think the company’s performance is going to improve anytime soon. So I believe investors might do better by selling the BT share price and reinvest their funds in the London Stock Exchange (LSE: LSE).

Growth champion 

Compared to BT, over the past five years, shares in the LSE have charged ahead and not looked back. Since the beginning of April 2014, the stock is up a staggering 189%, excluding dividends, compared to a gain of just 12.6% for the FTSE 100.

Over the same time frame, shares in BT have returned -37%. Including dividends, LSE shares have outperformed those of BT by 27% per annum since 2014.

And it looks to me as if this trend is set to continue as, while BT is struggling to grow in an increasingly competitive market, the LSE continues to innovate and expand its market share of the global financial services industry.

Underinvesting 

I think it’s fair to say BT has made numerous mistakes over the past decade. The company has underinvested in its network and spent tens of billions of pounds trying to enter the Pay-TV market and acquiring mobile operator EE. 

I think BT’s money would have been better spent reducing debt and investing in its existing operations, rather than trying to chase growth in markets where it had little experience. 

And now, because the group has been skimping on investments for years, smaller peers are now nipping at its heels. Businesses are springing up all over the UK intending to take market share from the telecoms giant, particularly in the broadband market. BT’s lack of investment has left many customers struggling with decades-old copper cables, which are struggling to handle rising volumes of data. 

BT is having to fight back. But with pension obligations and debts totalling around £20bn, the company is struggling to compete.

A global leader

On the other hand, the LSE hasn’t tried to dominate any markets where it lacks experience and has instead focused all of its efforts on expanding its capital markets businesses. 

These efforts mean that while BT has struggled to grow (the company’s earnings per share where they were in 2013) the LSE’s net profit has increased 160% over the past six years and earnings per share are up 200%. And while analysts are not expecting much from BT in the way of growth over the next two years, the City is forecasting a jump of 30% in the LSE’s earnings by 2020.

Overall, considering the company’s bright outlook and a track record of growth, I believe the LSE is a much better buy than struggling BT.

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Rupert Hargreaves owns no share 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.

Even though the FTSE 100 is full of blue-chip stocks that could help you grow your wealth, I’ve chosen these two in particular because of their international diversification, growth track record and commitment to returning cash to investors. 

Vital business 

The London Stock Exchange (LSE: LSE) is one of the most critical financial companies, not just in the UK, but also in Europe. The group is best known for operating the UK’s leading stock market, but is also the majority owner of LCH Clearnet, which provides clearing services for traders across Europe. Last year, the company cleared more than $1.1trn of complex derivative trades, that makes it the biggest clearing house in Europe. 

As the global economy has grown, so has the trading volume on the company’s owned and operated exchanges and platforms. Earnings have surged as a result. Net profit has more than doubled over the past six years, and earnings per share have jumped from 66p in 2012 to 173p for 2017. Analysts are expecting further growth in 2019. The City has pencilled in an earnings figure of 195p for 2019. 

This projection puts the stock on a forward P/E of 24, which is slightly more than I’d usually want to pay for any stock. However, considering the group’s dominance of Europe’s financial markets, I think this is a price worth paying for a business that will likely remain one of Europe’s leading financial institutions for many decades to come. 

Global leader

Large blue-chip companies that dominate markets are, in my mind, the best stocks to buy for a starter portfolio. That’s why I’m recommending InterContinental Hotels Group (LSE: IHG) as my second stock to buy with £5k. 

As my colleague Roland Head recently pointed out, one of the most attractive qualities of this leading hotel group is its profitability. After selling and leasing back a large percentage of its hotel portfolio, the company’s return on capital employed —  a measure of profit for capital invested in the business — is just under 40%. That makes it one of the most profitable companies (on this metric) in London today. 

Most of the excess profit the group generates is returned to investors. This shareholder-friendly business model is really attractive in my view, and that’s why I think the stock would suit any portfolio. 

Shares in the hotelier currently support a regular dividend yield of 2% although, historically, management has always topped up the regular payout with special dividends.  Including these capital returns, the stock has produced a total return of 25% per annum over the past decade. I think it’s unlikely IHG will repeat this performance over the next decade, but I’m confident investors will be well rewarded for investing today. 

Shares in the company are dealing at a forward P/E of 18, which looks a bit pricy at first glance, but it’s in line with the group’s five-year average.

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended 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.

For example, LSE is the majority owner of clearing house LCH Clearnet, which provides the tedious but essential service of settling trades (among other things).

Clearing houses are a vital part of the financial system because they act as a trusted intermediary between traders around the world. Demand for this business is only growing. Last year, despite Brexit uncertainty, LCH Clearnet processed $1.1trn of complex derivative trades making the LSE’s clearing division by far the most significant player in Europe. And it’s a vital part of the European financial system.

Clearing isn’t only part of LSE’s sprawling business model. The group also provides technology and services for other exchanges such as the Norwegian Stock Exchange, which has used LSE’s tech to manage trading since 2009.

Market leader 

LSE’s leading market position indicates to me that this company isn’t going anywhere anytime soon. This leads me to conclude that the business will still be producing returns for investors 50 years from now, making it the perfect buy-and-forget income play.

Right now, the stock supports a dividend yield of 1.6%. Although that might not seem like much, the distribution has risen 100% over the past six years, and analysts are predicting double-digit payout growth per annum for the foreseeable future.

Essential  business

If you’re looking for a higher level of income, however, Dignity (LSE: DTY) could be a better buy. 

This company has run into some problems over the past 12 months and is now being forced to restructure its business model. As a result of these changes, City analysts are expecting earnings per share to fall by around 50% over the next two years. Still, as the UK’s largest funeral provider, Dignity has plenty of flexibility to adapt to the new environment. 

Unlike so many other businesses, which have to encourage customers to buy their product or service, death isn’t something we can avoid, which means Dignity will always have a steady stream of customers, no matter what happens.

With this almost guaranteed revenue stream, the company can take the time to re-focus the business and rebuild its reputation. As the process continues, it might be worth tagging along for the ride. Indeed, at current levels, the shares are hardly expensive, trading at a forward P/E of 9.3 and offering a prospective dividend yield of 3.4%. As the distribution is covered around three times by earnings per share, even after factoring in a 50% decline in profits over the next two years, it looks as if the dividend is secure for the time being. 

Although Dignity’s outlook isn’t as bright as that of the LSE, if you’re looking for a long-term income, I certainly think it is worth considering this company for your portfolio.

The post Have £5k to invest? This FTSE 100 leader could pay you for the next 50 years appeared first on The Motley Fool UK.

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Rupert Hargreaves owns no share 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.

My colleague Harvey Jones took some time at the weekend to explain why splashing the cash on the FTSE 100 rather than directly investing in property is a better choice for those hoping to generate spectacular returns in the coming years.

I couldn’t agree more. There’s a galaxy of opportunity for stock investors to get rich right now, whether through buying into a tracker fund or snapping up shares in individual companies. Here I am looking at two great blue-chips that are particularly attractive for dividend chasers, London Stock Exchange Group (LSE: LSE) and St James’s Place (LSE: STJ).

Dividend growers

There are plenty of stocks on the Footsie with larger yields than those from London Stock Exchange, its figures sitting at 1.4% and 1.6% for 2018 and 2019 respectively.

But the rate at which it has lifted dividends in recent years (up 90% in the past five fiscal periods) and predicted to continue doing so makes it a hot income share to buy today. Last year’s 51.6p per share payment is anticipated to shoot to 59.3p per share in 2018, and to rise again next year to 69p.

These forecasts are propped up by expectations that earnings will boom 15% this year and a further 17% in 2019. Latest trading details from London Stock Exchange make these projections appear more than feasible too, the business reporting last week that strength across all of its divisions pushed total income 8% higher between July and September to £522m.

And I am tipping revenues to continue booming, thanks to the inevitable growth in trading activity across the world’s share markets. A forward P/E ratio of 25.1 times may be expensive on paper, but I reckon London Stock Exchange is worth it.  

Show-stopping yields

I’d also happily buy St James’s Place (LSE: STJ), despite its similarly-elevated earnings multiple, in this case a prospective P/E ratio of 22.3 times.

The wealth manager is predicted to endure some earnings turbulence in the near term, an 18% profits dip predicted for 2018. But it’s anticipated to come roaring back with a 19% bottom-line jump next year. This projected revival comes as no surprise as net inflows continue to surge, St James’s Place reporting last week that record assets under administration reached £100.6m in September, a fresh all-time high.

Thus the Footsie firm is expected to have the confidence to keep raising dividends at a rate of knots, and rewards of 49.5p and 57.8p per share are estimated for 2018 and 2019 respectively by City boffins. As a consequence, yields stand at a stunning 5.5% and 5.8% for these years, figures which make it one of the hottest big cap dividend shares out there right now.

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Royston Wild 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.

Its growth has been unstoppable. Investors have been well rewarded and more than happy to pay a premium for shares in the business. 

However, at the end of September, its expansion hit a stumbling block. In a trading update management told the market just £1.3bn of net new business had arrived in the three months to the end of September, a 13% decline year-on-year. The update also warned that market uncertainty and “weak” investor sentiment has caused an industry-wide slowdown, which seems to suggest that the company could issue further bleak updates in the months ahead.

With growth slowing, investors have been quick to turn their backs on the company. The stock has slumped nearly 20% in the three weeks since the news broke.

Such a decline is bound to attract bargain hunters, but I’m not convinced that the stock offers value today.

Not cheap enough 

The biggest the sticking point for me is Hargreaves Lansdown’s current valuation. Even after losing nearly a fifth of its value, the stock is still changing hands for 32 times estimated 2019 earnings. This premium valuation leaves little room for further disappointment. With investors placing such a high premium on growth, it is no surprise that the stock has reacted so negatively to slowing inflows.

In comparison, the London Stock Exchange (LSE: LSE), which operates the plumbing for some of Europe’s most important financial markets, is valued at a more modest 21.5 times forward earnings. I reckon this is a much more acceptable valuation and one that’s less likely to result in a sudden loss of value if the company fails to live up to expectations.

A better buy 

The key difference between the LSE and Hargreaves Landsdown is that the latter has to rely on its own brand value to attract customers. Meanwhile, the former does not necessarily have to impress its customers. Financial markets will always be a critical part of the global economy. As the LSE operates some of the biggest markets in Europe, it should have no problem generating a steady revenue for many years to come. 

And unlike Hargreaves Landsdown, which generally reports a slowdown when markets are volatile as investors take to the sidelines, volatility is excellent news for the LSE as it means more trading. More trading means more commissions for the firm.

With this being the case, I’m much more excited about the long-term prospects for the LSE than Hargreaves Lansdown as it is positioned to succeed in all market environments. The LSE also has a better record of dividend growth. Over the past five years, the group has increased its distribution to investors at a compound annual rate of approximately 15%, compared to 9% for Hargreaves Lansdown. 

Even though the LSE’s yield is currently only 1.6% compared to its peer’s yield of 2.6%, the higher rate of growth indicates to me that this is a better long term income play.

So overall, if you were thinking about buying Hargreaves Lansdown after recent declines, I’d take a look at the LSE first. 

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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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.

So instead of companies at the sharp end of an industry, you invest in those providing intermediate goods and services.

But what if you think the whole market is overvalued, where do you turn then? I can’t help seeing the London Stock Exchange Group (LSE: LSE) itself as perhaps the best picks-and-shovels stock there is. Whether investors are piling into the next big thing, or rushing to sell due to the latest panic, the LSE gets its cut every time.

And it’s more than that, also being big in European capital markets, international benchmarking services and clearing, and financial information services. That’s been partly achieved by acquisition, as shown by Friday’s news that the company has bought up more of LCH Group Holdings, a clearing house that serves major international exchanges and covers a wide range of financial assets.

LSE looks pretty Brexit-proof to me too, with its network of subsidiaries throughout Europe.

Long-term growth

The company’s Q3 update looks pretty good, showing an 8% rise in total income to £522m in the quarter, with total income for the nine months up 10%.

I think we’re looking at something pretty rare in the FTSE 100 — a company with sustainable growth characteristics. We can see that through years of strong, often double-digit, EPS growth, and through forecasts of further growth of around 15% per year for this year and next.

The share price has followed suit, growing 175% over the past five years. A result of that is a higher P/E valuation of above 20 — but quality costs more, and I don’t see many safer long-term stocks than the LSE.

Generic products

The picks-and-shovels approach is one that I think applies well to technological sectors too, like the pharmaceuticals business. Our big two, AstraZeneca and GlaxoSmithKline, have been through a tough patch due to the expiry of key patents and increasing competition from makers of generic drugs, while there were few replacements coming through the drug development pipeline.

So why not go for the actual generic manufacturers instead, like Hikma Pharmaceuticals (LSE: HIK)? It makes generic products, as well branded ones and injectable pharmaceuticals — to stretch the analogy a little, perhaps it’s akin to makers of gold jewellery?

Its own troubles

Hikma has faced its own crisis which led to three years of declining earnings and to a big share price slump in 2017 that wiped out its previous few years of gains.

But the firm is on the mend with forecasts for a return to EPS growth for this year and next. And after a very strong recovery in 2018 so far, the shares are still up 55% over the past five years, despite the crisis period.

The first half saw a 17% rise in core EBITDA leading to a 35% gain for core EPS, so forecasts might even be a little conservative. P/E multiples might look a fraction high at around 18, but that could soon drop if Hikma really is back to sustainable EPS growth.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. The Motley Fool UK has recommended AstraZeneca 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.

Indeed, over the past 24 months, shares in the company have slumped, primarily due to growth concerns. Since the beginning of September 2017, excluding dividends, the stock has underperformed the FTSE 100 by approximately 40%.

However, green shoots of growth are now starting to show. On the day after the company named Mark Read, previously co-chief operating officer, as CEO, WPP announced today like-for-like sales growth of 2.4% in the second quarter. These numbers exclude currency fluctuations and revenues from acquisitions. On a headline basis, revenues declined 0.2%, a dip the firm blames on a rise in the value of the pound during the period.

Back on track?

In many respects, it’s a testament to the company’s size and diversification that it managed to eek out growth during the quarter. 

The group lost its founder and CEO Martin Sorrell abruptly at the end of April and, ever since, the business has been dogged by rumours surrounding his departure. It has also taken several months to find and appoint a new leader.

With an incomplete c-suite, I wouldn’t have been surprised if the company had reported a decline in like-for-like sales growth for the rest of 2018, especially with all the other headwinds facing a business, such as Facebook and Google’s increasing dominance of the advertising marketplace. That said, while the topline numbers are expanding on a like-for-like basis, earnings before interest, tax, depreciation and amortisation (EBITDA) dropped 6.7% including currency, and 1.9% excluding. 

Now that the new CEO is in place, I reckon this trend will reverse. A strategy review is already underway across the business, with the goal of hunting out and improving underperforming operations.

With WPP’s turnaround strategy continuing, I believe now could be the time to snap up the stock before the market catches on. The shares currently change hands for 10.5 times forward earnings and yield 4.8% a valuation that, in my view, severely undervalued the business and its prospects.

Global leader 

If you’re not sure about WPP’s outlook, another FTSE 100 growth stock that gets me excited is the London Stock Exchange (LSE: LSE).

The first thing you notice about this investment is its rich valuation. Shares in the exchange are valued at 24.3 times forward earnings. Usually, I wouldn’t buy or recommend such a richly-valued stock, as such a valuation leaves little room for error if growth stumbles. In this situation, however, I’m happy to make an exception because of the role that the Exchange plays in the global financial infrastructure. 

In its own words, the company offers “unrivalled” access to Europe’s capital markets as well as international benchmarking services and clearing. Growth in these markets, as well as select acquisitions, has helped the group grow net profit by 180% over the past five years.

And as long as management continues on the current path, I see no reason why the company cannot continue to grow. Brexit might prove to be a headwind, but the firm already has subsidiaries throughout Europe, so it’s well placed to navigate around any new red tape or trade barriers.

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Rupert Hargreaves owns no share mentioned. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Alphabet (A shares) and Facebook. 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.

The London Stock Exchange Group was created in October 2007 when the LSE merged with the Milan Stock Exchange, Borsa Italiana. The LSE itself can trace its roots back more than three centuries, but today it is much more than just the operator of London’s leading market. 

As well as the LSE and Borsa Italiana, the group also owns Europe’s leading fixed income market, a Pan European equity trading platform called Turquoise, stakes in some of Europe’s largest clearing houses and FTSE Russell, the index provider. In other words, the company is one of Europe’s largest financial services businesses operating key trading infrastructure across the continent. 

Explosive growth 

LSE’s success in managing these key critical businesses (as well as the successful purchase and integration of other businesses to expand its influence) has helped the company double earnings per share over the past five years. Today, the group reported adjusted earnings per share for 2017 of 149p, up 19% year-on-year thanks to total revenue growth of 17% to £1.8bn. Total income for the period grew 18%. 

A tight grip on costs ensured that all of this revenue growth went to the bottom line with adjusted operating expenses only rising 6%. All of the company’s businesses reported double-digit growth during the year.

This performance has given management confidence to hike the full-year dividend payout by 19% to 51.6p “reflecting the strong outlook for the group.” At the time of writing, this distribution equals a dividend yield of 1.3%, which hardly makes the LSE the best income stock around, but the firm’s double-digit earnings growth more than makes up for the lack of income. 

Indeed, LSE has never really been much of an income stock, but this hasn’t stopped the company achieving tremendous returns for investors over the past 10 years. The shares have produced an annualised total return of 13% over the past decade, compared to a return of just 6% for the FTSE 100, and I believe that this strong performance is set to continue. 

Bright outlook 

LSE is currently investing heavily to reduce its dependence on traditional equity markets and develop new products and services, which should help make income more predictable rather than being subject to the whims of market movements. 

City analysts expected this investment to help the company produce double-digit (18%) earnings growth for 2018, and management is hinting at the prospect of further cash returns for investors as the business grows. Last year management returned £200m via a share buyback in addition to the dividend. 

Unfortunately, LSE’s leading position in the financial services industry, and its robust growth outlook, mean that the market has placed a high price on the shares. The stock is currently trading at a forward P/E of 22.8 based on City forecasts for 2018. Nevertheless, while this valuation may look high in comparison to some companies, I believe it’s a premium worth paying considering the LSE’s market dominance and history of growth. 

‘Britain’s Warren Buffett’ Nick Train also believes the company can keep up its current rate of expansion as the LSE is currently one of the top holdings in his Lindsell Train UK Equity fund.

The post Why I’d buy London Stock Exchange Group plc shares for the next decade appeared first on The Motley Fool UK.

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Rupert Hargreaves owns no share 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.

Third quarter revenues increased by 18% on the same period last year, from £376m to £443m, as strong growth in information and post-trade services helped to sustain its double-digit advance in year-on-year revenues. These figures show how resilient trading has been for the group in the wake of its aborted merger with Deutsche Boerse and ongoing Brexit uncertainty.

CEO steps down

Still, shares in the group fell by as much 2% today, as its recent robust financial performance was overshadowed by news that Xavier Rolet would be stepping down as chief executive of the group by the end of December next year.

Rolet joined the group from Lehman Brothers in 2009 and under his tenure, the LSE has transformed itself from a company which was overly reliant on its sluggish traditional equities business into a fast-growing diversified financial markets infrastructure business. He has achieved this by embarking on a series of ambitious acquisitions, pushing the group deep into post-trade services such as clearing, custody and settlement — a booming area benefitting from new derivative rules which have been driving activity towards centralised venues.

Future growth

Looking ahead, I expect his successor will stick to its current strategy of reducing its dependence on traditional equity markets and continue to develop new products and services. I reckon this should help to deliver future growth momentum to the company and increased cash returns to shareholders. City analysts are optimistic too, with forecasts of earnings-per-share growth of 22% and 13% in 2017 and 2018, respectively.

Overall, the LSE has many attractive qualities and it seems as if the company’s growth story is far from over.

Too expensive

Meanwhile, I’m less sanguine about Bristol-based investment management firm Hargreaves Lansdown (LSE: HL). At 31 times forward earnings this year, shares in the company seem too highly rated.

Although Hargreaves is seeing strong growth in assets under administration, the company also faces a number of challenges. Firstly, it’s important to note that the firm has benefitted from a number of one-off factors which should not recur, but helped to compensate for a weak macroeconomic environment, such as the introduction of the Lifetime ISA and the increased ISA allowance.

Second, market conditions are getting more competitive as new entrants threaten to challenge incumbent firms with drastically lower fees. For example, US fund manager Vanguard, which has historically shied away from dealing directly with retail investors, recently launched its own platform to give investors direct access to Vanguard’s range of funds at a much lower annual administration fee of just 0.15%.

And lastly, the stock’s income prospects fail to impress, after a review into its requirements by the Financial Conduct Authority found it had insufficient regulatory capital surplus. As such, Hargreaves did not pay a special dividend this year, which meant total dividends in 2017 fell 15% on the previous year, to 29p a share, giving its shares a lacklustre 1.9% yield.

The post One FTSE 100 growth stock I’d buy and one I’d avoid appeared first on The Motley Fool UK.

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Jack Tang has no position in any shares mentioned. The Motley Fool UK has recommended Hargreaves Lansdown. 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.