Should I Invest in These 5 FTSE 100 Shares?

LONDON -- To me, capital growth and dividend income are equally important. Together, they provide the total return from any share investment, and as you might expect, my aim is to invest in companies that can beat the total return delivered by the wider market.

To put that aim into perspective, the FTSE 100 has provided investors with a total return of about 3% per annum since January 2008.

Quality and value
If my investments are to outperform, I need to back companies that score well on several quality indicators and buy at prices that offer decent value.

So this series aims to identify appealing FTSE 100 investment opportunities, and during recent weeks I've looked at Vodafone Group (LSE: VOD  ) , GKN (LSE: GKN  ) , Weir Group (LSE: WEIR  ) , ITV (LSE: ITV  ) , and Kingfisher (LSE: KGF  ) . This is how they scored on my total-return-potential indicators (each category is scored out of a maximum of five):

Company

Dividend Cover

Borrowings

Growth

P/E

Outlook

Total (out of 25)

Vodafone

3

3

4

4

4

18

GKN

3

4

4

4

3

18

WEIR

5

3

4

3

3

18

ITV

5

5

5

2

4

21

Kingfisher

4

5

3

4

4

20

ITV wins on the scoring, but each share has its attractions.

Mobile communications
In a mixed recent trading update, Vodafone said that trading in Europe is still difficult despite growth in other markets. The firm has activities in more than 30 countries and provides a wide range of services including voice, messaging, data, and fixed broadband. More than 60% of Vodafone's customers are from emerging markets, and 15% of service revenue comes from data transmission, which has been growing at a 22% rate. Investors waiting for growth to add to total returns might be comforted by the roughly 6.5% dividend yield currently offered by Vodafone shares. That looks tempting.

Engineering manufacturers
Engineering company GKN's products, such as drive shafts and axle joints, are responsible for making most of the cars around the world move. The firm supplies vehicle manufactures around the world, and last year about 46% of revenue came from the company's driveline division, while 24% came from aerospace, 14% came from powder metallurgy, 14% came from land systems, and 2% came from other sources. Europe is the most important region producing around 47% of revenue, followed by the Americas at 37% and 16% from the rest of the world. Although growing in the long run, GKN's business responds to economic cycles, and recently the directors have mentioned softening demand in some areas. The company is on my watchlist.

Pump and flow-control equipment manufacturer Weir describes itself as a global engineering solutions provider focused on the minerals, oil and gas, and power markets. Business has been growing strongly around the world. Last year, the company derived 54% of revenue from the firm's minerals division, 33% from oil and gas, and 13% from power and industrial. The valuation looks full to me, so, given that the outlook appears to have weakened recently, I'm keeping Weir on my watchlist for the time being.

Commercial television and media
Three year ago, television network provider ITV took decisive action to stem declines in viewer numbers and advertising revenue by launching its five-year transformation program, which involves a focus on cost-cutting and targeting investment in its creative offering. The firm aims to deliver higher-quality programming to win back market share. In addition, the company has embraced the digital-media revolution and is working on ways to participate, thus reducing its traditional dependence on free-to-view content. As a result, viewer numbers, revenue, and profit have increased recently, and the firm is winning advertising market share in an otherwise flat advertising market. The firm is performing well, and the shares have had a good run. I've put ITV on my watchlist.

Home-improvement retailing
Home-improvement retailer Kingfisher is known for its B&Q and Screwfix brands in the U.K., and it's Europe's largest home-improvement player, operating more than 1,000 stores through eight countries in Europe and Asia. Given the enticing prospect of economic recovery in Europe and potential growth in Asia, I think that, given the current valuation, the shares are attractive. However, it's not going to be easy for Kingfisher to grow: The firm's nine-store Irish operation has recently been placed in examinership (similar to the process of administration in the U.K.) after a period of persistent losses, and attempts to penetrate the market in China have been unprofitable so far.

Action plan
I've yet to take the plunge with these shares, but I'm thinking of investing in some of them soon. If we want to achieve superior investment returns as investors, it makes sense that we should seek out superior investment opportunities. Indeed, step four in the Motley Fool's report "Ten Steps To Making A Million In The Market" asserts that "shares beat funds," and I think that's good advice, particularly if you are targeting superior total returns. In fact, I recommend the report for any ambitious investor. Click here to download it while it is still free, and you can find out the other nine steps recommended that could transform your wealth.


Read/Post Comments (0) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2245582, ~/Articles/ArticleHandler.aspx, 11/24/2014 3:39:32 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement