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Some FTSE 100 stocks regularly grab the headlines and yet struggle to create wealth for their investors. Others quietly comply. Today I am analyzing two of the latter that have greatly outperformed the index.
Higher value
Stock in clothing and home goods retailer Next (LSE:NXT) have been on the rise, rising 43% in the last 12 months and 26% in 2024 so far. This compares (very) favorably with the FTSE 100's gains of 8% and 7% respectively.
The company's most recent update gives me some insight into why things are going so well. In September, Next raised its profit forecast for the year to £995m after full-price sales in the first six weeks of the second half.materially surpassed“expectations.
So much for the cost of living crisis – this company is firing on all cylinders!
great seller
Interestingly, the stock is now changing hands with a price-to-earnings (P/E) ratio of 16. That's expensive when it comes to consumer cyclical stocks. Therefore, Next must continue to impress the market.
There is another thing that catches my attention. It was recently announced that leader Lord Wolfson had sold 290,000 shares, equivalent to more than £29 million.
It's worth noting the fact that the index's longest-serving CEO has decided to offload such a large chunk of shares now. I'd be tempted to do the same, if only because fashion retail is a notoriously difficult game. Next is also heavily reliant on the UK market, although it is now also looking abroad.
It will be interesting to read the third quarter trade report (due October 30) and watch the market's reaction to it.
Riding the bounce
A second blue chip company to top the FTSE 100 has been Intercontinental hotels (LSE: IHG). Its value has risen 40% in the last year and 19% in 2024.
Maybe this company isn't exactly a household name. But at least some of its 19 hotel brands, including Hotel Holiday Inn – will surely sound familiar to many based on the great recovery in demand after the pandemic.
In some parts of the world, trade remains excellent. In August, Intercontinental revealed 3.2% growth in second-quarter revenue per available room (RevPAR). Business in the United States has been particularly good.
Fully valued?
Like Next, this business scores highly in terms of operating margins and returns on the money it invests. But also, like Next, its valuation now looks pretty frothy.
AP/E of 25 isn't ridiculous, at least relative to the average American tech titan. But I have some concerns.
Despite those big gains, shares were quite volatile over the summer as a result of sluggish trading at rivals, particularly in Asia. In line with this, Intercontinental's RevPar in China fell 7% in the second quarter. There is also concern about whether the United States could enter a recession.
A trading update on October 22 could provide some clues about the direction of travel from here. I would say a lot depends on whether China's recently announced stimulus measures succeed in reversing the slowdown in economic growth. The Federal Reserve's desire to achieve a “soft landing” for the US economy could also dictate this company's near-term business prospects.
With this in mind, I'm not rushing to buy today. But it's possibly one you can buy on the dip.
