3 FTSE 100 Shares For 3 Years

Published in Investing on 13 June 2012

These big-cap shares could double over the next three years.

Growth investment legend Jim Slater famously said that "elephants don't gallop and fleas can jump 200 times their own height", when explaining his preference for investing in smaller companies.

He's right about the fleas, of course, but when it comes to elephants, I disagree.

Galloping elephants

The last few years have seen no fewer than 19 elephants galloping up the FTSE 100 (UKX) and growing by more than 100%. Four of these giants have grown by more than 250%!

If you're trying to build a million-pound retirement portfolio, gains like this can make a big difference -- and identifying these big cap multibaggers is also a subject that's covered in this free Fool report, "Ten Steps To Making A Million In The Market", which I strongly recommend.

Let's take a look at FTSE 100 shares that have grown by more than 110% over the last three years:

CompanyThree-year growthMarket capCurrent yield
ARM Holdings (LSE: ARM)365%£6,935m0.69%
Croda International (LSE: CRDA)322%£3,162m2.43%
Aggreko (LSE: AGK)297%£5,977m0.93%
Burberry Group (LSE: BRBY)254%£6,010m1.82%
Weir Group (LSE: WEIR)173%£3,023m2.32%
IMI (LSE: IMI)157%£2,791m3.45%
Intertek Group (LSE: ITRK)154%£4,288m1.26%
Rolls-Royce Holdings (LSE: RR)150%£15,652m2.09%
Petrofac Ltd. (LSE: PFC)145%£5,219m2.45%
InterContinental Hotels Group (LSE: IHG)128%£4,400m3.64%
Meggit (LSE: MGGT)126%£2,940m2.79%
Shire (LSE: SHP)125%£10,558m0.52%
Fresnillo (LSE: FRES)120%£10,248m4.63%
BT Group (LSE: BT-A)118%£16,521m3.92%
Hargreaves Lansdown (LSE: HL)117%£2,250m2.72%
FTSE 100 average23%£15,100m3.8%

Unsurprisingly, our big growers are mostly below average in terms of market cap and yield -- this kind of growth implies heavy inward investment and high price-to-earnings (P/E) multiples, all of which depress the current dividend yield.

However, it's worth noting that anyone who got in on these shares three years ago is probably enjoying very attractive yields, thanks to the wonders of yield on cost appreciation.

Who's next?

Admittedly, some of these companies were in the FTSE 250 three years ago, but many weren't and are good companies that have recovered from a bad spell -- like BT and Rolls Royce.

The attraction of companies like these is their lower risk -- two out of three of my selections pay attractive dividends and all three of them offer a combination of size, brand and assets that should ensure their survival.

Aviva

The credentials of Aviva (LSE: AV) as a value investment have been well covered in these pages. Its current 9.8% yield makes no sense in the long term, and the business is due for a re-rating.

Lloyds Banking Group

Like Royal Bank of Scotland Group (LSE: RBS), Lloyds Banking Group (LSE: LLOY) is trading at approximately a 50% discount to its net asset value.

It appears to be on course to return to profit this year and, assuming we avoid a eurozone meltdown, I reckon that it won't take more than a few years of half-decent profits for Lloyds' market cap to get close to its book value -- which would double its share price.

BP

Although BP (LSE: BP) already has a mighty market capitalisation of £79bn, it has a P/E of just 4.8 -- effectively placing it at a 50% discount to Royal Dutch Shell (LSE: RDSB), which sits on a P/E of 7.2.

I suspect that BP will sort out its current Russian and American issues soon, and will also acquire some decent new producing assets over the next year or two. This could pave the way for a substantial growth in share price that would place it level with its British peer.

Over to you

These three companies have all fallen on hard times in one way or another and are essentially recovery plays. I believe they offer good potential growth, but there's no doubt that if you are prepared to take the risk of investing in smaller FTSE Small Cap and FTSE 250 companies, much greater growth levels are possible.

Finally, for some more share ideas from the Fool's own in-house team of analysts, I would recommend you check out this free report, "Top Sectors Of 2012". I found some interesting share tips in it, and I'm confident you will find it worth reading.

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Further investment opportunities:

> Roland owns shares in Aviva and Royal Dutch Shell but does not own any of the other shares mentioned in this article. The Motley Fool owns shares in Hargreaves Lansdown.

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Comments

The opinions expressed here are those of the individual writers and are not representative of The Motley Fool. If you spot any comments that are unsuitable hit the flag to alert our moderators.

UncleEbenezer 13 Jun 2012 , 7:55pm

Erm, right. Looks like a lot of those are in the FTSE precisely because they've risen a lot. ARM was a mid-cap when I bought it, for instance.

zoolook 14 Jun 2012 , 12:51pm

The top speed of an elephants is 25mph which is slightly quicker than Usain Bolt.

jongleur100 15 Jun 2012 , 4:26pm

AV. is at great risk from an Italian/Spanish default. The previous CEO said it can't happen. But then he presumably thought the same about his own subsequent resignation.

sopavest 15 Jun 2012 , 6:10pm

Hi UncleEbenezer,

That's true, as I point out in the article. But Shire, Rolls Royce and BT (for example) were certainly in the FTSE 100 three years ago, before their share prices doubled.

It can happen.

Jongleur100,

There's always a possibility that things will get worse for AV or that it will be broken up and sold -- its composite business model is unusual nowadays. But on the other hand, it is a fairly profitable £8bn company; not (yet) a basket case!

Cheers,

Roland (article author)

DennisDenuto 16 Jun 2012 , 8:02am

Roland

Thanks for an interesting article.

One comment though is that I think the composite model is only unusual in the UK. Most other insurance groups offer both life and general insurance eg Axa, Allianz etc.

I hold and am pretty convinced that something will happen to Aviva ie takeover, breakup (capital subsidising issues aside) or a decent management team appointed, say, Snowball from Sun Corp.

DD

Possak 18 Jun 2012 , 6:16pm

I think you've got your oil share calculations upside down: 4.8 v. 7.2 means RDSB is at a 50% premium to BP., or BP. is at a 33% discount to RDSB.

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