How I’d invest £1,000 in the FTSE 100 to build long-term wealth
There are three FTSE 100 stocks I’d buy to build wealth over time. The first is Experian (LSE:EXPN), the second is Halma (LSE:HLMA), and the third is Rightmove (LSE:RMV).
Building wealth in the stock market comes down to buying shares that are going to be worth more in the future than they are today. And that involves the underlying business making more money.
There are three main ways a business can do this. One is by increasing its revenues, another is by improving its margins, and the third is by reducing its share count.
With a spare £1,000, I’d invest £300 into Experian, £300 into Halma, and £400 into Rightmove. I expect all three to be worth more 10 years from now than they are today.
Experian has grown its earnings per share (EPS) by 12% per year on average over the last decade. Even if that slows to 10%, I think the company will be worth more in 2033 than its price today.
If this happens, the company’s EPS will be £2.49 in 2033. And at today’s prices, that would imply a price-to-earnings (P/E) ratio of 10.
I don’t think Experian’s shares are likely to trade at that P/E ratio, so I’m expecting the stock to be higher 10 years from now. The only question for me is how much.
A falling property market is a headwind for the business (that’s probably why the stock is down). But I think this is a short-term risk for a company that has the potential to do well over the next decade.
Halma’s growth has been the result of higher revenues. Since 2013, the company’s top line has grown by 146%.
The company is aiming for 10% revenue growth going forward. That would bring revenues to £4bn, implying a price-to-sales (P/S) multiple of around two at today’s levels.
Unless the stock is going to trade at two times sales (which I think is unlikely), 10% revenue growth over the next few years will mean the stock trades higher. This seems highly probable to me.
A recent UBS note suggested that there’s a risk Halma might struggle to make its growth targets. But even UBS’s target price for the stock is 15% higher than its current level.
If I could only buy one FTSE 100 stock today to hold for 10 years, I’d choose Rightmove. At today’s prices, I think it’s great value.
Growth at Rightmove have been boosted by a share buyback programme. Conseuently, 9% annual revenue growth has resulted in 12.5% EPS growth.
The company’s low capital requirements mean I expect the growth story to continue. So even if revenue growth slows, I think the stock will be worth a lot more 10 years from now.
With plenty of UK estate agencies creating their own online platforms, the stock isn’t risk-free. But I think its size and scale should allow the company to grow significantly into the future.
The post How I’d invest £1,000 in the FTSE 100 to build long-term wealth appeared first on The Motley Fool UK.
Stephen Wright has positions in Rightmove Plc. The Motley Fool UK has recommended Experian Plc, Halma Plc, and Rightmove Plc. 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.
Motley Fool UK 2023